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Sole traders with employees

Posted: 5 February 2014

Occasionally we get asked by sole traders if their employees are covered under their business insurance.

It's not a common question, as it's not common for sole traders to have employees, but it's still an important question to ask.

Generally the answer will be yes, but there are some important considerations to take into account.

Is the person really an employee?

The first question to ask is whether or not the person is a genuine employee.

A tradesman might say that someone "works for them", but they could be working for them as a subbie rather than an actual employee.

Ask yourself the following questions regarding the worker:

  • Do you withhold their PAYG tax?
  • Do you pay their superannuation?
  • Do you pay worker's compensation for them?

If the answer to those questions is no, then the person is most likely a subcontractor rather than an employee.

If the person is a subcontractor, then they generally won't be covered under your public liability insurance unless your policy specifically states that they are.


It should be clear whether the worker is an employee or a subcontractor, but if you're still unsure it's best to seek advice from your accountant.

Policy wording

Once you're satisfied that the worker is an employee, the next thing to look at is the policy wording.

Almost all public liability insurance policies make it clear that the employees of a company are covered, but when the policy is under the name of a sole trader the situation can be a little less clear.

The best option here is to speak with your insurance broker and ask them to check the wording of the policy.

If the wording is unclear, it might be best to use an insurer whose policy wording is a lot clearer with regards to employees of sole traders.

In theory all policies should cover them, but it's far better to be safe than sorry.

Employing staff as a sole trader - good idea?

Another matter worth considering at this point is whether or not it's a good idea to take on employees when you're a tradesman operating as a sole trader.

You can read more about the sole trader v company structure by following the link, but there are certainly risks involved in going down this path.

As a sole trader there is no separation between you and your business. If your business gets sued or suffers a loss, you are personally liable for that loss.

But under a company structure you and your business are separate entities. This means if your business is sued or suffers a loss, those losses stay within the business.

In really simple terms, you have a much better chance of losing your house if you operate as a sole trader rather than a Pty Ltd company!

There are some exceptions to this rule, such as insolvent trading or other cases where you have breached your duties as a director.

Construction site

What does this have to do with hiring an employee?

Well if that employee does something which results in you being sued, and for some reason it is not covered by your insurance, then you will be personally liable for those losses.

How would you feel about losing your family home because of the mistake of one of your employees?

Not good I would imagine!

But if you operated under a company structure, any such losses would be 'quarantined' within the company.

It may still mean that the company is in financial strife, but at least your home or personal assets are no longer at risk.

More information

If you are thinking of taking on employees and you currently operate your business as a sole trader, it would be well worth speaking with your accountant.

Your accountant will most likely recommend a company structure, but have a chat to them anyway and see what they think is the best option for you and your business.

If you decide to stick with the sole trader option, speak with your insurance broker about whether or not your existing policy is going to provide sufficient cover.

Shane Moore

About the author: is the founder and managing director of Trade Risk. He is passionate about ensuring that tradies and their families are properly protected. You can find out more about Shane by visiting our Trade Risk Team page.

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