Workers’ Compensation Insurance

Need workers' compensation for your employees? Find out what to look for when comparing cover.

Workers compensation is mandatory for Australian employers. It is purchased by business owners to protect themselves and their workers, pays benefits in the event of a workplace or work-related accident, injury or illness. Workers' compensation schemes are managed at a state level, and the cost of policies and benefits they deliver varies by location.

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Understanding your requirements as an employer can be complicated, but you don’t have to work it all out on your own. When you take out a workers' compensation policy, your chosen insurer will offer a range of ongoing assistance and practical resources to help you understand and meet your obligations. This guide will outline how workers' compensation works and what to look for when comparing policies on offer.

Workers compensation in Australia: How does it work?

Workers' compensation varies between states, but some factors are the same Australia-wide:

• Workers' compensation insurance policies are mandatory in Australia. You are required to hold policies for all workers who are being remunerated, regardless of whether your contract with them is written, oral or implied.
• The premium costs of workers' compensation policies are largely determined by your industry classification and your employee remuneration.
• Self insurance is an option in all states. This is for eligible large companies with the resources to administer their own workers' compensation plans.
• Interstate workers should be covered by a policy from the state or territory in which they usually and regularly work or operate from. If this is not applicable, such as for interstate shipping workers, they will typically need to be covered by a policy from the state in which their employer or ship is registered.

What is and isn't covered?

What will workers compensation actually cover?

Are employees covered on their daily commute?

• Workers are covered going to work, without restriction, in the ACT.
• In QLD and the NT workers are generally covered, but with some restrictions.
• In TAS and NSW, workers are generally not covered, with some exceptions.
• In WA, SA and VIC workers are not covered at all on their journey to or from work.

Are employees covered for work-related travel?

• In all states, employees are covered while undertaking work-related travel. Conditions around this provision are stricter in VIC than in other states.

Are employees covered during their breaks?

• Workers are generally covered during on-site breaks in all states. In SA the break must be explicitly or implicitly authorised.
• For offsite breaks, employees are covered in NSW, VIC, QLD and the NT. In TAS they are generally not covered, with a few exceptions, and in SA they are not covered at all.
• In ACT and WA, cover for workers on a break is more dependent on the individual circumstances of the situation.

Are injuries and illness outside of the workplace covered if they’re work-related?

• In all states, employees may still make claims for injuries or illnesses which occur outside the workplace, as long as the job is shown to have been a significant contributing factor. The precise terms and definitions vary in all states.

Are workers at or near retirement age entitled to full benefits?

• QLD and WA have no specified retirement age for workers' compensation policies, and therefore have no related restrictions.
• All states other than QLD and WA specify 65 as retirement age, and entitle workers to income replacement benefits up to the age of 66, provided the disability occurred before they turned 64. Most states have facilities to make case-by-case exceptions.

What won't workers' compensation insurance cover?

Exclusions are circumstances in which workers' compensation policies will not pay benefits. Many exclusions are broadly similar in each state, but were legislated independently of each other and so can vary in subtle ways. They include:

• Serious and wilful employee misconduct, including being under the influence of drugs or alcohol on the job. The exact definition of “under the influence” and the circumstances in which it may be allowable varies between states. However, employees in all states can still claim certain benefits for death or serious injury, even if these were the result of serious misconduct.

• Deliberately self-inflicted injuries. In all states, no claims can be made for death or injury resulting from deliberately self-inflicted harm.
• If the employee provides false information. If a worker was asked about pre-existing conditions and lied about not having any, they are generally not able to make related claims.
• Psychological injuries resulting from reasonable employer actions. If you fire, demote, promote, discipline, restructure or otherwise take similar reasonable actions, an employee cannot make claims for resulting injury, illness or psychological damage.

It is also advisable to familiarise yourself with a few other key exclusions, and how they may vary between locations, such as:

How do I actually compare policies?

Before you compare

Make sure you understand:

States where you can compare premiums

• In the ACT, NT, TAS and WA premiums will vary between insurers, and you may want to get quotes to compare by price. Workers' compensation premiums are calculated differently in each state based on a combination of industry, claims history, worker remuneration and state-specific loadings and conditions.

Which states do premium stay the same?

• In NSW, QLD, VIC and SA you will get the same premiums from all insurers.

States where you can't choose your insurer

• In Queensland and South Australia you cannot choose your insurer, so you do not need to compare insurers. If you are employing eligible paid workers in these states, you must register for cover.

In all other states you can choose your insurer.

Speak to a qualified adviser Learn more about premiums

What to look for when comparing cover

Because they provide assistance and services beyond claims alone, it may help to think of your workers' compensation insurer more as a business partner than a service provider. Before taking out a policy, ask insurers whether they offer:

• Professional advice. Look for an insurer that will help you understand and meet workplace legal obligations.

• Training courses and seminars. These can assist you in proactively reducing costs and reducing workplace injury rates.
• Practical resources. Some states require employers to post signs in the workplace, provide specific services to employees and otherwise meet wide-ranging legislative requirements that vary from state to state. Find an insurer who can walk you through these obligations, and who can print up and send you the necessary signs and materials.
• Claims assistance. Depending on the situation, employees might send in their claims through you, the employer. If you can refer claims to your insurer to take care of as far as possible, it makes your job much easier.

• Updates. Ask a prospective insurer whether they’ll keep you up to date with any changes to workers' compensation legislation that you need to be aware of.
• Legal assistance. Check if the insurer offers legal assistance in the event of an employee claiming that you were negligent, or failed to maintain a safe workplace.
• Case managers. Some insurers offer dedicated case managers for injured employees to help them get back to work sooner, which helps you keep down costs.
• On-demand advice and expertise. It can be very useful to know you can go directly to your insurer’s support team with any compensation queries or relevant legal questions you might have.

What affects the cost of workers compensation cover?

Workers' compensation premiums and rates are adjusted each year and vary between states. They are based on:

• Total worker remuneration. The more you pay your workers in total, the higher your premiums. The way these impact your premiums, and whether remuneration includes bonuses, overtime, severance payments and other pay arrangements depends on circumstances and which state you are in.
• Your industry. Certain industries are inherently more dangerous than others and will consistently attract higher premium rates.
• Your business claims history. A business with a disproportionate number of previous workers' compensation claims, compared to equivalent companies in the same industry, may stand out as being particularly unsafe even if it meets all occupational safety requirements. This may incur higher rates, depending on the situation and the state.
• The size of your company. Each state has several thresholds, such as business income or total amount paid in worker remuneration, which affect the cost of workers' compensation policies.

Who sets the premiums for cover?

In some states rates are set by the government, and in others by the insurance companies.

• States where it's set by the government. In NSW, VIC, QLD and SA rates are set by the government, and are the same with all insurers.
• States where cost is set by the government but adjusted by the insurer. In WA rates are set by the government, but insurers may raise or lower them as desired up to a change of 75%, or more with special approval.
• States where premiums are controlled by insurers. In TAS, ACT and the NT premium rates are determined entirely by the insurers. The government might suggest rates but insurers have no obligation to use them.

Workers' compensation premium rates are typically expressed as the cost of premiums per $100 paid in worker remuneration. For example, a premium rate of 1.70% means workers compensation policies will cost employers, in that industry and in that state, $1.70 for every $100 they pay to employees.

• You must declare annual wages paid to your insurance agent in order to calculate premiums. If you are declaring these in advance for the coming year, you are able to claim reimbursement if you overestimate, but may have to pay an additional amount later if you underestimate.

• One of the ways state governments manage workers' compensation schemes is with discounts and incentives. These are different in each state and change frequently, but a number are accessed through improved workplace safety. When comparing insurers, consider asking how they can help you access discounts and incentives.

When is workers' compensation mandatory and who need's it?

Anyone who employs paid workers is required to take out a workers' compensation policy, unless the worker:

• Is a contractor under the definition used in that state. Contractors can be characterised as having their own equipment, being hired to work independently on a specific task and having their own ABN.
• Earns less than a specified amount per year. This amount is generally less than the equivalent of full-time minimum wage, so you will usually be above this amount with normal employees in normal circumstances.

Employment types where it's more ambiguous

• Sole traders and self-employed individuals, and the owners of other one-person companies are not required to take out workers' compensation policies on themselves. In some states you may still choose to do so as long as you meet all other definitions of a worker, and in others you are not allowed to. In Queensland you are only able to take out a “workplace personal injury insurance” policy on yourself.
• Sole traders and self-employed individuals are still required to provide workers' compensation policies for all workers who meet requirements, regardless of their business status.
• Contractors may or may not require workers' compensation policies. A principal contractor who employs subcontractors will usually need to cover them, but an independently operating contractor without employees will not. Some people are considered contractors for business purposes and workers for compensation purposes.
• “Deemed workers” are those who might not meet all definitions of a worker, but for whom you are still required to provide cover if they meet certain requirements. Each state has its own regulations and description of deemed workers which can include, but is not limited to, outworkers, salespeople, entertainers, and contractors under labour hire service arrangements.
• A trustee might be considered a worker of the trust if they have PAYG contributions deducted from payments they receive from the trust, or receive superannuation contributions from the trust, in which case they may require workers' compensation. Certain trust distributions, when made in lieu of wages, can also qualify a trust beneficiary as a worker.
• Volunteers and unpaid work experience students do not require workers' compensation cover. A volunteer is someone who is not working for payment or reward, although they may still receive payment for out-of-pocket expenses, and unpaid work experience placements may qualify someone as a volunteer. As a business owner you are still obligated to provide a safe working environment and meet OHS obligations.
• Volunteer organisations are not required to provide workers' compensation, and do not need to meet the same OHS requirements as businesses. A volunteer organisation is one composed entirely of volunteers. Once an organisation pays someone in a way that qualifies them as a worker, the organisation is qualified as a business and must provide appropriate workers' compensation policies and OHS arrangements.
• Self insurance refers to the practice of large companies making their own workers' compensation arrangements. The requirements for self insurance vary between each state, but companies generally need to have the resources and scale to provide compensation and manage recovery for workers in line with state standards.

How is workers' compensation different to income protection?

Income protection insurance pays ongoing benefits, usually of 75% of your normal income, if you are unable to work because of illness or injury. This is very similar to the income replacement benefits of a workers' compensation policy, but with some key differences.

Where you are covered

Income protection covers you 24/7 and wherever you are. Workers' compensation only covers you during your employment hours.

How much cover is provided

Workers' compensation pays up to 100% of your typical income for a limited period of time, before gradually reducing. Income protection usually pays consistent benefits over the course of the policy.

Purpose of cover

Workers' compensation is focused on getting employees back to work and many conditions are attached to benefit payments. Income protection also has conditions, but will typically let you spend payments at your discretion.

What's included

Income protection can be effectively packaged with life, trauma and TPD insurance policies, while workers' compensation policies are typically standalone.

When a payout occurs

Income protection can pay benefits soon after an accident, while workers' compensation may require more steps and more bureaucracy, and so take longer to be paid.

How long cover is provided for

Income protection policies become much more difficult to find after the age of 65, but workers' compensation can provide cover right up to this age, and can keep paying benefits after it.

What you should know about workers' compensation and tax

Contact your insurer or tax agent for specific answers about workers' compensation and tax. The following is general information for Australia as a whole, but specific details may be different in your state.

Your workers' compensation insurance provider should be an effective first point of contact for all workers' compensation questions, including those that are tax-related.

• Workers' compensation premiums are tax-deductible, provided you claim them in the same year. It can be written off as a revenue expense like other business insurance.
• Workers' compensation benefit payments are usually tax-free, but you must declare them anyway. Ongoing workers' compensation benefit payments are usually not taxable, but you must declare them for assessment. Lump-sum benefit payments, such as those awarded following a personal injury claim, are tax-free if they meet state requirements.
• GST, if applicable, is not considered when determining a worker’s wage for eligibility purposes.
• Insurers will typically make payments through the business owner, who is responsible for ensuring that all appropriate tax deductions are made. Business owners need to work closely with insurers to make sure all obligations are met.

Cross-border workers' compensation

A cross-border worker is someone who undertakes work in more than one state. Employers are required to hold appropriate workers' compensation policies for any cross-border workers who are employed in their state according to the state of connection test. This test applies to each individual employer-worker contract, and might need to be checked again if circumstances change.

The state of connection is the state in which someone is considered to be an employee for workers' compensation purposes. Read down the list until you find a clear answer.

Workers' compensation state of connection test

Some common questions you may have

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