A Super Surprise: Are contractors entitled to superannuation?

Does your business or organisation engage any independent contractors? If so, you should be aware that they may be entitled to statutory superannuation contributions. This is because the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) extends the definition of “employee” to cover certain contractors for superannuation purposes. This issue was highlighted in a recent case before the Administrative Appeals Tribunal (AAT).

The Recent Case

In the case of The Trustee for Virdis Family Trust t/a Rickard Heating Pty Ltd v FCT [2022] AATA 3, the Company conducted a business selling and installing cooling and heating systems. It engaged Mr Pirie as a “Sub-contract plumber” for which he was paid an hourly rate for work allocated each day plus payment for a tank of petrol each week. The parties agreed that Mr Pirie was responsible for making his own superannuation contributions as well as paying for various expenses, including mobile phone, insurance for his van, tolls, and clothing. In May 2019, the ATO conducted an audit of the Company and found that the Company owed Mr Pirie statutory superannuation contributions for the period from 1 October 2013 to 31 March 2018. The Company objected to this decision.

The AAT held that section 12(3) of the SGAA extends the definition of “employee” for superannuation purposes as follows:

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.”

According to the AAT, Mr Pirie fell within this definition because (a) there was an oral or written contract between the Company and Mr Pirie; (b) the contract was wholly or principally for Mr Pirie’s labour as Mr Pirie was paid an hourly rate for his personal services and could not delegate his work to others (indeed the only benefit the Company received from the contract was Mr Pirie’s labour); and (c) Mr Pirie did in fact work under that contract.

The fact that the Company and Mr Pirie agreed that Mr Pirie was responsible for paying his own superannuation contributions as a contractor was irrelevant because the statutory superannuation obligations cannot be contracted out of. As the AAT stated: “It is not for parties to a private contract to determine when the law contained in the [SGAA] Act should apply.” Therefore, the Company was liable for outstanding superannuation contributions for Mr Pirie.

Implications For Employers

Businesses and organisations should be aware they may have a legal obligation to make superannuation contributions for their contractors. In the above case, the business discovered it had this obligation as a result of an ATO audit. However, a contractor may demand payment of alleged outstanding superannuation contributions directly from the business or organisation at any time during or after their engagement. This is notwithstanding the contractor may have signed a written agreement which expressly provides that they are engaged as an independent contractor and are solely responsible for making their own superannuation contributions.

In light of the above, employers should carefully assess whether they have a legal obligation to make statutory superannuation contributions for their contractors. If they have such an obligation for any existing contractors, it is not as straightforward as simply paying the outstanding funds directly to the contractor or into their nominated super fund. Instead, a particular process needs to be followed as prescribed by the ATO, including the payment of interest and administration fees.

Queries

For further information regarding the above, please contact Martin Alden, Partner at m.alden@cornwalls.com.au, Marcus Di Blasio, Associate at m.diblasio@cornwalls.com.au, or any member of our Employment, Workplace Relations & Safety team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.