Workers compensation subcontractors rules in Western Australia have undergone significant changes. Following important information regarding changes to the WA Workers’ Compensation Act legislation (The Act) and who employers are required to cover, particularly when it comes to contractors and subcontractors (contractors), we wanted to provide you with this comprehensive update.
We now have actual contractor claims examples since these legislation changes:
Example 1: Bricklayer Claim Declined
A bricklayer who was injured on site and lodged a claim against the builder’s workers’ compensation insurance. The claim was declined by the insurer as the bricklayer was carrying out his normal duties i.e. bricklaying.
Example 2: Supervisor Claim Declined
A supervisor was injured on site and lodged a claim against the builder’s workers’ compensation insurance. The supervisor had been working for the builder for many years on a full-time basis, paid superannuation and invoiced the builder under an ABN and charged GST. The supervisor also performed work for others from time to time. The claim was declined by the insurer because they invoiced and charged GST to the builder and occasionally worked for others.
From claims examples, if a contractor is carrying out work for you that is standard to their trade, they are likely no longer covered under your workers’ compensation insurance. This includes sole traders.
Understanding your obligations for workers compensation subcontractors is now more critical than ever.
Unfortunately, The Act is unclear as to whether a contractor is covered when he is doing work under an ABN and solely working for you. Contractors doing work that is not standard to their normal trade i.e. a plumber engaged to do painting, still need to be declared and covered under your policy.
There are still many claims to be tested, and each claim will be assessed independently case by case to determine whether it meets the new criteria.
We obviously understand this leaves a lot of workers exposed.
The Safest Approach
The safest way to proceed is to advise all your contractors of the likelihood they are no longer covered under your workers compensation insurance due to these legislation changes, especially where they are doing work standard to their trade for you and others under their ABN.
The risk for you is if they do not work for others – then the Act is unclear, and an arbitrator may find your workers’ compensation policy applies.
For detailed information on contractor definitions, visit WorkCover WA’s employer FAQ page
Managing workers compensation subcontractors correctly protects your business from significant liability. Therefore, it is imperative you:
All workers compensation subcontractors need to understand their coverage obligations under the new legislation.
Contractors please note: Due to changes to WA Workers Compensation legislation, effective from 1 July 2024, you are likely no longer covered under your principal contractor’s Workers Compensation Insurance while you are performing work that is standard to your trade (irrespective of what your business structure is).
What You Need to Do
You need to ensure you have adequate cover for yourself in the form of your own Workers’ Compensation Insurance or personal insurances to protect your income and adequate Public Liability Insurance i.e. minimum $10M, for protection against third party injury or damages from your services.
Your Options to Protect Your Income
Taking out your own insurances is the best way to ensure coverage in the event of a claim until more test cases are known or legislation changed.
More guidance on workers compensation requirements in WA is available from WorkCover.
As a business owner, the best way to protect yourself is to ensure all subcontractors are Pty Ltd’s with their own Workers’ Compensation and having working directors listed on the policy.
Critical Policy Requirement
Further to this, the policy should include a “Principal’s Indemnity Extension” covering Act Benefits, Common Law and including a waiver of subrogation with your business name nominated on the policy. This prevents your subcontractor’s workers compensation insurer trying to recover the cost of the claim from your public liability policy.
There are two ways workers compensation subcontractors claims can now be shifted to your public liability policy:
First Scenario
If the contractor is not covered by your workers compensation policy; they will try and make a claim directly on your public liability policy claiming they are not a “worker” and unable to be covered by your workers compensation insurance. They are therefore a third party and seeking to be covered by your public liability policy.
Second Scenario
They are a Pty Ltd, did take out a workers’ compensation policy covering themselves as a working director and their insurer pays the claim. Their insurer then tries to recover the cost of the claim alleging you did not provide a safe work environment and are therefore negligent. The only way to prevent this happening is by the contractor including a Principal’s Indemnity Extension on their workers compensation policy.
Excess Increases
The excess on the public liability policy for these types of claims is high and will only be getting higher. The current excess starts at $10,000 however many insurers are above this i.e. $50,000, $100,000 or more.
Policy Exclusions
Some public liability insurers exclude these types of claims altogether, leaving you exposed.
Future Premium Impact
Given public liability insurers had not allowed for these changes in their premium calculations, we can only foresee a rise in premiums and excess, and some insurers may even exclude the cover or not write construction risks at all.
Have questions about workers compensation and how these changes affect your business?
Contact your Account Manager to discuss.
This information is provided as general guidance. For specific advice related to your circumstances, please consult with your insurance professional.
Contact us today for a detailed consultation. Our team is ready to provide tailored solutions that match the unique needs of your business.
Surefire Insurance Brokers Pty Ltd | ABN 33 664 956 567 | AFSL 554324
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