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.

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.

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. However, every case is looked at on its merits.


Cover for the contractor's workers
Under section 175(1) of the Act where a person (in this section referred to as the principal) contracts with another person (in this section referred to as the contractor) for the execution of any work by or under the contractor and, in the execution of the work, a worker is employed by the contractor, both the principal and the contractor are, for the purposes of this Act, deemed to be employers of the worker so employed and are jointly and severally liable to pay any compensation which the contractor if he were the sole employer would be liable to pay under this Act.

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. Note, 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.

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) provide 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 Act before a policy of insurance is issued.

Changes to the Workers’ Compensation and Injury Management Act 1981 mean 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 Act.
• 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 Act.

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

Will the 2005 changes affect my current policy that covers me as a working director?
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 (effective 14 November 2005).

Essentially, for a director to be covered, a company must have applied to an approved insurance office under section 160 (2) 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.

Can the insurer dispute whether a person is a working director of the company?
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 as a working director 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.