There are many reasons why people believe that being self-employed is better than working for someone else. For starters, you’re your own boss, you potentially earn more money, you set your own schedule, and there is no co-worker drama - just to name a few!
But is it really better being self-employed, as opposed to an employee, when it comes to injury or illness?For example, if you are classed as an employee it is likely that you will be entitled to receive sick leave, workers compensation benefits, and have a superannuation fund that may provide for disability insurance.
An amazing 17.2% of the Australian workforce is self-employed, which equates to 2 million persons.
But what happens to a self-employed person if they sustain an injury or illness, and what options are available to them to claim?In this article we look at self-employed super claims - what Total and Permanent Disablement (TPD) insurance is, how it is accessed through superannuation, and whether or not an independent contractor can make a claim of this type through their superannuation.
Total and Permanent Disablement (TPD) insurance is a lump sum payment that is paid to you if you suffer an illness or injury that leaves you totally and permanently disabled. For all TPD claims, including self-employed super claims, the illness or injury does not need to have happened at work.
This payment helps cover the cost of rehabilitation, debt repayments and the future cost of living. TPD insurance can be purchased through your superannuation fund, or purchased as a standalone policy through an insurance company. Importantly, accessing a payment like this does not affect your eventual take home from your super fund.
Many people may already be covered for TPD insurance through their superannuation fund and not realise it. However, it is important to note that not all TPD insurance is automatically attached to your superannuation. You will need to check your policy to ensure that you have elected to receive this benefit, and the appropriate amount is being deducted from your superannuation to cover the cost of this insurance.
While every superannuation fund is different most offer at least some level of cover.The definition of total and permanent disablement will vary depending on the particular product and insurance policy. However most insurers will allow you to choose between cover for an injury or illness that renders you:
- Unlikely to be able to work again in your ‘own occupation’ following an illness or injury; or
- Unlikely to be able to work again in ‘any occupation’ following an illness or injury.
- return to your job;
- or return to any other employment you have education, training or experience in;
- or you are unlikely to return to work at all as a result of your injury or illness.
So how do self-employed super claims work? Can an injured or ill independent contractor make a claim for a TPD payment through their superannuation?This will depend upon whether they have superannuation to begin with. An employer is required by law to contribute a minimum of 9.5% of an employee’s salary into their super fund if:
- They are 18 years old or over, and are paid $450 or more (before tax) in a calendar month; or
- They are under 18 years old, being paid $450 or more (before tax) in a calendar month and work more than 30 hours in a week.
So who is deemed to be an employee and who is an independent contractor for the purposes of superannuation?To determine whether a person is an employee or an independent contractor the Court will consider a number of factors, focusing on the entire working relationship. Some factors that may be indicative of an independent contractor include:
- Have a high level of control over how the work is done, including the choice to hire others to assist;
- Agree to the hours required to complete the job;
- Usually engaged for a specific task or time;
- Bear the risk of making a profit or loss;
- Usually bears the responsibility and liability for poor work or injury;
- Usually have their own insurance;
- Use their own tools and equipment;
- Pay their own tax and GST;
- Have an ABN and submits invoices;
- Don’t receive paid leave.
However there are still certain situations in which a hirer must pay superannuation benefits to an independent contractor. Hirers must pay super contributions for independent contractors if they:
- Are paid wholly or principally for their personal labour and skills;
- Perform the contract work personally, and;
- Are paid for hours worked rather than to achieve a result, even if they quote an Australian Business Number (ABN).
Most self-employed people can claim a tax deduction for contributions they make to their own superannuation.
Unlike employees, independent contractors have different obligations and rights because they are running their own business. Independent contractors are generally responsible for their own insurance cover if they become sick or injured and are unable to work, superannuation payments, and bear the commercial risk for losses suffered from any work performed.