Mark 1 of 5 · Wages
Workers compensation insurance in NSW: when a policy is required
In NSW an employer must hold a workers compensation policy from a licensed insurer unless it is an exempt employer, and the exemption limit is low: under the Workers Compensation Act 1987, in the version current from 1 October 2026, an employer is exempt only while it has reasonable grounds for believing its wages for the financial year will be not more than $7,500, or another limit the Workers Compensation Market Practice and Premiums Guidelines fix. An employer that is a member of a group constituted under Division 2A of the Act, or that employs a person under a training contract, is not exempt at any wages level.
General information, not legal or insurance advice. The official places to check are icare’s employer pages and the Act, listed at the foot of this page.
The rule in the Act
Section 155(1) says an employer, other than a self-insurer, “shall obtain from a licensed insurer, and maintain in force, a policy of insurance” covering its liability to all the workers it employs. icare puts it in plain words: most NSW employers need a policy, and anyone who pays or hires someone to work for them, full time, part time or casually, under a verbal or written contract, is an employer.
The section also sets the maximum penalty for going without. For an employer that is not a large employer it is 500 penalty units, 6 months’ imprisonment, or both; for a large employer, the greater of three times the premium that would have been payable or 1,000 penalty units, or 2 years’ imprisonment, or both. Section 155(1AA) adds: “An employer must not at any one time maintain in force more than one policy of insurance for the purposes of subsection (1)”, leaving aside a policy taken out to comply with section 31 of the Coal Industry Act 2001; the maximum penalty is 500 penalty units.
The exemption, as the Act words it
icare’s page says an employer does not need a policy if it meets all of these criteria:
- pays $7,500 or less in wages in a financial year
- does not hire an apprentice or trainee
- is not a member of a group of businesses.
Section 155AA, which sets the exemption, is worded more exactly, and the differences matter to a business that is growing.
- It looks ahead
An employer is exempt during a financial year “while the employer has reasonable grounds for believing” that the wages payable to its workers during that year “will be not more than the exemption limit” (section 155AA(1)). The test is the wages expected for the year, and it holds only while that belief is reasonable.
- The limit can move
The exemption limit is “$7,500 or such other amount as may be fixed by the Workers Compensation Market Practice and Premiums Guidelines” for that financial year, and a financial year is 12 months from 1 July (section 155AA(8)).
- Two conditions end it
An employer is not exempt whenever it is a member of a group constituted under Division 2A, or “employs a person under a training contract (within the meaning of the Apprenticeship and Traineeship Act 2001)” (section 155AA(2)).
- Wages include trusts
Wages means wages as defined in section 174, including a distribution to a worker as a beneficiary under a trust that would count as wages under section 174AA.
What an exempt employer still carries
Exempt does not mean uninsured. The Act treats an exempt employer as holding an exempt employer policy from the Nominal Insurer for the time it is exempt, and “No premium is payable for an exempt employer policy” (section 155AA(3)). An administration fee set by the regulations is payable for each claim made against the employer for an injury in that time (section 155AA(5)); icare’s page, read on 9 October 2026, puts the fee at $175.
icare also says an exempt employer must still act if someone is injured working for it, including reporting any work-related injury to icare Workers Compensation, and asks an employer whose situation changes to check with icare whether it now needs a policy.
Who counts as a worker
| Person | icare’s position |
|---|---|
| Contractors and subcontractors | Can be counted as workers in law, even when the business does not hire them directly. icare refers readers to the list in Schedule 1 of the Workplace Injury Management and Workers Compensation Act 1998. Documents supporting the exclusion of a contractor’s wages from a declaration are kept for five years. |
| The owner as sole trader, proprietor or partner | Cannot be covered by their own workers compensation policy, and needs no policy while there are no employees. |
| Someone paid by a trust | Counted as a worker if paid by the trust, or if tax or super is taken out from it. |
| Volunteers and unpaid work experience students | Not workers under workers compensation law, though the business still keeps their working environment safe. |
| Apprentices and trainees | icare lists not hiring an apprentice or trainee as a condition of the exemption. Under the Act, an employer is not exempt whenever it “employs a person under a training contract (within the meaning of the Apprenticeship and Traineeship Act 2001)”, whatever the wages (section 155AA(2)(b)). |
Once a policy is needed
- Before applying
For a new business or a cancelled policy being reinstated, icare asks for, among other things, the business’s general details, such as its legal name, ABN, addresses and contact details, and an estimate of the wages it will pay workers.
- The day it issues
Cover starts from the time and date the policy is issued, shown on the certificate of currency, and a policy cannot be backdated once issued.
- At each renewal
An estimate of wages for the coming year, including apprentices and contractors the business may engage, which sets the premium.
- Within four months
After each policy period ends, the actual wages are declared, which icare says the law requires; the premium may then be adjusted up or down. Without a declaration, icare says the next renewal’s estimated wages may rise by 30%, and from June 2026 the Safe Employer Reward, a discount of up to 7.5%, may be lost.
icare sorts employers by premium size. As its page reads on 9 October 2026, a business with an average performance premium of $30,000 or less a year is a small employer, whose premium is not directly affected by claims costs; above $30,000, it is a medium to large employer, and its claims performance is compared with other NSW businesses.