Under existing NSW law, employers must have a workers compensation policy to cover their workers. A ‘worker’ is any person who has entered into, or who works under, a contract of service or apprenticeship with an employer (whether by way of manual labour, clerical work or otherwise, and whether the contract is expressed or implied, and whether the contract is oral or in writing).
However, some people working as contractors are also treated as workers for workers compensation purposes, depending on the individual circumstances. This means that if there is a workplace injury the contractor may be entitled to receive workers compensation for a work-related injury. For this reason, their employer (or principal) must cover them for workers compensation and declare any payments made as wages. The law refers to these contractors as ‘deemed workers’. This law has been in place for many years.
From 1 July 2003, principal contractors should ensure that their subcontractors have taken out appropriate workers compensation coverage for their workers and have paid all workers compensation premiums associated with that work.
Principal contractors should check that their subcontractors:
- are classified in the correct industry
- have declared an appropriate amount of wages for their insurance cover
- have signed a statement that there are no outstanding liabilities and that all workers compensation premiums applicable for that work have been paid.
See 'further information' below for a proforma statement.
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Under workers compensation law, a principal contractor is anyone who enters into a contract with another person to carry out work.
This law only applies when a subcontractor is engaged to carry out work relating to the business of the principal. If a principal fails to undertake these checks they may be liable for the subcontractor’s unpaid workers compensation premiums. To protect themselves, the principal contractors must have:
- a copy of the subcontractor’s Certificate of Currency
- a written statement by the subcontractor that all workers compensation premiums applicable for that work have been paid.
A subcontractor statement is required when:
- the contract for work is between a principal contractor and a subcontractor
- the subcontractor has workers engaged to carry out work under the contract
- the work is an aspect of the business undertaking of the principal contractor.
These documents can be supplied electronically.
This law does not apply when the work is not an aspect of, or connected to, the business undertaking of the principal, including private householders who contract with someone to carry out work at their principal place of residence (including owner builders).
Until a correct statement is received, the principal contractor may withhold payment from the subcontractor, without penalty. However, the principal may still be liable for the unpaid insurance premiums if they believed that the subcontractor’s statement was false.
However, statements are not required if the subcontractor is a sole trader or partnership without workers (under workers compensation law they are not required to have workers compensation insurance). Sole traders and partnerships without workers can use WorkCover’s proforma subcontractor form to declare their status to their principal contractor.
Sole traders or partnerships with workers must take out a workers compensation insurance policy to cover their workers. The principal should check that the subcontractor has this insurance. Sole traders and partners of partnerships would not be covered by this insurance.
These laws are independent of policy period and apply to all work undertaken from 1 July 2003 – regardless of when the contract was made.