Increasing numbers of Australians are starting their own businesses. Xero’s Boss Insights report reveals that of 2.4 million small businesses in Australia, a huge 1.5 million were sole traders.
As a sole trader, you are your own boss, which provides independence and flexibility in how you operate your business. However, sole traders are fully liable for their business, meaning they are personally responsible for any debts or legal issues. This can create confusing legal questions, particularly for those who have never been self-employed, making it difficult to navigate the legal rights and responsibilities of sole traders.
Navigating these questions with experienced compensation lawyers, like the Burke Mead Lawyers team, can provide you with advice and vital information regarding workers’ compensation policy and laws affecting sole traders. Sole traders should also consider consulting an insurance broker to tailor an insurance plan that suits their work and lifestyle.
What is What is WorkCover?
WorkCover, now known as workers’ compensation, is a form of insurance that provides payments to employees for workplace injuries or illnesses.
Employers must carry workers’ compensation insurance to cover employees for lost wages resulting from work-related injuries or health conditions. If an employee experiences a loss of wages due to a work-related injury or illness, workers’ compensation can cover their wages while they’re unable to work, as well as medical expenses and rehabilitation.
All businesses in Australia are legally required to have workers’ compensation insurance for:
- Full-time employees
- Part-time employees
- Casual workers
- Contractors and sub-contractors (under certain circumstances)
In some cases, contractors or sub-contractors may be classified as a ‘deemed worker’ based on specific criteria, which affects their eligibility to claim workers’ compensation.
Can Contractors and Sub-Contractors Claim Workers Compensation?
A contractor is any individual or company that works directly with a client to fulfil a job or service, or to provide materials. An independent contractor may also be a sole trader if they work as an individual.
A subcontractor refers to a person or company that has entered into a contract with a “principal contractor” to carry out work. In other words, subcontractors are hired by a contractor rather than working directly with a client.
Contractors and subcontractors are technically considered employees when they are hired to work on behalf of a business. This generally means that a worker’s compensation policy, including coverage for contractors, must be provided by the principal employer. In most cases, contractors and subcontractors can claim workers’ compensation for lost wages and medical expenses arising from work-related injury or illness.
Contractors and subcontractors may be considered employees for workers’ compensation purposes depending on the nature of their work and the level of control exerted by the sole trader.
The contracting agreement should outline any additional insurance obligations for the client or the contractor. For example, many clients require their contractors to be covered by a public liability insurance policy.
Are Sole Traders Covered by WorkCover/Workers Compensation?
Because workers’ compensation covers employees injured or ill due to work, sole traders are not entitled to its benefits, as they are not considered employees but rather self-employed. However, alternative avenues exist for sole traders to secure protection and compensation should they suffer a loss of income due to a work-related sickness or injury.
For example, you can invest in income protection insurance that can cover you for loss of income in case of ill health or injury. Income protection insurance also covers employers for injuries incurred outside of work. Sole traders may also consider taking out other protections, such as life insurance, trauma insurance or total and permanent disability insurance.
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Do Sole Traders Need Workers Compensation Insurance for their Employees?
Whilst workers’ compensation rules differ by state, in NSW all employers (including sole traders) must invest in workers’ compensation to cover any potential injuries, medical expenses, or loss of wages for employees arising from work-related sickness or injury.
In New South Wales, sole traders are required to provide workers’ compensation coverage for any employees, including contractors, who earn more than $7,500 in a financial year. Sole traders in NSW must provide workers’ compensation coverage to all employees, including contractors, regardless of the industry or occupation.
Do Sole Traders Need Public Liability Insurance?
Public liability insurance covers situations where an accident occurs due to your business’s activities. It also ensures an appropriate level of cover for any potential legal fees and payouts if claims are made against the sole trader.
Whilst there is no mandatory requirement for public liability insurance, it is often essential for sole traders to ensure they can cover any compensation they may have to pay to others arising from business activities.
Is Workers Compensation Mandatory for Sole Traders in NSW?
In NSW, it is compulsory that sole traders provide workers’ compensation cover to workers. This includes contractors who have entered into a service or training contract and are paid more than $7,500 in wages annually. This also includes apprentices and trainees employed by a sole trader.
Alternatives to Workers Compensation
For sole traders and independent contractors, traditional workers’ compensation insurance is often not available, as you are not considered an employee under most state laws. However, several alternative insurance options can help protect you and your business if you experience a work-related injury or illness.
Income Protection Insurance is a popular choice for self-employed individuals. This type of insurance provides a regular income stream if you are unable to work due to injury or illness, helping to replace lost wages and maintain your financial stability during recovery. It can be especially valuable for sole traders who rely on their ability to work to generate income.
Permanent Disability Insurance offers a lump sum payment if you suffer a permanent disability that prevents you from returning to work. This financial support can help cover medical expenses, rehabilitation costs, and ongoing living expenses, providing peace of mind in the event of a serious injury or illness.
Trauma Insurance is designed to provide a lump sum payment if you experience a major health event, such as a heart attack, stroke, or cancer diagnosis. This can help cover immediate medical costs and lost income while you focus on recovery.
Public Liability Insurance is essential for anyone running their own business, including sole traders and independent contractors. This insurance protects you if your business activities cause injury or property damage to a third party, covering legal fees and compensation payouts that may arise from such claims.
Personal Accident and Sickness Insurance can provide either a lump sum or weekly benefits if you are unable to work due to an accident or illness, whether it is work-related or not. This type of insurance can help bridge the gap left by the lack of workers compensation coverage, ensuring you have some level of financial support during periods of ill health.
While these alternatives may not offer the same comprehensive coverage as workers compensation insurance, they can still provide crucial financial protection and support if you are unable to work due to a related injury or illness. It’s important to carefully assess your needs and consult with an insurance broker or financial advisor to select the right insurance policies for your situation.
In addition to securing the right insurance, consider building an emergency savings buffer to cover unexpected expenses such as medical bills or lost income. Adopting strict WorkSafe practices and keeping detailed business records can also help reduce your risk and streamline any future compensation claim processes.
By proactively managing your risks and exploring alternative insurance options, you can help safeguard your business and ensure you have the financial support you need in the event of a workplace injury or illness.
Key Takeaways
- Sole traders aren't covered by workers' compensation as they aren't considered employees.
- Contractors and subcontractors are generally covered under the principal employer's policy.
- In NSW, sole traders must provide workers' compensation for employees, including contractors.
- Sole traders can consider income protection, life, trauma, or disability insurance for personal coverage.
- Public liability insurance is recommended, though not mandatory, for sole traders.
Talk to the Experts in Workers Compensation Claims
If you are a sole trader unsure of your legal responsibilities, or an employee seeking to make a workers’ compensation claim, it is critical that you consult legal experts to ensure you understand your obligations and secure the best possible outcome.
BurkeMead are experts in personal injury law, including workers’ compensation claims. Our team can assist you throughout this process to protect your legal rights and responsibilities as an employer or employee. Contact us today.
