Super times to be a contractor? The Federal Court clarifies the extended definition of employee for the purposes of superannuation payments to contractors

In brief - Superannuation obligations to independent contractors have finally been clarified by the Courts, giving employers and businesses further clarity on whether contractors are entitled to superannuation contributions under section 12(3) of the Superannuation Guarantee Administration Act 1992 (Cth) (SGA Act).

Background

On Friday 24 March 2023, the Full Federal Court of Australia closed the last chapter of the Jamsek v ZG Operation Pty Ltd cases by handing down its decision on the question of whether Mr Jamsek and Mr Whitby were entitled to superannuation as independent contractors. This decision followed the High Court's decision in February 2022 confirming that Mr Jamsek and Mr Whitby were deemed common law independent contractors.

The Court answered the question - no, Mr Jamsek and Mr Whitby were not entitled to superannuation from their Principal, ZG Operations Pty Ltd (ZG), because they were not employees within the extended definition of "employee" under section 12(3) the SGA Act.

What does the SGA Act say regarding superannuation contributions?

Section 12(3) if the SGA Act entitles a person to superannuation payments:

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.

In this case, the Court confirmed the three-part test from Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 for determining if a contractor meets the extended definition of employee, namely:

1. That there should be a "contract"

2. Which is wholly or principally for the labour of a person

3. The person must work under the contract.

In applying the test against the known facts relating to Mr Jamsek and Mr Whitby, the Court held that Mr Whitby and Mr Jamsek did not meet the first two criteria of the test in section 12(3) of the SGA Act.

In considering the facts, the Court found that neither Mr Whitby or Mr Jamsek individually contracted with ZG, but through a partnership structure. The Court also found that neither Mr Whitby or Mr Jamsek entered into a contract principally for their respective labours but for their labours and vehicles. 

Tips for businesses preparing agreements with contractors

This case is a timely reminder for businesses dealing with contractors to consider their potential liability for superannuation contributions and to:

1. Have a contract that clearly sets out what is to be provided by the contractor to the Principal

2. Know the entity the business is contracting with at the start of the agreement

3. Be clear on what services are being provided because it may or may not lead to superannuation contributions.