What is workers’ compensation?
- Workers’ compensation is a safety net which provides financial compensation, rehabilitation and support with return to work for injured in the course of their employment.
- There are 11 main workers’ compensation schemes operating in Australia: one for each state and territory, and three Commonwealth schemes. Each scheme is established by its own legislation which sets out coverage, eligibility criteria, entitlements and obligations.
- Employers in each jurisdiction are required to take out workers’ compensation insurance to cover themselves and their employees. This type of insurance is funded through employer contributions to cover scheme liabilities.
What is coverage?
The use of the term ‘coverage’ in the workers’ compensation context differs to that of other forms of insurance, where coverage often refers to the monetary limits or the agreed scope of a policy. Coverage in this context is concerned with the eligibility to make a claim a under a workers’ compensation scheme. Generally, workers’ compensation schemes in Australia will consider three core criteria to determine whether a worker is able to claim workers’ compensation for a particular injury or illness:
- The claimant must be be covered as a worker or deemed worker, as defined by the relevant scheme (coverage)
- They must have suffered an injury or illness (or death) which is compensable, and
- There must be the requisite connection between injury or illness and the claimant’s employment (work relatedness).
Whether a worker is covered by workers’ compensation will depend on the rules of the particular workers’ compensation scheme in their jurisdiction.
Who is covered?
Workers’ compensation schemes in Australia cover workers that meet the schemes legislative definition of worker or deemed worker. Genuine independent contractors and sole traders are generally not covered by workers’ compensation and must make their own income protection insurance arrangements.
Definition of worker
While there is no consistent definition of worker in Australian workers’ compensation schemes, most schemes will consider whether a person is engaged through a contract of service or is an employee for the purposes of assessment of PAYG tax to determine if they are a worker. Table 3.1a of Safe Work Australia’s Comparison of workers’ compensation arrangements in Australia and New Zealand 2019 summarises the definition of worker by jurisdiction, noting that some schemes use the term ‘employee’ and some use the term ‘worker’ and all schemes have slightly different definitions of those terms.
Definition of deemed worker
Schemes also vary in relation to the categories of workers considered to be deemed workers under the relevant workers’ compensation scheme. Table 3.2 of Safe Work Australia’s Comparison of workers’ compensation arrangements in Australia and New Zealand 2019 summarises the definition of deemed worker by jurisdiction, noting all schemes have slightly different definitions.5 Certain types of contractors are covered as a deemed worker in some jurisdictions.
Who is not covered?
Independent contractors and sole traders are generally not covered by workers’ compensation schemes and must make their own income protection insurance arrangements. They are generally engaged under a contract for services and are considered to be running their own business and working under commercial, not employment contracts. Plumbers, freelance workers and many other types of workers are often considered independent contractors and not covered by workers’ compensation schemes.
Existing workers’ compensation systems prevent sole traders or independent contractors from opting into workers’ compensation insurance arrangements. This is due to the current definitions of worker and challenges with covering costs associated with these types of workers. Current schemes charge an employer premiums to cover costs of insurer their workers, cost recovery arrangements are not taken from an individual worker.
Definition of independent contractor
To determine whether a worker is an independent contractor, workers’ compensation schemes generally apply the well-known multi-factor test adopted by Australian courts. The multi-factor test involves an assessment and balance of the following range of factors against each other.
- Does the worker have control over whether to take on work?
- Can the worker choose their own work hours?
- Does the worker need to provide their own tools and equipment?
- How is the worker paid income?
- Is the worker responsible for the cost of fixing any faults or repairing damage?
- Is the worker required to do the work personally or can you delegate the work to someone else?
Although control remains a significant factor, the High Court has stated: ‘it is the totality of the relationship between the parties which must be considered’. None of the factors, apart from the requirement of personal service, is alone conclusive. Instead, in arriving at a conclusion on the character of a work contract, the court considers the factors holistically.’
It follows that to ascertain workers eligibility for workers’ compensation coverage, the working arrangement will need to be considered holistically.
Historically, distinguishing between employees and independent contractors has been a relatively straight forward process. However, the evolution of modern working arrangements such as those associated with gig workers have made the application of the multi-factor test more difficult.
Coverage arrangements in each jurisdiction have been modified over time, creating inconsistencies and complexities for workplaces. The adoption of new and innovative business models mobilising the workforce through technological platforms, creates an consider and establish a clearer policy basis for coverage at a national level.