Not the most exciting insurance topic… until someone actually needs it.
In New South Wales, most employers are required to have workers compensation insurance. It is designed to support workers who are injured or become ill as a result of their work, while also helping employers manage the financial impact of workplace claims.
What is it? Put simply, it is a legal requirement for most employers in NSW. In most cases, you need to have this insurance as soon as you employ someone, unless your business qualifies for an exemption.
This applies even if you:
- employ only one worker
- employ someone on a full-time, part-time or casual basis
- hire workers for short-term or seasonal work
- employ a family member
So yes, even if it is ‘just one person helping out,’ workers compensation may still apply.
Workers compensation is governed by state legislation, which means the rules differ across Australian States. This article focuses on New South Wales requirements. In NSW, workers compensation is regulated by the State Insurance Regulatory Authority (SIRA) under the Workers Compensation Act 1987 (NSW). Policies are issued through approved insurers and scheme agents, such as iCare.
Under this legislation a ‘worker’ is broadly defined, and this is where things can get a little trickier than expected. Under NSW legislation, a worker can include:
- employees, including apprentices and trainees
- working directors, unless a specific exemption applies
- certain contractors, particularly where:
- they are paid mainly for their labour
- they work under your direction or control
- they are not operating an independent business
This means that some contractors may need to be included in your workers compensation wage declarations, even if they have an ABN and send you invoices. An invoice is helpful, but it is not a magic invisibility cloak.
A typical policy may provide cover for:
- medical, hospital and rehabilitation expenses
- weekly payments to replace lost income
- return-to-work and injury management support
- lump sum compensation for permanent impairment
- death benefits payable to dependants
Workers compensation premiums are generally based on three key factors:
- Industry classification (WIC code) – this reflects the risk profile of your business.
- Claims history – this is relevant for existing employers.
- Declared wages – this is a major component of the premium calculation, which makes accuracy especially important.
Declared wages generally include all remuneration paid or payable to workers, such as:
- gross wages and salaries
- overtime
- allowances
- bonuses and commissions
- directors’ fees, where applicable
- payments to relevant contractors deemed to be workers
- employer-paid superannuation
Items generally excluded from declared wages include:
- payroll tax
- genuine expense reimbursements
In other words, if it looks like wages, walks like wages and sounds like wages, it probably needs to be considered.
When taking out or renewing a policy, employers need to estimate wages for the upcoming policy period. At the end of that period, insurers usually carry out a wage reconciliation or audit to compare:
- estimated wages against actual wages paid
- whether an additional premium is payable if wages were under-estimated
- whether a refund or credit applies if wages were over-estimated
To verify wage declarations, insurers may request documents such as:
- payroll summaries
- contractor invoices
- BAS data
- financial statements
Under-declaring wages, whether intentional or accidental, can lead to:
- additional premiums and backdated adjustments
- penalties and interest
- increased audit scrutiny
- policy compliance issues
- potential exposure to uninsured claim costs
SIRA also has enforcement powers where employers fail to maintain the correct coverage.
A few practical steps can make life much easier:
- base wage estimates on payroll records and financial forecasts
- review contractor arrangements regularly
- notify your insurer if wages increase materially
- maintain accurate payroll and contractor records
- seek professional advice where worker classification is unclear
Workers compensation insurance is not optional for most NSW employers. Making sure your wages are declared accurately helps ensure compliance with the law, correct premium calculations, and proper protection for both your workers and your business. If your workforce, payroll, or contractor arrangements change, it is a good idea to review your workers compensation declaration sooner rather than later. It is much better to update things early than to have an awkward conversation during an audit.
If all of this feels like a lot, you are not alone. We can assist with determining the correct wage figures and reviewing your position, so please reach out if you would like help.
– Heida Bell
Posted 10.03.2026
This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.
