What Is Workers' Compensation Insurance and What Does It Cover?

Workers compensation insurance can pay for medical costs, lost wages and rehabilitation when a worker is hurt or gets sick because of work. Employers must have it, and the rules differ in each state (Safe Work Australia).

What is workers compensation insurance?

Workers compensation insurance is a form of insurance that can pay for the medical costs and other expenses of work-related injuries and illnesses. Workers compensation insurance can cover both temporary injuries, such as a sprained ankle or broken leg, and permanent impairments, such as hearing loss or back injuries. Under Australian law, employers must have insurance to cover their workers in case they get sick or injured because of work (Safe Work Australia). In some states, contractors can count as workers too; in WA, for example, check with WorkCover WA whether the contractors and subcontractors you use count.

What does workers compensation insurance cover?

Workers compensation insurance covers medical expenses, rehabilitation and lost wages for an injured employee, depending on the injury and the rules of the state's scheme. Depending on the injury or illness, it may also pay a lump sum for a permanent impairment, and funeral expenses and support for dependants if a worker is killed at work (Safe Work Australia). Depending on your state's rules, cover can also extend to some incidents that happen away from the usual workplace but are connected to the job.

If you are hurt at work, report it to your employer as soon as you can. How a claim is lodged depends on your state's scheme (Safe Work Australia). If the claim is accepted, benefits are paid under the rules of that scheme. Employers who don't hold the insurance they need can be fined (WorkCover WA).

Why workers compensation insurance is essential

Workers compensation insurance is a legal requirement for employers. It does not cover sole traders themselves (business.gov.au). This type of insurance provides compensation to employees who are injured while working and can help them get the medical attention they need to recover. Without workers compensation, employers could face the full cost of an injured worker's claim, and WorkCover WA explains what the insurance covers for employers in WA (WorkCover WA).

A workers compensation policy can cover medical expenses, lost wages and other benefits. If a worker is injured on the job, they can receive treatment for their medical needs and continue to receive some income while recovering from their injury.

What are the legal requirements of workers compensation insurance?

Businesses with employees must generally have workers compensation insurance, although the rules differ by state (see below). Workers compensation insurance is compulsory, meaning that employers are required to provide it for their employees. If an employer does not hold the insurance it needs, it can be fined, and it may also have to pay the cost of claims itself.

Depending on the state, injured workers may also be able to make a common law claim against their employer for negligence if unsafe conditions caused the injury. In addition, when an employee is disabled by a job-related injury or illness, they may receive benefits under the workers compensation system while they recover, subject to the scheme's rules and limits.

How the rules differ between states

Australia has 11 main workers compensation schemes: one for each state and territory, and 3 Commonwealth schemes. Each one is governed by different laws and may vary in the way it operates (Safe Work Australia), so check the rules where you work:

• In New South Wales, check with icare whether your business needs a policy.
• In Queensland, check with WorkCover Queensland who your policy needs to cover.
• In Western Australia, check with WorkCover WA who counts as a worker.

For the other states, read do sole traders need workers compensation insurance, or check with the regulator in your state or territory.

Where to ask about workers compensation

Questions about your state's rules? Your state's workers compensation regulator can explain them. Questions about cover for your business? Contact us, Monday to Friday, 9am to 5pm. You can also read more guides for tradies.