Workers compensation for contractors and other non-employee workers in the construction industry

Did you know you may be liable for fines if you incorrectly manage your subcontractors' workers insurance?

The construction and building industry is one of the largest employers of subcontractors. This makes sense, considering there are many jobs needed in these industries that are highly skill-specific and so you would hire someone that is specialised in the area to get the job done.

It's therefore important you understand your responsibilities as an employer of subcontractors and other non-employee workers of when you are required to pay workers compensation.

Who do you need to insure?

In the event of an injury, employers generally need to provide workers compensation for workers and 'deemed workers', but not for contractors, sub-contractors and labour-hire workers.

A deemed worker is a person who is treated like a worker and is therefore entitled to workers compensation. Some contractors and subcontractors are deemed workers for compensation and insurance purposes. See Schedule 1 of the Workplace Injury Management and Workers Compensation Act 1998 for a comprehensive list.

Since this is a complex area for employers it may be worth considering legal advice for your particular situation to make sure you have the right understanding and approach for each of your workers.

How are workers different from contractors?

Workers and deemed workers are distinguished from contractors by several factors; no single factor is enough to give a classification.

Some common factors used to decide who is a worker and who is a contractor include:

  • Degree of control: Contractors have a higher level of control over the way they perform their job.
  • Expectation of work and hours: Workers are expected to work standard or set hours, whereas contractors are engaged for a specific task.
  • Superannuation: Workers are paid superannuation, while contractors are responsible for their own super.
  • Financial risk: Unlike workers, contactors bear financial risk for the profit or loss on each task.
  • Tools and equipment: Unlike workers, contractors supply their own tools and equipment.
  • Method of payment: Contractors will quote for a specific task. A deemed worker who is still a contractor will invoice for hours worked.
  • Leave entitlements: Workers are entitled to paid leave, whereas contractors are not.

WorkerStatus Tool

Because of the complex nature of classifying workers and contractors, we recommend using the State Insurance Regulatory Authority's WorkerStatus tool.

The tool lets you make a self-assessment, and takes approximately 10 minutes to complete. It is important to have any relevant contracts and agreements on hand for reference. Additionally, you should also seek legal advice where necessary.

What responsibilities do construction employers have?

An as employer of contractors, subcontractors and labour-hire (who are not deemed workers), you have a duty of care to provide a safe and healthy workplace. You will need to work in conjunction with principal contractors and labour hire organisations to provide a safe working environment, manage hazards and minimise risks.

Your health and safety responsibilities include:

  • Ensuring the work environment, and any activities undertaken, are safe.
  • Ensuring plant equipment, materials and substances are handled safely.
  • Verifying that all workers have the required skills, experience and licences to perform their jobs.
  • Introducing workers to safety representatives and OH&S persons.
  • Providing adequate supervision for all activities.
  • Notifying principal contractors and labour hire agencies of any changes that impact workers.
  • Providing principal contractors and labour hire agencies with relevant OH&S documents.

Visit Safework NSW to read more about your work health and safety obligations.

Principal contractor responsibilities

Principal contractors have specific responsibilities around safety and insurance, including to their subcontractors.

By default, a person conducting a business or undertaking that commissions construction work valued at $250,000 or more (often referred to as the client) is the principal contractor. However, a client can appoint another person conducting a business or undertaking as a principal contractor by authorising them to have management or control of the workplace where the construction work will take place (from the SafeWork NSW website).

Principal contractors must:

  • Provide workers compensation for injured workers.
  • Ensure workers compensation premium payments are up-to-date.
  • Classify subcontractors in the correct industry.
  • Declare an appropriate amount of wages for a subcontractors' insurance coverage.
  • Sign a declaration stating that all workers compensation premiums have been paid.

Labour hire agency responsibilities

A labour hire agency must provide workers compensation for their workers. Labour hire agencies must also work together with the host organisation to ensure health and safety in the workplace. This includes ensuring that workers are not exposed to on-site risks.

As you can see, hiring workers, contractors and subcontractors can be a complex process especially when it comes to knowing where you and they stand with workers insurance. It is very important to understand your SafeWork NSW responsibilities for these different types of workers, and when you may be required to pay compensation to help your business stay out of trouble.

Find more information on the SafeWork NSW website:

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