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BUSINESS GET STARTED GUIDE - PART 4



Over the next 7 blogs, I will outline the steps and things you need to think about when opening a business.

4. Insurances

Workers compensation

1. What is it? Compulsory insurance for all employers for their employees for when they are injured during work

2. Cost? Depends on a number of factors including:

  • Amount of wages the employer pays

  • Industry the business operates in

  • Claims history of the business

3. Do you include your contractors? If they are true contractors and not an employee, then no. What is the difference?

  • The decision between a contractor or employee is objective, based on a number of key points. No single factor can be regarded as decisive, they must all be aded together to form a decision

  • If the employer pays less than $7,500 in wages then generally they are exempt

  • An ABN does not necessarily mean a contractor is not an employee for workers compensation purposes. A person may be hired as a contractor for tax purposes but this has no bearing on the decision relating to workers compensation purposes.

  • A contractor is more:

  • Engaged to carry out a particular task using his skill

  • Employs other workers

  • Is paid on a job basis, not a times basis

  • Supplies their own tools and materials

  • A contractor is more likely to be an employee for workers compensation purposes if:

  • They are under direction from the employer on what to perform and the hours they need to perform it

  • be required to carry out the work, i.e. not delegate the work

  • be paid on a times basis

  • tools and materials are supplied by the employer

  • works exclusively for an employer

  • Trusts - certain trust distributions are counted as wages for workers compensation purposes. When a trust distribution to a worker of the trust is paid in lieu o wages then the payment is counted as wages for workers compensation purposes.

  • Volunteers and unpaid work experience students are not workers under the Workers Compensation Act and therefore, no policy is needed to be taken out for them

  • Generally at the start of the year, you estimate your yearly premiums, this is what you will pay your premiums based on. At the end of the year you will provide your actual wages paid during the year and there will be an adjustment made

  • Premiums can generally be paid annually, quarterly or monthly

Public and Product Liability

1. Tradies for example have a responsibility to third parties being customers, employees, suppliers and the community.

2. This type of insurance aims to protect you for amounts that you could be liable to pay for personal injury and property damage to third parties in connection with your business activities.

3. What does this cover? 2 main types of claims:

  • Property damage caused on the worksite - i.e. smashing a car whilst bringing materials into the worksite.

  • Personal injury because of faulty workmanship - future claims that may occur to the occupant of the structure of any other member of the public due to your faulty workmanship.

Home warranty insurance

1. A builder must take out home warranty insurance when doing a job for more than $20,000 on a residential home.

2. It covers the home owner for compensation if the builder completes a defective or incomplete job, becomes insolvent, dies or disappears

3. This type of insurance is job specific, i.e. if you win a job for $100,000 at 20 XYZ Avenue Sydney, which is a home, you need to have home warranty insurance for this job specifically. This house should appear on your insurance certificate.

Income protection insurance

1. Insurance for when you are not able to work for a certain amount of time due to injury or sickness.

2. The idea is for the insurance to cover your expenses during this period. It usually covers 75% of your gross wages

3. Ideal for self employed people, small business owners or professionals where their business relies heavily on the individual

4. Premiums depend upon a range of factors including:

  • Waiting period that you need to wait before the insurance company pays out. This should take into consideration your annual and sick leave balances

  • Income level

  • Age

5. An estimated premium for a 28 year old male, builder, $80k income, 30 day waiting period is $145 per month.

Life/TPD/Trauma Insurance

1. Life

  • Pays a lump sum to your beneficiaries if you die

  • Important if you have other peoples relying on your income like a spouse and kids. Even more important if you have a mortgage as well.

2. Total Permanent Disability (TPD)

  • Pays a lump sum if you are not able to ever work again due to a life long disability

  • Mainly used to pay out any debt that you have and your medical expenses

3. Trauma

  • Pays a lump sum if you experience a traumatic event like cancer, heart attack, stroke, accident

  • Mainly used to pay out medical expenses, lifestyle changes due to the traumatic event and taking time off work

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