The labour market has changed considerably in recent years. We’ve seen an explosion of apps and websites that help businesses outsource services. It seems as though most of us are now consultants/freelancers/contractors of some description! In the construction industry alone, it’s not unusual to see services sub-contracted down the line through several entities before the first nail is hammered.
So, in this new world where everyone (and yet no one) is a boss – what happens with workers’ compensation insurance? And more importantly – what are the consequences of being uninsured?
Obligation to insure
In Queensland, an employer must, for each worker employed, insure and remain insured, for their legal liability to pay compensation and damages to their workers: section 48 of the Workers’ Compensation and Rehabilitation Act 2003 (Qld).
Workers vs contractors
The WCRA defines ‘workers’ for the purpose of workers’ compensation.
Under the Act, a worker is a person that is employed under a contract and who is an employee for the purpose of assessment for PAYG withholding under the Taxation Administration Act 1953 (Cth). Schedule 2 of the WCRA expands that definition, identifying particular circumstances where a person will be considered a worker.
Determining whether a person is a worker (and therefore whether a business is required to hold workers’ compensation insurance) is not always straightforward. Businesses should not assume that they are relieved from their obligation to insure, simply because they engage contractors instead of employees. Each arrangement a business has with an individual is often unique. A person who an employer considers is a contractor, may actually be a worker for workers’ compensation purposes.
Consequences of failing to insure
If an employer fails to take out workers’ compensation insurance within 5 business days of employing any worker or workers, WorkCover Queensland may impose a penalty of $33,522.50 (275 penalty units).
Recovery of compensation and unpaid premium
If a claim is made against an employer that holds no workers’ compensation insurance in Queensland, that claim will be managed by WorkCover. WorkCover is the statutory insurer and only WorkCover can pay compensation and damages to a worker.
Under section 57 of the WCRA, WorkCover may recover, from the employer, amounts that it has paid to a worker as compensation and damages. WorkCover may also recover from the employer a penalty equal to 50% of the amounts paid, as well as the unpaid premium.
Example workers’ compensation recovery
So what financial risk is posed to an employer that holds no workers’ compensation insurance? The below example illustrates the potential threat posed by a claim in Queensland:
Weekly compensation and medical benefits paid: $100,000
Common law damages paid: $500,000
Penalty (50% x $600,000): $300,000
Potential recovery: $900,000 + unpaid premium + $33,522.50 (penalty for failing to insure)
Businesses that engage the services of individuals (including sole traders) should consider their obligation to hold workers’ compensation insurance. The cost of workers’ compensation premiums is dwarfed by the financial consequences of an uninsured claim.
How we help uninsured employers
We represent uninsured employers in workers’ compensation matters. When acting for these employers the work that we complete includes:
- Getting a description of the incident giving rise to the injury.
- Identifying all witnesses to the incident and taking statements from those individuals, where appropriate.
- Considering WorkCover’s reasons for accepting the application for workers’ compensation by the worker.
- Considering whether the person injured was a “worker” and whether our client was the “employer”.
- Considering whether the person injured was disobeying any express instruction by the employer.
Once these issues have been addressed, we can then consider whether the decision to accept the claim should be challenged or, whether a settlement should be negotiated between the employer and WorkCover.
A decision to accept a claim can be challenged within three (3) months of the employer receiving WorkCover’s reasons for decision. The decision is challenged by submitting an Application for Review to the Workers Compensation Regulator. Approximately 25% of WorkCover’s decisions are overturned on review by the Regulator.