The High Court remitted the question of whether the workers were “employees” under the extended definition of that term in s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (the SGA Act) back to the Full Federal Court.
In deciding that the relevant workers were not “employees” under the extended definition in s 12(3), the Full Federal Court determined that s 12(3) does not apply to an independent contractor relationship where the worker uses a company, trust or other service vehicle to contract with the putative employer instead of doing so in their personal capacity. This confirms the ATO’s guidance in Superannuation Guarantee Ruling SGR 2005/1.
Additionally, in determining whether a worker is an “employee” under the extended definition in s 12(3), the Full Federal Court has confirmed that a worker will not be taken to work under a contract that is “wholly or principally for [their] labour” in the following circumstances.
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Finding
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Comment
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The contract is for labour and non-labour (eg the provision of substantial capital assets or the assumption of risk) components, and based on a quantitative valuation, the non-labour components predominate.
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In many independent contractor relationships, the contractor may be required to provide their own tools and equipment. Whether the contract is principally for labour or alternatively the provision of capital assets and the assumption of material risks is likely to turn on a valuation of the labour and non-labour components respectively.
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The worker has the ability to delegate the performance of work under the contract to other persons.
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The party that bears the onus of proof will need to substantiate the value of the labour and non-labour components through evidence.
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The worker is engaged under a contract for a “result”.
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This finding is consistent with previous case law and ATO guidance. The workers had a contractual right of delegation in this case.
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Employers are required to provide their employees with a minimum level of superannuation support (currently 10.5%) each quarter, otherwise the employer will become liable to pay the superannuation guarantee charge. An “employee” for these purposes includes an employee at common law.
The SGA Act also includes a number of provisions which extend the meaning of “employee”. Relevantly, s 12(3) of the SGA extends the meaning of “employee”, so that: “If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”
This provision is broad and captures many independent contractor relationships. An entity that engages an independent contractor under a contract of this nature is required to provide the contractor with superannuation support (otherwise they will become liable to pay the superannuation guarantee charge).
Whilst there is nothing new about these conclusions at such a high judicial level, this is a prudent time to review independent contractor relationships.
Expansion of the superannuation net is inevitable.
AcctWeb
26th-September-2023 | 