Workers’ compensation insurance for contractors and subcontractors: a video for employersOn November 11, 2019 by Raul Dinwiddie
Welcome to WorkCover Western Australia. This short presentation explains workers’ compensation obligations when employers use contractors and subcontractors. You may also like to watch our series of online educational videos for more information, including ‘Workers’ Compensation Insurance: a guide for employers’. Workers’ compensation insurance reduces the impact a work‐related injury or illness has on your business. This includes the cost of a claim and managing an injured worker’s return to work. Employers are legally required to take out a workers’ compensation insurance policy when they employ workers. In certain circumstances, contractors and subcontractors may also be considered workers under the workers’ compensation scheme. Contracting arrangements can be complex. Anyone who engages contractors and subcontractors must check whether they have workers’ compensation obligations to those people. ‘A technical note on Contractors and Workers’ Compensation’ (available on our website) describes in detail how workers are defined in the workers’ compensation legislation. It’s also a good idea to get advice from your insurance broker, insurer or lawyer. As an employer, several indicators can help you determine if a contractor may be considered a worker and is entitled to compensation if they are injured at work. For example, do you: control and direct their work? pay them based on time spent working instead of services provided? define their working hours? supply them with tools and equipment required for the job? dismiss them or terminate their contract? withhold tax and pay for insurance and licencing? restrict them from working for other employers? If you answered ‘yes’ to one or more of these questions, the contractor may be considered a worker. Engaging contractors in this way is typically referred to as ‘a contract of service’ and usually results in a worker being officially employed by a business. However, remember that these are only indicators and whether a contractor or subcontractor is considered a worker under workers’ compensation legislation depends on individual circumstances. A contractor may also be considered a worker if they are engaged under a ‘contract for service’. This typically includes people described as ‘independent contractors’, , ‘self-employed’ or who have their own Australian Business Number (among others). A contract for service typically occurs when engaging contractors to carry out activities for your trade or business and then paying them for their labour or service. A contractor is less likely to be considered a worker if they provide their own tools and equipment, or they pay other people to carry out the activity. In some situations, a large company may engage contractors, who then engage subcontractors. This type of arrangement is called a ‘contracting chain’. When work is done under a contract, there may be workers’ compensation responsibilities for various employers within the contracting chain. Everyone in the contracting chain needs to have cover; to not only cover their own workers, but also downstream workers. This means any employer who sits below them on the chain. For example, a building company may contract window installers from a window installation business, which then engages workers on a subcontractor basis. The building company may be deemed the employer of workers engaged by a window installation company that the building company has contracted, and may become responsible for workers’ compensation claims. If an injury occurs, the building company has the right to recover the cost of the claim from the window installation company. This is called principal’s indemnity. Employers cannot contract out of their legal responsibility to obtain workers’ compensation insurance by making a worker sign an agreement that they are liable for any workplace injury. It is also unlawful to require a worker to set up a company to avoid your workers’ compensation responsibilities. Further help is available. Refer to the publication ‘A Technical Note on Contractors and Workers’ Compensation’ on the WorkCover WA website or speak with one of our Advisory Officers by calling either: 1300 794 744, or (for the hearing impaired) (08) 9388 5537. We also have a range of other publications and resources on our website.