Workers’ compensation insurance covers your workers when they are working for your trade or business, and/or while acting under your instructions.

Workers’ compensation protects you and your business from financial claims when a worker sustains a work related injury or disease. It provides injured workers with weekly payments to cover loss of earning capacity and payment of reasonable medical and vocational rehabilitation expenses, where necessary, to help them remain in or return to gainful employment.

In special circumstances, where a worker would otherwise not be able to return to work, and where they meet other essential criteria, they may be eligible to receive specialised retraining. In some circumstances, workers may be entitled to lump sum settlements.

Specific provisions in relation to claims that involve a journey are contained within the Workers’ Compensation and Injury Management Act 1981 (the Act). Workers will normally not be treated as having suffered personal injury by accident arising out of or in the course of their employment if they suffer an injury during a journey between their place of residence and place of employment or vice versa.

If you don’t have workers’ compensation insurance, your company will be liable for the cost of the statutory benefits under the Workers’ Compensation and Injury Management Act 1981 if one of your workers has a work related injury or industrial disease. This could cost in excess of $600,000, plus legal costs involved in court action, and you may also be liable for the cost of any action taken at common law.

If you are uninsured, you are also liable to pay fines of up to $5,000 per worker, as well as an amount equal to any avoided premiums going back five years. If you continue to be uninsured after the date of your conviction, you will commit a separate and further offence for every week you do so.

You can obtain insurance cover from any of the insurers approved by the Minister to underwrite workers' compensation insurance.

Depending upon your risk profile (i.e. previous claims experience and the extent of risk associated with their particular industry), insurers may discount the recommended premium rates by any amount, or surcharge up to a maximum of 75 per cent of the recommended premium rate for individual employers.

With approval from WorkCover WA, approved insurers may surcharge beyond 75 per cent of the recommended premium rate, dependent upon the claims experience and risk associated with the operation of an employer’s business.

Workers’ compensation legislation in Western Australia encourages a degree of self-responsibility, so you are encouraged to obtain alternative quotes when taking out cover or renewing your policy.

A declaration of estimated gross wages for the period of the policy (usually 12 months) will be needed so your insurer can calculate your premium based on the estimate.

When the policy expires, you must submit a statement of actual gross wages paid in the past period. If you do not, or your statement is false, you may leave yourself liable for prosecution. Following the submission of your actual gross wages, an adjustment on your premium may need to be made, depending on whether the actuals were more or less than the estimate you first provided.

If you wish to renew your policy with the same insurer you need to submit (on the same declaration) an estimate of gross wages to be paid the following year.

Workers’ compensation law states that employers must have workers’ compensation coverage for anyone who is defined in the Workers’ Compensation and Injury Management Act 1981 ( the Act) as a ‘worker’.

Definition of a worker
The Workers’ Compensation and Injury Management Act 1981 provides a very broad definition of a ‘worker’. It covers:

• full-time workers on a wage or salary;
• part-time, casual and seasonal workers;
• workers on commission;
• piece workers;
• working directors (companies now have an option as to whether working directors who have some ownership of the company and are ‘workers’ under the Workers’ Compensation and Injury Management Act 1981 are to be insured under the workers’ compensation system); and 
• contractors and sub-contractors may also be defined as ‘workers’, depending on the circumstances of their working arrangement.

The definition of ‘worker’ may be broken up into two main parts: Primary and Extended.

Primary definition
This covers any person who works under a contract of service or apprenticeship with you. The contract may be expressed or implied, oral or written. A large part of the workforce is covered under this part of the definition, including workers who:

• work for salary or wages;
• work set hours of work;
• may be fired by the employer;
• work for only one employer; and/or
• are supervised and controlled.

Extended definition
This covers any person who works under a contract for service. Many people who work on a contract or sub-contract basis may be covered under this part of the definition, and it may cover workers who:

• are paid on piece rates, hourly rates or per job;
• work for the employer on a ‘one-off’ or per job basis;
• do not have set hours of work;
• work for more than one employer;
• work unsupervised; and/or
• pay 20 per cent prescribed payments (sub-contractor’s tax)

A worker may also include any person who is covered by an industrial award or agreement.

A contractor or sub-contractor may be defined as a ‘worker’ if the contractor/sub-contractor is engaged by another person to do work for the purpose of the other person’s trade or business, and the contractor/sub-contractor is paid in substance for his/her personal manual labour or services.

Example: A farmer’s normal trade or business is farming. Activities which are part of that business include seeding, fencing, shearing, and repairing equipment (e.g. fences). A shearing shed worker, who may sometimes be referred to as a sub-contractor, is paid in substance for his/her work as a wool classer or shearer or shed-hand.

The sub-contractor may use his/her own hand tools, but this is not significant in determining what he/she is paid. In each case, if the sub-contractor does not supply materials and does not employ any workers, he/she may be defined as being paid in substance for his/her personal manual labour or services and be defined as a ‘worker’.

If the contractor/sub-contractor supplies materials and/or employs workers, then there is doubt whether he/she would be a ‘worker’ under the Workers’ Compensation and Injury Management Act 1981, but every case is looked at on its merits.

Cover for the contractor's workers

Under section 175 of the Workers’ Compensation and Injury Management Act 1981, if a person (the ‘principal’) contracts with another person (the ‘contractor’) to perform work which is for the purpose of the principal’s normal trade or business, then both the principal and the contractor are jointly and severally liable to pay compensation in accordance with the Workers’ Compensation and Injury Management Act 1981 for the contractor’s workers. The principal has no liability unless the injury occurs on premises the principal has undertaken to execute the work, or which are otherwise under his / her control or management.

If the contractor in turn sub-contracts the work to a sub-contractor, then all parties, including the principal, the contractor and the sub-contractor, are liable to cover any workers the sub-contractor may employ.

If one of the contractor’s workers has an injury at work, they can make a claim for compensation on either the principal or the contractor. However, if the principal does have to pay the claim in the first instance, the principal can sue and recover the full cost of the claim from the contractor.

It is therefore in the interest of the principal to ensure the contractor holds a current workers’ compensation policy. It is worth noting that while both parties in this situation are liable to declare the wages of the contractor’s workers, suitable arrangements may be made with an insurance company for the striking of an appropriate premium.

Key points to consider

• You cannot contract out of your liability under the Workers’ Compensation and Injury Management Act 1981 by making a worker sign an agreement that says they are not entitled to claim worker’s compensation.
• A personal sickness and accident policy cannot be substituted for a workers’ compensation policy.
• Many sub-contractors work as teams and believe no cover is required. If one of the team members has the right to hire and fire and supervises the others, then there may be an employer/worker relationship and the team leader would be required to take out a workers’ compensation policy to cover the other members of the team.

Where you employ family members, or they are contracted to you, and live in the family home, it is optional whether you cover them for workers’ compensation. If cover is required, family members must meet the definition of a ‘worker’ under the Workers’ Compensation and Injury Management Act 1981 and their name and the work they do needs to be disclosed on the policy, together with an estimation of their wages/salary.

If your family members live away from home and work for you, they are defined as a ‘worker’ and must be covered by workers’ compensation insurance.

Generally, individual workers cannot cover themselves for workers’ compensation, even if they are self employed and have an ABN. An exception is when an individual is a working director of a company and then it is optional whether they choose to be covered for workers’ compensation insurance.

I'm a working director, do I need to take out a policy?

A working director (in relation to a company) means a director who executes work for or on behalf of the company, and whose earnings as a company director by whatever means, are in substance for personal manual labour or services. It is optional for a working director’s company to cover their directors for workers’ compensation.

From 14 November 2005, changes to the Workers’ Compensation and Injury Management Act 1981 (the Act) provided greater certainty for companies which actively choose to cover working directors for workers’ compensation. The changes provide a definition of ‘working director’ that supersedes the definition of ‘worker’ contained in section 5 of the Act. The changes also provide a mechanism for resolving disputes as to whether a working director is a ‘worker’ under the Workers’ Compensation and Injury Management Act 1981 before a policy of insurance is issued.

Changes to the Workers’ Compensation and Injury Management Act 1981 mean that all employers are required to insure their workers for workers’ compensation, regardless of whether they enter into an ‘avoidance arrangement’ to minimise their statutory obligations.

What process does a working director go through to obtain insurance?

• The director’s company applies for insurance on the basis that their director is a ‘working director’ as defined in the Workers’ Compensation and Injury Management Act 1981.
• The company provides information to the insurer concerning the working director’s remuneration when issuing or renewing the insurance policy.
• Once the policy is in effect, the working director is deemed a worker under the Workers’ Compensation and Injury Management Act 1981.

Contact an approved insurer if you would like to seek workers’ compensation cover for ‘working directors’.

If you wish to cover your working directors named on your current policy from 14 November 2005, contact your insurer to discuss what additional information is required to ensure continuity of coverage under the new legislation. Your insurer may need to amend your existing policy or issue a new policy as directors are deemed workers only in the circumstances described in the new section 10A of the Act (which is effective from 14 November 2005).

Essentially, for a director to be covered, a company must have applied to an approved insurance office under section 160(2) of the Act on the basis that a 'working director' of the company is a worker. The changes include a new definition of working director, so it is recommended that if existing policies are to be modified, companies provide a declaration that their director(s) identified in the current policy meets the definition of working director. Provide details relating to the director's remuneration to the insurer.

There is a mechanism for determining disputes as to whether a director is a ‘working director’ prior to the policy of insurance being issued. You or your insurer may apply to have the matter determined by an arbitrator of WorkCover WA’s Dispute Resolution Directorate.

Once a policy has been issued, an insurer cannot decline to indemnify you on the basis that the working director is not a ‘worker’ or the company is not the employer of the working director.

However, liability can be declined should the information provided by the company, in respect of the director when applying for the policy or contract of insurance, be false or misleading in a material particular and the decision of the insurer to issue the policy was materially affected by that misrepresentation.

What if I have a claim prior to 14 November 2005?

If you or your employee suffered a compensable injury prior to 14 November 2005 and were entitled to receive compensation under the Workers’ Compensation and Injury Management Act 1981, there is a provision in the Act that protects your right to workers’ compensation after 14 November 2005.

Can non-working directors or public company directors be covered?
Non-working directors are excluded. A director registered under the Corporations Act 2001 of the Commonwealth must be a working director, as defined by the Act.

Public company directors are also excluded. Only a company, as a separate legal entity, may apply to insure a working director and the definition of company, contained in section 10A of the Act, excludes public companies from obtaining cover for its directors.

13) Is it compulsory for me to have an injury management system at my workplace?

Yes. There is a general requirement in the Workers’ Compensation and Injury Management Act 1981 for you to establish an injury management system.

Requirements for the establishment, content and implementation of an injury management system are set out in the Code. Where there is a requirement in the Code that an employer “has to” do something that relates to an injury management system, it is mandatory.

Financial penalties apply to employers who do not comply with the obligations set out in the Code.

Your insurer is required to make you aware of your obligations under section 155B and 155C (1) and (3) of the Workers’ Compensation and Injury Management Act 1981. These sections relate to establishing and implementing injury management systems and return to work programs in accordance with the Code. Your insurer has an important role in assisting you with early intervention when a work injury occurs and with the establishment of appropriate return to work programs.

Under section 155D(3) of the Workers’ Compensation and Injury Management Act 1981, the obligation for you to establish and implement return to work programs may be discharged by your insurer, provided you send your insurer a request to do so. If your insurer establishes and implements return to work programs on your behalf, they must comply with the Code where you would be obliged to do so.

Insurers determine liability for workers’ compensation claims lodged by injured workers and must process claims in accordance with the Workers’ Compensation and Injury Management Act 1981. They are encouraged to communicate with their insured employers to provide information regarding claims management and to confirm that appropriate return to work activities have commenced when a worker has been injured at work.

Make arrangements to regularly meet your insurer with the injured worker, or set up another means of regular communication. This can help identify and resolve problems that could interfere with an early return to work.

When discharging obligations on your behalf, your insurer should involve you in decisions that are made.