Can a sole trader or partnership take out workers compensation insurance for themselves?- Top
Section 155 of the Workers Compensation Act 1987 requires employers to take out a workers compensation insurance policy to cover their workers. When employers take out a workers compensation policy with a licensed insurer, this policy covers any of the employer's workers (whether permanent or casual) in the event of them suffering a work-related injury or illness.
If a sole trader establishes a Pty Ltd company, the company becomes the 'employer' and a policy must be taken out under the company name to cover the 'working director' who was formerly the sole trader, plus any other workers they may have.
WorkCover advises sole traders and partnerships to take out a personal accident and illness policy or an income protection policy, in case they are unable to work. This is not a WorkCover requirement.
How are workers compensation premiums calculated and how are they paid?- Top
The basic premium is a percentage of your payroll. Insurers assign all employers with an industry classification based on the description of their trade or business which employers provide on their insurance proposal. The insurer uses the official classification listing published by WorkCover in the Insurance Premiums Order.
At the beginning of each insurance period (known as the "term"), you must provide your insurer with an estimate of the wages that you'll pay in the next 12 months. Your insurer will calculate the premium on the basis of that estimate. If the base premium tariff is more than $3000 you can pay in three instalments at the end of the first, fourth and eighth months of the policy period. If your premium is less than $3000 you must pay the whole premium within one month of date of the issue of the assessment notice.
At the end of the insurance period, you must provide your insurer with a declaration of the actual wages you paid during the year. The insurer will calculate a "final" or "actual" premium based on the actual wages paid. If this is different to the estimated premium already paid, there will be an adjustment payment or refund. For more details, contact your insurer.
How do I distinguish between an employee and contractor?- Top
There are several factors which need to be considered to distinguish an employee from a contractor. These factors are subjective and no single factor can be regarded as decisive. All factors must be weighed up to determine the issue.
A contractor is more likely to:
- be engaged to carry out a particular task using his or her own skill and judgement;
- employ others, delegate or sub-let work to another;
- be paid on the basis of a quotation for the job;
- supply his or her own tools and materials;
- carry on an independent business in his or her own name or under a business or firm name;
- be affected by PAYG tax arrangements.
An employee is more likely to:
- be subject to direction from the employer as to the work to be performed and the time and manner in which it is performed;
- be required to actually carry out the work;
- be paid on a time basis;
- have tools and materials supplied by the employer;
- work exclusively for a single employer;
NOTE: However, a person may be a contractor but still be a worker for the purpose of workers compensation.
As well, note that the status of a person for tax purposes bears no direct relationship to that person's status as a worker for workers compensation purposes.
For help, try our FREE Worker Status Ruling Online Self Assessment Tool.
I am an employer based interstate with workers in NSW. Is a NSW workers compensation policy required?- Top
Yes.
Any worker who is injured at work or suffers a work-related illness while working in NSW is entitled to make a claim under the Workers Compensation Act 1987. An employer who has workers present in NSW who are injured, is potentially exposed to liability under the workers compensation legislation in NSW, even if that employer is based interstate.
Therefore, any employer who employs workers who carry out work in NSW has an obligation to insure those workers under the Workers Compensation Act 1987.
Note: WorkCover has a reciprocal agreement in place with WorkCover Victoria which simplifies the above requirements in respect of workers who work in both NSW and Victoria. Employers should consult their insurer about this agreement, if relevant.
If I engage ONLY Contractors, do I need a workers compensation policy?- Top
Any person or company which operates a trade or business and engages contractors should obtain and maintain a workers compensation policy. Even if the trade or business does not employ "employees" and the contractors engaged appear not to be "deemed" workers under the Workplace Injury Management and Workers Compensation Act, 1998, the trade or business still has a potential workers compensation liability. A contractor, or a contractor's worker, may be found by the court to be a worker, and the employer of the contractor would be liable to pay compensation.
A workers compensation policy operates to cover all workers and deemed workers whom the employer may engage. It is not necessary to arrange separate cover for contractors.
In the situation where a business does not engage workers or deemed workers, a minimum premium policy at a cost of $175 per annum is required. This is a small price for an assurance of coverage.
If there is an accident at my workplace, will my workers compensation premium be affected?- Top
As a Category B employer ie an employer whose basic annual tariff premium is $3000 or less, you are not affected by the cost of claims on your policy.
However, if the annual tariff premium exceeds $3000 in the next two years (ie you become a Category A employer), perhaps due to an increase in wages or increase in the rate, the cost of claims in the previous years may affect your premium.
As a Category A employer (ie an employer whose annual basic tariff premium exceeds $3000), the cost of claims will be used in the calculation of your premium. This is worked out using a formula, taking into account your wages and the cost of your claims.
Employers who have nil claims will receive a reduction of premium while employers who have high claims cost pay more. For a full explanation, you can go through your premium calculation sheets with your insurer.
This scheme encourages employers to have safe work practices and maintain a safe workplace so that injuries at work will
Is it imperative for a Pty Ltd company to take out workers compensation insurance?- Top
Yes.
The employer is the corporation (Pty Ltd) and as a working director you are considered an employee of the company. Employers must have an insurance policy from a licensed insurer covering all workers for workers compensation.
What is the cost of a minimum premium policy?- Top
The cost of a minimum premium policy commencing 2004/05 is $175.
What protection is there from increased premiums if I'm a small employer?- Top
If your base tariff premium is less than $3,000, the only increase in premium will be as a result of an increase in your base premium rate. This rate will increase if the costs of claims in your industry have risen. To reduce this base rate, the costs of claims must improve across your industry.
If your base tariff premium is greater than $3,000 and you have claims, the impact of those claims (as a result of the F factors) will depend on the extent to which your premium is experience-based. Generally, the bigger your business (in terms of wages paid to workers), the more your own experience counts relative to industry experience.
If your base tariff premium is between $3,000 and $112,000, any increase is limited to twice the level of your basic tariff premium.
When and how can I cancel my workers compensation insurance policy?- Top
Insurers now have consent from WorkCover to cancel policies in the following three cases:
- ceased trading
- if the employer has ceased trading, evidence of having ceased trading must be provided. The return of unclaimed mail is not acceptable proof of having ceased trading.
- liquidator/trustee in bankruptcy appointed.
- the policy cannot be cancelled when a liquidator or administrator is appointed and the employer continues trading.
- business is sold by employer.
Employers in any of the above situations should write to their insurer with the relevant documentation/information, requesting the cancellation of the policy.
WorkCover does not give consent to insurers to cancel a policy if the employer:
- can take out a new policy at a lower premium following the issue of an Insurance Premiums Order
- simply no longer has employees.
Will a workers compensation policy cover voluntary workers or work experience students?- Top
There is no requirement to cover voluntary workers or work experience students for workers compensation insurance as they are not 'workers' under the Workers Compensation Act 1987.
An employer's obligation to volunteer workers or work experience students is to exercise the duty of care under section 8 of the Occupational Health and Safety Act 2000.
Volunteer workers and work experience students are advised to seek independent advice in relation to whether they should take out a separate insurance policy (eg. a personal accident and illness policy), however, this is not a WorkCover requirement.