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With self-employed individuals making up over 63% of all businesses in Australia (and small businesses constituting over 97% of total Australian businesses as at June 2025)^[1], understanding how workers’ compensation entitlements apply to self-employed persons is more pertinent than ever.

What are your options if you are no longer able work in your business due to an illness or injury?

What is workers’ compensation insurance?

Workers’ compensation is a type of insurance which provides payments to employees if they are unable to work due to work-related illness or injury. These payments can include but are not limited to loss of wages for the period the employee is unable to work and medical/treatment expenses relating to the work-related illness or injury.

Workers’ compensation is mandatory for all businesses who employ workers in Australia and is regulated by state and territory governments. According to Safe Work Australia, as at 2025, the highest frequency of serious workers’ compensation claims were made in the agriculture, public administration, transport/warehousing, manufacturing, health care and construction industries.^[2]

Who classifies as a worker?

In Victoria, the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) defines a worker as an individual who performs work for an employer or agrees with an employer to perform work at the employer’s direction/request (including but not limited to under a contract of employment). Similar definitions exist in equivalent legislation across all other Australian states and territories.

Sole traders – that is, a self-employed person who owns and operates their business as an individual and is solely responsible for all aspects of their business – are not considered employees and are therefore not covered by workers’ compensation insurance. However, sole traders may utilise alternative options (including income protection insurance or total and permanent disability insurance) to protect themselves in the event of illness, injury and subsequent loss of income, particularly as they are not subject to workplace protections ordinarily available to employees and may be especially susceptible to the adverse financial impacts of an illness or injury.

Contractors and subcontractors – that is, a person or company who provides services for another person, business or, in the event of subcontractors, a principal contractor – are not considered employees and are therefore not automatically covered by the workers’ compensation insurance of their principal employer. However, contractors and subcontractors may be considered ‘deemed workers’ if they meet certain criteria, which means that they are treated as an employee/worker for the purposes of potential workers’ compensation entitlements.

This criteria includes (but is not limited to) undertaking work/services primarily for one employer, an employer having significant supervision and control over the contractor’s work, the integration of the contractor into the employer’s business, and receiving ongoing work and/or payments from the employer.

What if I am an employee of my own company?

An individual can be considered an employee of a company that they own and control (and therefore covered by workers’ compensation insurance), depending on the legal status of the company.

For example, if a company is incorporated under the Corporations Act 2001 (Cth), it exists as a standalone legal entity and has its own legal personality – that is, the company is able to act as the employer of people, including its owners and directors, and is legally recognised as the employer of these individuals.

If an individual owns and manages their own company (that is, acts as both an owner and director of the company) and draws a wage/salary from the company, they are considered a ‘working director’ and are deemed as a worker/employee under the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic), and are therefore entitled to workers’ compensation.

Even if the owner of an incorporated company does not act as a working director, they can still be considered a worker/employee of their company if a ‘contract of service’ exists between them and the company – factors taken into consideration when ascertaining whether a contract of service exists include the worker’s ability to delegate their work, whether the worker is required to work during set hours and from a set location, and the worker’s level of integration within the company. If an individual is employed by their own company, then they are considered a worker of the company and must register for workers’ compensation insurance.

Conversely, an unincorporated business does not have its own distinct legal personality and cannot act as an employer. This means that an owner of an unincorporated business – known as a proprietor or partner – cannot be employed by the business and is therefore not considered a worker/employee within the meaning of the relevant legislation and is not covered by worker’s compensation insurance in the event of work-related illness or injury.

An important consideration for all self-employed individuals and company/business owners is the business structure they wish to conduct their work under, as this determines – among other things – the individual’s status as a worker/employee (or otherwise) under the relevant workers’ compensation legislation, and therefore their potential entitlement to payments should they be unable work due to illness or injury. It is critical that self-employed individuals who are not protected by workers’ compensation insurance (including sole traders and contractors who are not considered ‘deemed workers’, particularly those working in higher risk vocations) take appropriate measures – including taking out alternative forms of insurance, such as income protection insurance – to protect themselves the event of illness, injury and subsequent loss of income.

^[1] https://www.asbfeo.gov.au/small-business-data-portal/number-small-businesses-australia

^[2] https://data.safeworkaustralia.gov.au/insights/key-whs-statistics-australia/latest-release

This article was published on 23 February, 2026 by Carroll & O’Dea Lawyers and is based on the relevant state of the law (legislation, regulations and case law) at that date for the jurisdiction in which it is published. Please note this article does not constitute legal advice. If you ever need legal advice or want to discuss a legal problem, please contact us to see if we can help. You can reach us on 1800 301 601 or via the Contact us page on our website. (www.codea.com.au). If you or a loved one has been injured, use our Personal injury Claim Check now.