In 2014, the Administrative Appeals Tribunal (AAT) handed down two decisions in which it found that the respective workers in each case were not employees.
Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act), the terms “employee” and “employer” have their ordinary meaning. In addition, one particular section of this legislation (Section 12) expands the definition of “employee” so that employers are liable to pay superannuation contributions for a wider class of workers.
Although the AAT noted that cases of this nature turn on their own specific facts and cannot be referred to as authoritative guidance, the factors considered by the AAT in each case are nonetheless indicative of its approach to the issues.
In addition, these cases demonstrate that the question of whether individuals are “employees” or “independent contractors” for the purposes of the SG Act continues to be a focus of the ATO and remains a contentious issue for potential employers.
Dominic B Fishing Pty Ltd v Commissioner of Taxation1
In this case, the AAT found that a commercial fishing vessel operator (the Taxpayer) was not liable to pay superannuation contributions for its crew members, as they were not “employees” under the SG Act.
The AAT found that the relationship between the Taxpayer and the crew members was characterised as a joint venture, under which they cooperated as independent business people for the limited purpose of catching and selling fish.
Member McCabe referred to the general proposition in Hollis v Vabu Pty Ltd that there is a need to consider the extent to which the worker is subject to the (potential, if not actual) direction and supervision of the would-be employer, and the extent to which the individual is integrated into the would-be employer’s organisation, so that it could be said that the individual was part of the same business, as opposed to operating his or her own business.
The AAT considered the following relevant factors.
The crew members were experienced fishermen who were invited by the Taxpayer to accompany the captain on a fishing voyage.
The terms of the crew members’ engagement was governed by a “Joint Fishing Adventure” agreement (JV Agreement) which was not, in substance, an employment contract.
The cost of maintaining the vessel was the responsibility of the Taxpayer, but all of the parties made contributions towards the operating costs of the vessel.
While the crew members were engaged to provide labour, they were remunerated based on an outcome. That is, they were paid a share of the gross proceeds of the catch in accordance with the schedule to the JV Agreement.
- Although the JV Agreement did not expressly disavow an employment relationship, it referred to the parties as “joint venturers”. In addition, a provision of the JV Agreement was found to be inconsistent with employment, insofar as it explicitly required crew members to bear the cost of their own sickness and accident insurance.
- There was little scope for the Taxpayer to exercise supervision and control over the activities of the crew members. The captain and his crew collectively made decisions about the location of where to fish and other operational matters. Once the vessel was moored at sea, the crew members had significant autonomy with respect to their fishing operations, as they were not given directions about how or where to fish.
- Although the Taxpayer provided equipment to the crew members, the equipment was “effectively placed at the service of the joint venture.”
- It was not decisive that the Taxpayer took care of taxation affairs for one of the crew members, as it merely indicated administrative responsibilities had been delegated to the Taxpayer (similar to delegating them to an accountant or business adviser).
- The crew were not integrated into the taxpayer’s organisation; each of the parties had a function that they performed individually, albeit cooperatively.
- The extended definition in section 12 of the SG Act did not apply to the characterisation, as the JV Agreement was not wholly or principally for the labour of the crew members - rather, it was a joint venture agreement that was intended to produce fish for sale.
Therefore, superannuation contributions were not payable under the SG Act.
Re XVQY v Commissioner of Taxation
In this matter, the AAT found that two licensed plumbing sub-contractors (Workers) engaged by Enterprise Pty Ltd (Taxpayer) were not employees within the meaning of section 12 of the SG Act. The Taxpayer carried out maintenance plumbing work on government housing and engaged the Workers to assist with the provision of these services.
The AAT found that the Workers were not employees within the common law definition. In reaching its conclusion, the AAT was influenced by the following factors.
- The Workers could exercise control over how many jobs to accept and when to deal with the allocated work.
- Although the Workers predominantly purchased their own tools and equipment from the Taxpayer, they did so because of the favourable cost and convenience.
- The Workers could delegate their work and retained the risks and profits associated with running their respective businesses (eg the Workers had their own insurance arrangements).
- Each Worker provided his or her own capital and faced the loss of that capital if the venture failed.
- The fact that the Workers substantially performed work for the Taxpayer (which generally indicated economic dependency) was not determinative.
In addition, Deputy President Nicholson said that, specifically, the question to be asked is whether the worker is working for himself or is providing his labour in the service of another.
The AAT found that, in this case, the Workers were working for themselves. Therefore, superannuation contributions were not payable under the SG Act.
Bottom line for employers
There is no conclusive way to broadly determine whether a worker is an “employee” when determining an employer’s liability to make superannuation contributions on behalf of a worker, as the precise details of the engagement need to be examined in each case in order to characterise it.
An organisation should consider whether its workers may be recognised as “employees” for superannuation purposes by closely examining the terms and circumstances of their engagement, in order to avoid a potentially adverse ATO assessment in the future.