Perhaps your online retail store has outgrown its one-man status and you’re hiring a small team to handle packing and shipping. Or maybe you’re a tradie taking on your first apprentice. You might have just opened a cafe and are starting to recruit everyone from a barista to an in-house baker.
Regardless, if you’re at the helm of a small business that has employees, or you’re in the process of starting a business and hiring staff, by now you’ve probably heard of workers compensation insurance.
But what exactly is it – and who, exactly, does it cover? Is it mandatory for every type of business that employs staff in Australia, or do the laws differ around the country? And where does workers compensation fit in among other types of business insurance you might want, or need to, consider getting?
To help you get your head around how workers compensation insurance works in Australia, including what it covers and what it doesn’t, we’ve put together this guide to answer some common questions.
What is workers compensation insurance?
Workers compensation is a form of insurance that employers take out from an authorised insurer in their state or territory.1
It can provide payments to employees if they’re injured at work or become sick because of their work,2 whether it’s a physical or mental health injury or illness.3 In some states and territories, workers compensation may even cover workers if they’re injured in an accident or incident on the way to or from work, or during their lunch break.4,5
When is workers compensation insurance required?
In most cases, if a business has employees, it must have workers compensation insurance in place.1,6
There are, however, some limited circumstances when an employer may be exempt from taking out workers insurance, depending on where the business operates in Australia.7
For example, in New South Wales, a business doesn’t need workers compensation insurance if it meets all of the following requirements:7
- Pays $7,500 or less in wages in a financial year
- Doesn’t employ an apprentice or trainee
- Isn’t a member of a group of related businesses
- Isn’t involved in one of several specific industries, including – but not limited to – taxi driving, hire car driving and horse racing.7
You can check how to comply with the workers compensation laws in your state or territory – and where to get workers insurance for your employees from – by contacting your local regulator:1
- Workers compensation ACT: WorkSafe ACT
- Workers compensation NSW: State Insurance Regulatory Authority
- Workers compensation NT: NT WorkSafe
- Workers compensation Qld: WorkCover Queensland
- Workers compensation SA: ReturnToWorkSA
- Workers compensation Tasmania: WorkSafe Tasmania
- Workers compensation Victoria: WorkSafe Victoria
- Workers compensation WA: WorkCover WA
Do sole traders need workers compensation insurance?
If they employ staff, then yes, sole traders need to organise workers compensation insurance to cover their employees.8
On the other hand, sole traders who don’t employ anyone don’t need to take out workers compensation insurance.6
What does workers compensation insurance cover?
Workers insurance provides compensation for workers if they get sick or injured because of work, to help cover their:2
- Wages while they’re not fit for work
- Medical expenses and rehabilitation.2
Workers compensation benefits may also provide a lump sum payment to an employee if they’re permanently impaired by a personal injury or illness caused by a work-related incident.9
Who does workers compensation insurance cover?
Workers compensation laws vary slightly in each state and territory,1 but generally speaking:
✓ All employees require coverage, including full-time and part-time workers, as well as casual staff, apprentices and trainees.10
✓ If your business hires an independent contractor or subcontractor, they might also need to be covered, depending on state or territory laws.5,11
メ Business owners and company directors aren’t automatically covered – although some schemes do allow working directors to opt in.10
メ Sole traders and small business owners running a business in a partnership can’t be covered by workers compensation insurance.1,6
メ Volunteers don’t usually fall under workers compensation schemes, but it can be a good idea to check with your state regulator to be sure.10
How much is workers compensation insurance?
When it comes to workers compensation insurance, cost varies around Australia because it’s regulated differently from state to state.5
Other factors that may also affect the cost of workers insurance include how much a business spends on remuneration, the industry it operates in, and what its compensation claim history looks like.5
What doesn’t workers compensation insurance cover?
There are several situations that workers compensation doesn’t provide cover for.1 So, while workers compensation insurance is mandatory if your business employs staff, relying on it to cover all of your business risks could potentially be an insurance mistake.1
Some of the events or business risks that workers compensation doesn’t provide cover for include:1
If a customer gets injured while they’re visiting your business
For example, if someone slips and falls on a freshly mopped floor or trips on a loose cable and gets hurt.12,13
While workers compensation insurance can cover your employees if they get injured in situations like these,2 it doesn’t cover your business against liability claims if a customer or member of the public gets injured because of your negligence.1
So, if you think your business might benefit from that kind of cover and you also employ staff, you may wish to take out both public liability insurance and workers compensation insurance.1
Public liability insurance may be useful for any business that interacts face to face with customers, whether they visit your premises or you visit theirs.14 It’s also mandatory for some occupations in some states and territories,1 and can cover:1
- Third party injuries1 – Caused by circumstances such as the ones mentioned above
- Third party property damage1 – For example if a tradie accidentally damages a client’s fence during a job,12 or a fire breaks out in a cafe’s kitchen while the chef is cooking, damaging the landlord’s building.1
If one of your products hurts someone
For example, if a customer gets an electrical shock after buying a faulty appliance from you.4
If your business makes, sells or supplies goods, product liability insurance can cover you against claims for injury, loss or damage caused by any of your products.1 This may apply even if you’re in the business of simply repairing or servicing products.14
If you’re a professional and get sued by a client for giving faulty advice
For example, if you’re operating an accounting or tax advisory business and make an error when advising a client about their tax obligations, causing them to suffer a financial loss.15
If the client makes a claim against your business, professional indemnity insurance could cover this.1
Professional indemnity cover is a type of business insurance that’s mandatory for a range of professions in Australia,1 such as lawyers, tax agents and architects,16-18 and can help cover costs and liabilities arising from claims relating to advice or services involving:1
- Mistakes
- Neglect
- Breaches of contract.1
If you’re a sole trader and you get injured on the job
For example, if you’re an electrician working for yourself and you slip and fall, injuring your back.19
As we’ve already mentioned above, workers compensation doesn’t cover sole traders1 – although an exception to this could be if you’ve been hired by another business as a contractor or subcontractor.5,11 In some states and in some situations, the hirer’s workers compensation insurance may cover you.5,11
If you’re a self-employed sole trader who doesn’t qualify to get workers insurance cover, income protection insurance could help cover your bills if you can’t work.20 If you have a superannuation fund, it might be worth checking whether income protection insurance is included as part of the package.20
If something puts your business out of action for a while
For example, if an event such as a fire, flood or burglary means you can’t trade normally for a period of time.14
Business interruption insurance can cover this and could help pay for things such as your business’s loss in gross profit or increased costs of working while you’re getting back on your feet.1,14
If your stock or equipment gets damaged or stolen
For example, if:1
- A fire or storm damages your stock
- Your equipment gets lost or damaged due to a break-in or theft
- Items you buy, sell or use in your business are lost or damaged during transport.1
Different types of stock, products and asset insurance could cover your business for events such as these.1
If your store’s glass shopfront gets broken
For example, if it’s smashed by stones that a passing truck throws up from the road, or intentionally damaged by vandals.4
Glass insurance can cover loss or damage to glass you’re legally responsible for at your business premises,4 which could include shopfronts and other types of glass, even if you’re leasing the space.21
What does Youi Small Business Insurance cover?
Youi’s Small Business Insurance includes Public and Products Liability cover as standard.22 Business owners can choose from three levels of business liability cover – $5million, $10million and $20million.22
Business operators can also choose from a number of optional covers – some of which we’ve already outlined above – to add to a Small Business Insurance policy at Youi, for an additional cost. These include:
- Business interruption – If an unexpected event forces you to temporarily close your doors or interrupts the usual running of your business, this helps cover your lost profit and extra operating costs.23
- Professional indemnity – For qualifying businesses, this optional cover can help cover civil liability claims that arise from the professional advice or specialist services you provide to clients.23
- Glass – There’s also the option to add cover for loss or damage to the glass you’re responsible for at your business premises, which may include glass windows and shopfronts.24
- Business property damage – Under this optional cover, contents at your business premises are covered for loss or damage caused by events such as fire, storm, flood or theft. Stock in trade is also covered both at the premises and while it’s in transit to or from your business, and refrigerated food or stock is covered for deterioration.25,26
- Business items – This option covers loss or damage to your portable business items, including electronic devices and tools of trade, anywhere in the world.27
Taking on staff is a major business milestone, but it can deliver a new set of responsibilities, one of which is likely to be organising workers compensation insurance. But, as this guide highlights, while that type of insurance can be a legal requirement, it might leave a few insurance gaps for other business risks. To discover whether Youi’s Small Business Insurance could help to fill those for you, you might like to give our team a call on 1300 010 648 or consider starting a quote online.
Public and Products Liability Insurance issued by Youi Pty Ltd. Consider the Small Business Insurance PDS and TMD to decide if this product is right for you.
1 Source: Australian Government – Types of business insurance, n.d.
2 Source: Australian Government Fair Work Ombudsman – Workers compensation, n.d.
3 Source: Safe Work Australia – Workers’ compensation for psychological injuries, n.d.
4 Source: Qld Government Business Queensland – Business insurance, September 2024
5 Source: Finder – Workers’ compensation insurance. An essential thing for employers, April 2026
6 Source: NSW Government icare – Do I need Workers Compensation Insurance?, n.d.
7 Source: NSW Government State Insurance Regulatory Authority – Exemptions, December 2024
8 Source: Australian Government – Sole trader, n.d.
9 Source: Safe Work Australia – Workers’ compensation, n.d.
10 Source: Sprintlaw – Understanding Workers Compensation Insurance: What Australian Employers Need To Know, October 2025
11 Source: Safe Work Australia – Table 3.2a:Summary of coverage, n.d.
12 Source: Sprintlaw – Public Liability Insurance Explained: Why Your Business Needs It, February 2025
13 Source: Australian Government Creative Workplaces – Business insurance, n.d.
14 Source: Business Victoria – Find the right insurance, October 2022
15 Source: Tax Practitioners Board – Professional Indemnity Insurance, April 2026
16 Source: LawyersWeekly – Top-up time: Don’t get caught short with your professional indemnity insurance, May 2025
17 Source: Australian Government Tax Practitioners Board – Professional indemnity insurance, April 2026
18 Source: Australian Institute of Architects – Professional indemnity insurance basics, October 2025
19 Source: Monaco Compensation Solicitors – What Injuries Does Workers Compensation Cover?, n.d.
20 Source: Moneysmart – Self-employment, n.d.
21 Source: Qld Small Business Commissioner – Repairs and maintenance, n.d.
22 Exclusions, limits and additional fees may apply. For full details, see the Small Business Insurance PDS.
23 An additional cost applies for optional covers. Conditions, limits and exclusions apply. For full details, see the PDS & Policy Wording.
24 Glass cover is optional and an additional cost applies. Conditions, limits and exclusions apply. For full details, see the PDS & Policy Wording.
25 Business Property Damage cover is optional and an additional cost applies. Conditions, limits and exclusions apply. For full details, see the PDS & Policy Wording.
26 Loss or damage caused by flood, storm or bushfire within the first 72 hours of your policy commencing is only covered in limited circumstances. For full details, see the PDS & Policy Wording.
27 Business Items cover is optional and an additional cost applies. Conditions, limits and exclusions apply. The most we will pay for each item is $2,500, up to a total of the Business Items amount noted on your policy schedule per claim, unless a High Value Business Items amount is noted on your policy schedule, in which case the most we will pay for all items with a replacement value of more than $2,500 is the High Value Business Items amount shown on your policy schedule.
