Can sole traders get workers compensation in Australia?
Not exactly, but you could find income protection useful.
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As a sole trader, you're not eligible for workers' compensation insurance because you're not considered an 'employee'. But just because you can't get sole trader workers' compensation doesn't mean you can't protect yourself. Income protection insurance can pay you a monthly benefit if you're sick or injured and, unlike workers' compensation, it can cover you for injuries and illnesses that occur outside of work as well.
What's in this guide?
- What is workers' compensation insurance?
- Can sole traders get worker's compensation?
- Types of insurance for sole traders
- What is the benefit of income protection for sole traders?
- What's the difference between workers' compensation and income protection?
- Do sole traders need workers' compensation insurance for their employees?
- What insurance do sole traders need?
- How else can sole traders protect their business
- Workers' compensation rules by state
What is workers' compensation insurance?
Workers' compensation is a type of insurance payment for employees. It provides financial protection if you're injured at work or become ill due to work. All businesses in Australia that employ workers on a full-time, part-time or casual basis are legally obligated to have workers' compensation insurance.
If an employee suffers a work-related injury or illness, a workers' compensation scheme can provide them with a wage while they're not able to work, and pay for medical expenses, including hospital bills and rehabilitation. In some cases, it can also pay out in the form of a lump sum payment if the injury or illness is permanent.
Can sole traders get worker's compensation?
No. You can't get workers' compensation insurance for sole traders because you're technically considered an employer. It doesn't mean you can't get cover for being injured or sick though. To protect your income, you can get income protection insurance. For terminal illness and death, a life insurance policy is the way to go.
Keep in mind that if you do hire any employees or contractors, you'll need workers' compensation for them. It's a legal requirement in Australia, no matter what state you're in.
Types of insurance for sole traders
Income protection insurance provides similar protection to workers' compensation. It gives you a monthly income if you can't work due to illness or injury. We've laid out a table of providers for you to compare below.
Personal accident insurance
Personal accident insurance, sometimes called personal injury insurance, is a type of income protection that will pay a financial benefit if you're injured in an accident.
It's designed to alleviate the financial stress that can accompany a serious accident, especially if you're out of work and facing expensive medical bills, so you can concentrate on recovery. It can be useful for sole traders to help safe guard their income in case they are injured in an accident.
Public liability insurance
Public liability insurance is an absolute must for any business owner, including sole traders. Liability insurance protects you and your business if a third party is injured or has their property damaged as a result of being in contact with your business. It can cover compensation costs, legal fees or medical expenses incurred by an accident.
A third party can be a customer, an employer or a contractor you have hired. To find out more about liability insurance, follow the arrow.
What is the benefit of income protection for sole traders?
As a sole trader, there's a lot of responsibility placed on your shoulders. Income protection is a safety net that can really come in handy if you need to take some time off work. It can provide:
- Income replacement. You'll get up to 75% of your income paid into your bank account if you need to stop work for a while due to an injury or illness.
- (TPD) insurance. This is often bundled with income protection insurance. It provides additional cover if you become permanently disabled.
- Tax benefits. If you buy an income protection policy outside of your superannuation fund, it's tax deductible, or if funded through your superannuation, benefits paid are taxed at a much lower rate.
What's the difference between workers' compensation and income protection?
Not sure how WorkCover and Income protection differ? We've laid out the main differences below.
|Who does it cover?|
|Where does it cover you for?|
|How long does it pay you for?|
Do sole traders need workers' compensation insurance for their employees?
Yes. Generally anyone who employs paid workers needs to take out a workers' compensation policy.
However, the definition of a worker changes from state to state, so you may not always be obligated. For example, contractors (a worker who has their own equipment, is hired to work independently on a specific task and has their own ABN) don't always require you to have workers' compensation for them.
Similarly, you might not need to take out a policy if you pay less than a specific amount to someone per year—though this number is generally very small. Once again, this can differ between states. Jump to the bottom of the page for more on what the definition of a worker is.
What insurance do sole traders need?
As someone who runs their own business, there are a few other important types of sole trader insurance you need to think about.
- Public liability insurance. This covers you for third party death or injury. Depending on the business you run, and its level of risk, it might be compulsory.
- Third party personal injury insurance. This cover is compulsory if you own a vehicle. You can usually have the costs added on to your vehicle registration fee.
- Personal accident insurance. This is a cheaper alternative to income protection. It provides you with a lump sum when you have an accident that injures you and prevents you from working. It's usually cheaper because it can't cover you if you're sick, only injured.
- Business expenses insurances. Business expense insurance is similar to income protection, but instead of covering your personal expenses, it's designed to cover the fixed expenses of your business if you can't work due to injury or sickness.
How else can sole traders protect their business
Being a sole trader gives you the freedom to be your own boss, but with that comes a lot of responsibility. If something goes wrong, it's worth having these other types of insurance in place.
Life insurance, or death cover, pays your family or beneficiaries a lump sum payment if you die. It means that they can pay off any debts, loan repayments and enjoy the same standard of living you provided for them.
If you become permanently disabled and are unable to work as a result, a TPD insurance policy will pay out a sum of money to help compensate you. It can cover things such as medical bills, debts and expenses.
Critical Illness Insurance, sometimes referred to as trauma insurance, provides a lump sum payment in the event that you suffer a critical illness such as a stroke, heart attack or cancer. It's often bundled together with life insurance.
Workers' compensation rules by state
Workers' compensation rules differ between states. Here's a breakdown of each one.
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