Superannuation Guarantee obligations

The superannuation guarantee regime has been in place for almost two decades and establishes a regime for the provision of a minimum level of superannuation by employers for their employees.  

An employer’s failure to pay the minimum prescribed level of superannuation to an “employee” will result in the employer incurring a tax penalty called the superannuation guarantee charge.

Last year produced three new cases that have confirmed that confusion still reigns when it comes to determining whether an individual is an employee or contractor for superannuation guarantee purposes.  

Note: This article only considers the superannuation guarantee issues and does not consider the implications for PAYG withholding, payroll tax, workcover or FBT. These areas also deserve attention in their own right on this issue.  

Brilliant case

Brilliant v Commissioner of Taxation [2010] AATA 267 is a case that concerned an employer who operated a business that produced hand-painted textiles for sale in tourist shops and galleries. The business owner engaged a worker (who they considered to be a contractor) to produce scarves and other garments for sale by the business.  

Factors that lead to the Administrative Appeals Tribunal finding that the worker was an “employee” and not a contractor were:  

  • Payments to worker were not linked to production levels.  
  • There was no written agreement – so evidence as to the nature of the arrangement had to be considered.  
  • The worker had discretion over the hours they worked and the way in which the products were produced. Normally, this would indicate a principal/contractor relationship due to the low level of “control”. However, the Tribunal took the view that the general directions given to the worker in relation to the tasks to be performed were consistent with the relationship being that of an employer/employee.  
  • The worker could do work of a similar kind for other clients, had a registered business name and had his own equipment, suggesting he was a contractor. Despite this the worker was required to work approximately 35 hours/week for the employer and in doing so, worked at the employer’s premises and used the employer’s equipment.  

Associated Translators & Linguists

In Re Associated Translators & Linguists Pty Limited and FCT [2010] AATA 260, the company conducted a business of supplying interpreting and translating services to its clients.  

The company regarded the interpreters as contractors and not employees and the terms of engagement between the company and the interpreters was described as that of a principal/contractor relationship.  

However the Administrative Appeals Tribunal held that the interpreters were employees for the following reasons:  

  • The interpreters could not delegate their work to another interpreter.  
  • The conduct of each assignment was wholly in the hands of the interpreters – subject only to the employer’s requirement that the interpreters be well presented and courteous.
  • The interpreters were not (as the company argued) paid to produce a result, instead they were paid for their time whether or not an assignment was completed.  

Roy Morgan Research

The company in Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation [2010] FCAFC 52, engaged workers to perform market research by conducting interviews.  

The company considered the market researchers to be contractors, however the Administrative Appeals Tribunal held that they were employees.

Factors that lead to the Tribunal finding that the market researchers were employees were:  

  • The requirement for the interviewers to provide their own transport did not lead to a conclusion that they were independent contractors.  
  • The interviewers were paid an amount fixed by reference to a time considered to be necessary to complete an interview – which lead to the conclusion that the interviewers were paid for time spent and labour rather than for producing a result.  
  • The fact that the interviewers were able to use companies to contract through only meant that the interviewer nominated company received the payments that were otherwise due to the interviewer  

So what does all of this mean for you and your workers?

A clear message from these recent cases is that whether a contractor will be classed as an employee (and therefore making the employer liable to pay superannuation) is a question of fact and degree.  

Solely labeling a relationship as that of principal/contractor will not in itself be sufficient in determining the relationship between the parties.  

The difficulty in practice is that there is no simple test that can be applied to determine whether a worker will be considered to be a contractor or an employee.  

Employers who engage “contractors” should carefully consider whether those contractors could be classified as an employees for superannuation guarantee purposes.