Most tradies are aware that the simplest and fastest way to strike out on their own in a trade’s business is by using the sole trader structure. Many tradies began as sole traders, and it can be an excellent option. However, you must know your requirements if you choose to go this route.
What IS a Sole Trader?
The name sole trader is well known, yet it can be tricky to define, as is true for the terms that describe many familiar things.
The Australian Taxation Office defines the term as:
An individual who runs a business as the only owner and manager is a sole trader. As the individual in control of all aspects of the company, the sole trader is responsible for any debts and losses the business incurs.
Another way to understand the sole trader definition is to remember that sole traders share the same Tax File Number (TFN) with their company. This makes the sole trader and their business a single entity.
As a sole trader, the buck (quite literally) stops with you.
Three Misconceptions About Sole Traders
Before you can research insurance cover for sole trader’s, it is smart to clear away some misconceptions about the business model.
1. The phrase sole trader is not a blanket title. The term sole trader does not refer to any tradie who operates on his own. It is a specific structure of a business.
*For Example*
Daniel is starting a landscaping company. He can choose the structure of his business.
• Daniel may opt to use the sole trader structure where he and the business share the same Tax File Number and are the same entity
• Daniel may also choose to make his business a Pty Ltd company. The Pty Ltd company is a separate entity and will not share Daniel’s Tax File Number
2. As a sole trader, you can have staff. Many people believe that those with a sole trader business structure must work alone. It is not a typical practice but employing staff as a sole trader is acceptable and legal.
3. Your sole trader business can (and in some cases should) have a name. Because you and your business are the same entity for tax purposes, it is easy to become confused about giving your business a name.
Should you choose to name your business, registering the name is a must in Australia. On legal documents, include both your name and your business name.
*For Example*
Daniel’s landscaping company and his name would appear like this:
Daniel Michaelson trading as Always and Forever Landscaping
The abbreviated version would look like this:
Daniel Michaelson t/as Always and Forever Landscaping
Does My Insurance as a Sole Trader Matter as Much as That of a Pty Ltd Company?
While the right insurance cover is vital for ALL businesses, having the correct cover as a sole trader maybe a little more critical. This is because you and your business are essentially one.
In a Pty Ltd scenario, losses and other damages remain on the back of the company. However, if your sole trader business sustains a loss or is a party in a lawsuit, the problem rests on you. This puts not only your business at risk but also your personal and family assets as well.
The right insurance cover will give you peace of mind knowing your family and other assets will not take a hit should you encounter problems.
What Types of Insurance Should a Sole Trader Consider?
Numerous types of insurance can be valuable for some sole traders. These tend to be specialised, and an insurance professional can explain if these are useful for your business. The following are four of the most universally needed kinds of insurance coverage that a significant number of those in business as sole traders can use.
Public Liability Insurance
A public liability insurance policy can protect you from losing your business, your assets, and your home. Your public liability cover helps you if you cause damage to a third-party’s property or injure a third party. Deciding to get a public liability policy is a wise move. No matter how careful or conscientious you are, unexpected mishaps occur. Make sure you do not lose all you built because of an unfortunate event and incorrect business insurance.
Personal Accident Insurance
While personal accident insurance is not technically business insurance, it can be a valuable source of help should you become ill or injured and are unable to work. Generally, sole traders do not have protection to help them if they are unable to work for an extended period. A personal accident insurance policy can keep you financially stable until you can return to work.
General Property Insurance, also known as Tool Insurance
Where would you be if you suddenly had no access to your tools? As a tradie, you cannot afford to ignore tool insurance. While no one likes to think about theft, it is a fact that a tradie’s tools are frequently the target criminals choose because they are valuable, easy to pinch, and difficult to track. Regardless of the amount of money you have invested in your tools, it is worth your time to learn about various policies that will cover the means of your livelihood.
Commercial Motor Insurance
Insuring vehicles can be a complicated matter for sole traders. It is common for many tradies to use their van, truck, or ute for their business as well as their transportation. Typically, these tradies have traditional auto insurance policies to cover their vehicles.
Problems often occur when a tradie spends thousands to outfit their vehicle with shelves, racks, or storage boxes only to learn that these extra items do not have cover under an average automobile insurance policy. The same problem occurs with the distinct wraps tradies apply to their vehicles. Some personal auto insurance may pay a few hundred dollars for damaged wraps. However, that is a far cry from the thousands of dollars you can spend on a top-quality wrap.
To ensure your vehicles are on par with their insurance cover, speak with a professional who can make sure you have the best cover and enough cover for your vehicles.
Remember, if you are a sole trader and have staff, you are responsible for your employees’ comp cover. You must also pay their super.
For a customized look at your sole trader company’s insurance policy, feel free to contact us at Tradies 365. Our experienced insurance professionals will assist you in getting the insurance that will protect your personal and professional assets.
*Please Note*
The material provided here is not intended to replace a professional consultation with an insurance expert and is only for informational use. It does not constitute legally binding insurance advice and should not take the place of a meeting with an insurance expert.