Contractor Superannuation: Recent Developments for Business Owners

NOTE: The contents of this article are affected by a more recent decision.

Please click here for a report on more recent developments.

In the broader community most people understand that employees are entitled to superannuation, however many people do not realise the term “employee” has different definitions for different purposes.  In some cases, a true independent contractor may still be considered an employee for superannuation purposes.

This means that businesses that engage sole traders as contractors may be liable to pay superannuation in respect of those contractors and may even face penalties or interest charges for past non-payment of the superannuation guarantee.

The Superannuation Guarantee (Administration) Act 1992 (Cth) (“SG Act”) sets out the circumstances where a person is entitled to the superannuation guarantee, and the corresponding liabilities of the employer. The issue is that there is an expanded definition of “employee” for superannuation purposes, compared to ordinary meaning of the term for other employment purposes.

JMC Pty Limited v Commissioner of Taxation [2022] FCA 750

Recent cases have solidified this distinction.  The decision in June this year in JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 (“JMC”) reinforced the earlier 2020 decision of the Full Court in Dental Corporation Pty Ltd v Moffet [2020] FCAFC 11 (“Moffet”). The outcome of the Moffet case was that an independent contractor was considered to be an “employee” for superannuation purposes because of  the expanded meaning of the term “employee” in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (“SG Act”).

The more recent JMC case concerned a lecturer, Mr Harrison, who was employed by an educational institution to give lectures.  Mr Harrison was treated as a sole trader contractor who submitted invoices to the institution for the services he provided.  His engagement terms included being:

• paid an hourly rate; and
• required to submit invoices specifying the particulars of the teaching services he provided unaccompanied by timesheets and signed weekly lesson plans.

Mr Harrison was not considered an employee by the institution and the institution did not pay superannuation. However, the Court held that Mr Harrison was an employee for superannuation purposes because of the expanded definition of “employee” under section 12(3) of the SG Act which reads:

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.

(Our emphasis added)

The key point of the reasoning was that the university paid Mr Harrison wholly or principally forhis labour. Mr Harrison’s labour was the provision of lecture plans, providing lectures and marking student assignments.  Irrespective of whether Mr Harrison was an independent contractor for general employment law purposes, Mr Harrison was considered an employee under section 12(3) of the SG Act.  The institution was found to be liable for Mr Harrison’s unpaid superannuation contributions.

Current Position

The JMC case reinforces the Full Court’s earlier decision in the Moffet case. Our previous article Confirmation Of The “Contractor” Arrangement – Dentists (And Allied Health) explained the Court’s reasons for its decision that Dr Moffet, a dentist, was considered an “employee” for superannuation purposes under section 12(3) of the SG Act, while at the same time recognising that Dr Moffet was not an “employee’ under other areas of law such as the Fair Work Act.   As a result, Dental Corporation was ordered to pay superannuation in arrears over several years.

What this means if you have independent contractor agreements

As each contractor agreement differs it is vital to obtain legal advice if you are either seeking to engage independent contractors or if you wish to review your current arrangements. Our Commercial Law team are seeing an increase in these sorts of enquiries are ready to help if you have or are considering an independent contractor arrangement. 

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