3 Questions to Ask Before You Take Out Workers Compensation insurance

If your business has grown enough for you to hire one or more employees, you’ll need to put Workers Compensation insurance in place.  This coverage gives financial support to your employees if they have a work-related injury, accident or illness.  It protects your business by removing the need for you to pay these support costs.

If you've never taken out Workers Compensation before, you’ll need to understand it quickly. Ask yourself these three questions to get started.

1. Do I need Workers Compensation insurance?

While some types of business insurance are voluntary, others are compulsory.  Workers Compensation is a legal requirement for employers in Australia.

So, if you employ staff, you’ll need to have Workers Compensation insurance in place to protect them.  Your employees can work full-time or part-time, or you might have a written or verbal contract.  This coverage applies to virtually all workers, even at apprenticeship and casual work status levels.

However, you may find that some exemptions exist.  You may have some staff who your coverage doesn’t extend to.

For example, you might have a core set of full-time employees but you also might recruit on-hire workers every now and then. You probably get your on-hire staff from an employment agency.

In that case, you pay the agency for the work the on-hire people do, and the agency then pays them.  In this case, the agency should provide workers' compensation for the staff they send you. Then, you likely only buy coverage for the people you employ and pay directly.

2. What happens if I don't provide Workers Compensation?

If you don't meet your Workers Compensation responsibilities, you could be responsible for extensive costs yourself.  For example, you may pay benefit costs and penalty charges.

If one of your workers gets a workplace injury or illness, you may pay some of the costs that Workers Compensation would normally cover.  This could include statutory benefits.

Also, if you have to go through a court case, you could be liable for legal costs. You might have to fund a compensation award.

Your liabilities don't end here, however.  If your state's WorkCover agency discovers that you haven't taken out Workers Compensation, then they can hit you with financial penalties for each employee you have that isn't insured.

You might also have to pay a backdated premium cost.  Your penalties won't likely stop until you have the right insurance in place. The process could lead to prosecution if you don't meet your responsibilities.

3. Does Workers Compensation cover me as the employer?

Workers Compensation doesn't usually cover the owner of a business; it is there to protect employees. This rule also applies to sole traders.

However, you might be able to get the same coverage as your employees if you qualify as a working director in a limited company.  For example, you might have this status if the money you earn from the company is directly linked to manual labour or services that you provide as part of your job.

Bear in mind that this coverage isn't automatic. Your Workers Compensation provider will have to agree that you qualify before they will add you to the policy.  You might have to provide detailed information about your earnings as part of this process.