Consequences for employers who fail to include eligible independent contractors in their workers’ compensation insurance policy
Some employers may not realise that they have an obligation to provide workers compensation insurance cover to sole trader contractors by including payments made to such contractors in the assessable wages figure used by WorkCover Queensland to calculate their annual premiums. The consequences of failing to do so can be severe, with WorkCover granted substantial discretionary powers under the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (Act) to assess premiums by default and impose additional penalties on non-compliant employers.
The Act requires employers to provide all “workers” engaged by the employer with workers’ compensation insurance cover. The definition of “worker” extends beyond mere employees to include all sole trader contractors engaged by the employer, unless the contractor:
- Has a personal services business determination in effect under the Income Tax Assessment Act 1997; or
Satisfies the following criteria:
- the contractor is paid to achieve a specified result or outcome;
- the contractor supplies all plant, equipment and tools of trade necessary to perform the contracted work; and
- the contractor is liable for the cost of rectifying any defect in the work they perform.
It can be difficult to demonstrate that a sole trader contractor has been engaged to achieve a specified result or outcome. As all three criteria must be met in order to exempt such contractors, many employers are unknowingly under declaring the assessable wages used by WorkCover to calculate their annual insurance premium.
As the entity responsible for providing workers’ compensation insurance to the majority of private sector employers in Queensland, as well as ensuring employers complying with their obligations under the Act, WorkCover has the power to audit employers to determine whether they have sufficient cover. These audits may be random, or form part of a campaign targeted at specific industries (for example, building and construction and transport).
Employers are required to cooperate with WorkCover by providing access to relevant financial records and documentation. A failure to provide requested information can result in WorkCover imposing a default assessment on the employer, estimating the assessable wages figure, and therefore the premium payable by the employer, upon whatever information has been made available to WorkCover.
If WorkCover concludes that the assessable wages paid by the employer for the financial year upon which the audit is based are more than the wages originally declared by the employer, WorkCover can:
- Require the employer to pay an additional premium for the audited financial year;
- Use the assessable wages figure calculated for the audited year as the correct figure for the following three financial years, which may require the employer to pay additional premiums in respect of each of these years also; and
- Impose a maximum penalty of 100% of the value of the additional premiums payable by the employer, effectively doubling the size of the debt owed to WorkCover.
The Department of Justice and Attorney General is currently conducting a wide ranging review of the workers’ compensation scheme under the Act, which will examine the current approach to calculating insurance premiums, as well as WorkCover’s powers to impose default assessments and penalties on employers.