Guide
Contractor vs subcontractor: who needs what insurance
Contractors and subcontractors carry their own risk, and the person who engages them carries some too. Here’s the difference between the two, what each needs to hold, and the NSW statement that protects a principal contractor.
- Based on business.gov.au and Revenue NSW
- What head contractors can ask you for
What’s the difference between a contractor and a subcontractor?
A contractor runs their own business and is engaged by a client to do a job. A subcontractor is engaged by a contractor to do part of that job. Both are their own boss: business.gov.au says contractors work for themselves, may negotiate their own fees and working arrangements, often use their own tools and methods, and have different responsibilities from employees for insurance, tax and super.
Whether someone is an employee or a contractor isn’t settled by an ABN or an invoice. business.gov.au says it’s not as simple as whether or not they have an ABN or send invoices, and that a business incorrectly telling an employee they are a contractor is called sham contracting. Since 26 August 2024 the Fair Work Act uses a whole-of-relationship test to decide.
Who needs what
| Role | Usually holds | Why |
|---|---|---|
| Contractor | Public liability, Tools & equipment, Commercial vehicle, and Workers compensation once they employ people. | They’re responsible for their own insurance, and clients ask for proof before work starts. |
| Subcontractor | Public liability and Tools & equipment at least; Income protection is often asked for on sites. | Head contractors ask for a certificate of currency, and some sites require income protection or personal accident cover. |
| Principal (head) contractor | Their own covers, plus checks on every subbie’s workers compensation. | In NSW a principal contractor can be liable for a subcontractor’s workers compensation premiums unless they hold a subcontractor’s statement. |
The NSW subcontractor’s statement
Under section 175B of the Workers Compensation Act 1987, a principal contractor in NSW can be liable for a subcontractor’s workers compensation premiums. The liability doesn’t arise if the subcontractor gives a written statement that its workers are covered for the period of the contract. Revenue NSW’s form says the statement must be accompanied by the certificate of currency for that insurance, and the principal must keep it for up to seven years.
If you engage subbies, ask for the statement and certificate before work starts. If you are the subbie, keep your certificate of currency current so you can supply it.
The gaps that catch contractors out
What a contractor usually needs
- Your tools aren’t covered by public liability. They need tools cover.
- Your ute needs commercial motor cover, not a private policy.
- Your income if you’re hurt and can’t work. Income protection or personal accident cover.
- Your own employees need workers compensation once you hire.
What people assume is covered
- Faulty work isn’t repaired by public liability; it covers the damage the work causes.
- Contract works for the build itself is usually the head contractor’s, but check the contract.
- Injuries to you as a sole trader aren’t covered by workers compensation in most states.
- Other people’s subbies aren’t covered by your policy.
How to get contractor cover through us
Contractor and subcontractor insurance questions
Do subcontractors need their own insurance?
Usually yes. Subcontractors run their own business and head contractors ask for a certificate of currency for public liability before work starts.
Does a head contractor’s insurance cover subcontractors?
Not usually. A head contractor’s public liability covers the head contractor. Subbies hold their own, and a principal in NSW is relieved of liability for a subbie’s workers compensation premiums only with a subcontractor’s statement.
Does having an ABN make me a contractor?
No. business.gov.au says it’s not as simple as whether or not someone has an ABN or sends invoices. The whole relationship decides it.
What insurance does a head contractor ask for?
Public liability most often, usually with a certificate of currency showing the limit. Some sites also ask for income protection or personal accident cover.
What is sham contracting?
A business incorrectly telling an employee they are a contractor. It’s illegal, and the Fair Work Ombudsman handles it.
Compare the covers
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