Contractors and Sub-contractors - are they workers or employers?
The simple answer is that they could be a worker, an employer or even both.
There appears to be some uncertainty, particularly in the construction industry, regarding this situation. Many ‘contractors’ in the construction industry are being told they are required to ‘take out’ workers’ compensation insurance to cover themselves when in fact, depending on their circumstances, a contractor may be considered a worker of the business contracting them.
The Workers Compensation Act 1951 (the Act) requires all employers in the ACT to have a workers’ compensation insurance policy in place to cover their workers in the event of a workplace related injury.
The Act states an employer includes—
An employer may be someone who employs workers under a ‘contract of service’, or in certain circumstances a ‘contract for service’. A contract can be made either orally or in writing, and applies to full time, part time and casual workers.
For the purpose of workers compensation, the definition of a worker may also include regular contractors and casuals who work:
Additionally, under Territory legislation if a contractor (the principal contractor) subcontracts any part of the work, they may be liable to pay compensation for a worker employed by the subcontractor. This can occur when the subcontractor does not have adequate workers’ compensation insurance to cover its workers. If the principal pays compensation to a worker of a subcontractor, they would be entitled to seek reimbursement from the subcontractor if they were deemed to be a person who would have been liable to pay compensation to the worker if they had held a compulsory workers’ compensation policy.
Freddy McKellar is a labourer and works for Tom Knight, a brick-layer, and has done for about 7 weeks. Tom employed Freddy to assist him complete a job for DK Constructions.
Tom Knight is Freddy’s employer. If Freddy was injured during the course of employment, and Tom doesn’t have a workers compensation policy, Freddy may claim compensation from DK Constructions as the principal. If Tim makes a claim for compensation against DK Constructions, DK Constructions is entitled to be indemnified by Tom Knight.
Tim Jones is a carpenter. He is a sole trader and therefore unable to take out a workers compensation policy to cover himself. He has his own ABN – pays his own taxes & GST. His main source of income is from Mario of Mario’s Building Services. He has worked for Mario for 6 months and works most Monday to Friday’s for Mario. Mario has a contract with Tarango Constructions to do the carpentry at Complex 481, a block of apartments in the city. Tim has been working at the complex for Mario in the city for the past 4 & ½ months and the job is only half completed.
Tim Jones would be considered a worker. Mario is Tim’s employer. If Tim is injured, and both Mario and Tarango Constructions do not have a current workers compensation policy, Tim would need to make a claim under the safety net arrangements, the Default Insurance Fund (DI Fund).
Please note: Where an employer fails to maintain a compulsory insurance policy, and a claim has been made to the DI Fund, the DI Fund is entitled to recover up to three times the amount of compensation paid to the injured worker and up to three times the premium that would have been payable to an insurer.
WorkSafe ACT may also apply penalties for not maintaining a compulsory workers compensation policy in the ACT. The maximum penalty is 250 penalty units, being $25,000 for an individual, $125,000 for a corporation and/or imprisonment for 2 years.
To avoid this situation, principal contractors should ensure that all subcontractors who employ workers have the correct workers’ compensation insurance in place to cover those workers.
In 2005/2006 there were over 490 accepted claims in the private sector construction industry, totalling an estimated cost of over $12 million dollars. Given these figures, the number of sub-contractors employed, and the degree of risk associated with the type of duties performed by workers in the building and construction industry, it is imperative that all employers within the industry understand their obligations with respect to workers’ compensation insurance coverage for their workers.
By being aware of your workers’ compensation obligations and implementing strategies to meet these requirements, you are contributing to providing a working environment that ensures the health, safety and welfare at work of all workers.
The Office of the Australian Building and Construction Commissioner (ABCC) is responsible for investigating sham contracting arrangements in the building and construction industry.
For further information please contact the ABCC Hotline: 1800 003 338 or visit www.abcc.gov.au
The Department of Education, Employment and Workplace relations also has an ‘Independent Contractors Hotline’: 1300 667 850
Or visit www.workplace.gov.au