With Xero’s Boss Insights report revealing that of 2.4 million small businesses in Australia, 1.5 million were sole traders, increasing numbers of Australians are starting their own businesses. This can create confusing legal questions, particularly for those who have previously 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 Burke Mead Lawyers team, can provide you with advice and vital information regarding workers’ compensation policy and laws affecting sole traders.
What is Workers Compensation?
Workers’ compensation is a form of insurance payment to employees if they experience a workplace injury or illness.
Employers must take out workers’ compensation to cover their employees for lost wages due to injuries or health issues sustained as a result of work. If an employee experiences a loss of wages due to a work-related injury or illness, workers’ compensation can cover their wages whilst they’re unable to work, as well as medical expenses and rehabilitation. This can be paid as a lump sum payment, a regular ongoing payment or both.
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)
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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, service, or 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, sub-contractors are hired by a contractor rather than directly dealing with a client.
Contractors and sub-contractors are technically considered employees when they are hired to work on behalf of a business. This generally means a worker’s compensation policy must cover them by the principal employer. As a result, in most circumstances, contractors and subcontractors can claim worker’s compensation for lost wages and medical expenses resulting from work-induced injury or illness.
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 Workers Compensation?
As workers compensation acts as a protection cover for employees injured or suffering an illness due to their work, sole traders are not entitled to its benefits as they are not considered employees, but their own business. However, alternate avenues exist for sole traders to provide themselves protection and compensation should they suffer from 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.
Do Sole Traders Need Workers Compensation Insurance for their Employees?
Whilst workers compensation rules differ by state, in NSW, it is mandatory that all employers (including sole traders) invest in workers compensation to cover any potential injuries, medical expenses or loss of wages for employees that may occur due to work-induced sickness or injury. 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. Also, it ensures an appropriate level of cover for any possible 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 to ensure sole traders can cover any compensation they may have to pay to others due to activities caused by their business.
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 a year in wages. This also includes apprentices and trainees who work for a sole trader.
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.
Make a Workers Compensation Claim Today - Contact BurkeMead Lawyers
If you are a sole trader and unsure of your legal responsibilities, or an employee who wishes to make a workers compensation claim, it is critical you contact legal experts to ensure you understand your responsibilities and receive the best possible outcome. The team at BurkeMead Lawyers are experts in personal injury law, including workers compensation claims. Our experts can assist you throughout this process to protect your legal rights and responsibilities as an employer or employee.
About the Author
Emma Mead
Emma Mead is an Accredited Specialist in Personal Injury Law, accredited by the Law Society of NSW. She is also a National Accreditor Mediator and has a Graduate Diploma in Family Dispute Resolution. She specialises in all personal injury and family law disputes, locally and across New South Wales.
