The Risks of Operating Without Workers Compensation Insurance in NSW

By Sebastian Cannavo | Senior Associate

In New South Wales (NSW), Workers Compensation insurance is not just a regulatory checkbox—it is a legal obligation and a critical safeguard for both employers and employees.

For employers, failing to hold a valid Workers Compensation policy can have serious financial and criminal consequences for the employing entity, and company directors personally. Importantly, it does not stop an employee from being able to make a claim.

Who Needs a Workers Compensation Policy?

In NSW, it is a legislative requirement that any person or entity that employs workers, whether full-time, part-time, or casual, is required to hold a Workers Compensation insurance policy. This includes working directors of companies, households employing domestic help, and farmers hiring labourers. It can also include contractors, depending on the specific relationship between the contractor and employer.

The policy covers costs such as:

1. Weekly compensation payments.
2. Medical and hospital expenses.
3. Rehabilitation services.
4. Lump sum payments for death or permanent impairment.
5. Common law damages for Work Injury Damages Claims.

There are extremely limited exemptions under which an employer does not need to hold a Workers Compensation policy, with the main one being that the employers pay less than $7,500.00 in annual wages.

Further, if an employer operates outside NSW, it may need to obtain a Workers Compensation policy from that State or Territory, or subscribed to the federal Comcare programme, which covers all of Australia.

Legal Consequences

Failing to hold a valid Workers Compensation policy can result in severe penalties. These include:

1. Civil penalties - Employers may face a “double avoided penalty,” which is twice the amount of the premium they should have paid.
2. Fines – A maximum of 500 penalty units.
3. Imprisonment - If a worker is injured and the employer lacks insurance, the employer may face up to six months in prison.

Further, as a lack of valid Workers Compensation insurance does not preclude an employee from making a claim, employers may face legal costs to defend proceedings, and also having to repay icare, as the Nominal Insurer, for any compensation paid to an injured employee.

Additional Employer Obligations

Under the scheme, employers have additional obligations, including:

1. Maintaining wage records and a register of injuries, which ensures that annual premiums are correctly calculated.
2. Notifying insurers of incidents within 48 hours. A late notification report may see an employer face an excess, being the equivalent of one week of the injured worker's entitlement to weekly compensation payments.
3. Establish and display a return-to-work programme.
4. Cooperate with injury management plans.
5. Provide suitable employment where possible.

Failure to meet these obligations can result in further penalties, ranging from $220.00 to over $6,000.00m depending on the breach and the employer category.

Practical Advice for Employers

All employers in NSW should check each year that they hold a valid Workers Compensation policy and:

1. Ensure all workers, including contractors and apprentices, are properly classified, as this may change the insurance premium.
2. Notify icare immediately to avoid administrative penalties for late claim.

Conclusion

Workers Compensation insurance is a cornerstone of workplace safety and legal compliance in NSW. Employers who neglect this jeopardise their financial stability, due to the potential legal costs, repayments and penalties, but also risk criminal liability, for both employers and company directors.

Got questions about workers compensation or injury compensation law? 

Navigating Workers Compensation obligations can be complex — and the consequences of getting it wrong are serious.

Our Injury Compensation team can provide advice to ensure your business is compliant, help you respond to claims, and protect you from unnecessary risk.

📞 Call us: 02 4626 5077
📧 Email Sebastian: scannavo@marsdens.net.au 
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The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.