Superannuation – to pay or not to pay
Under the Superannuation Guarantee (Administration) Act 1992, an employer is required to pay superannuation for workers who are engaged under a contract that is wholly or principally for labour. In certain cases, a worker may include a contractor engaged by a business.
Workers who have traditionally been viewed by employers as independent contractors may be found to be employees for the purposes of superannuation laws. In recent cases involving three employers Associated Translators and Linguists Pty Limited, John Brilliant and Roy Morgan Research Pty Ltd the Administrative Appeals Tribunal and the Federal Court held in each case that independent contractors were in fact employees.
In all three cases, a number of factors were considered to determine whether a worker was an independent contractor or an employee. These include among others:
- the express terms of any written contract
- whether the worker had a right to delegate the work that he or she was engaged to perform
- whether the worker provided a service that is an integral part of the employer’s business
- whether the employer / principal had a right to direct how, when and where the worker performed the work
- whether the worker was paid an amount in accordance with a pre-determined result, or on an hourly basis
- whether the worker provided his or her own tools of trade
- whether the worker was financially liable for any defects in the work performed and
- whether the worker was required to represent him or herself to be an employee of the employer / principal.
The nature of the relationship will be determined by considering the totality of the relationship, as none of the factors outlined above is conclusive in itself.
Where an independent contractor is found to be an employee, the amount of the superannuation obligation can be substantial, as the liability will go back for as long as it has existed. The employer may also find itself liable to pay superannuation for other independent contractors that were engaged in the same arrangement.
As all employees are entitled to be paid minimum award entitlements (eg overtime, allowances and loadings) and minimum leave entitlements, an independent contractor subsequently found to be an employee may have further claims against his or her employer for unpaid award and leave entitlements. Again, the amount of such a claim can be substantial.
MST has extensive experience in assisting its clients to comply with the most current superannuation laws, including advising employers on their superannuation obligations. Please contact one of our Workplace Relations lawyers for further information.
Author: Chao Ni