Legal Briefing No. 71

Number 71

13 September 2004

Do you need to make super contributions for your contractors?

Jenny Francis

Jenny Francis Counsel
Australian Government Solicitor
T 02 6253 7427 F 02 6253 7304

Leo Hardiman

Leo Hardiman Senior General Counsel
Australian Government Solicitor
T 02 6253 7074 F 02 6253 7304

The ANAO is finalising its audit of agencies' compliance
with the Superannuation (Productivity Benefit) Act 1988 (the PB Act) and related superannuation obligations. The
audit raised a number of issues concerning contractors
and superannuation. Those issues, although not new to Commonwealth
agencies, are complex.

This briefing is designed to remind
clients of the key issues and to provide a broad outline
of the circumstances
in which superannuation obligations may arise. A brief
description of the relevant legislation follows. The briefing
then looks at the circumstances in which there may be obligations
to make superannuation contributions. Whether an obligation
to make superannuation contributions exists in a particular
case can involve complex legal issues. You should seek
legal advice if you are unsure whether an obligation exists
in a particular case.

What does the PB Act say?

Broadly, Commonwealth agencies
are obliged to make superannuation contributions under
the PB Act in respect of a 'qualified
employee'. 1 The question of whether a contractor
is a qualified employee was one of the principal issues
in the ANAO audit.

Employee at common law or engaged under
a contract wholly or principally for his or her labour

A contractor is a qualified employee if he or she is:

  • an employee at common law; or
  • works
    under a contract that is wholly or principally for
    his or her labour. 2

Whether any particular contractor is properly
characterised as a common law employee or as engaged under
a contract
wholly or principally for their labour, and therefore
is a qualified employee, will depend on the application
of
a number of general principles in the particular case.

When
is superannuation payable under the PB Act?

When is a person
a common law employee?

There is a significant body of common
law dealing with the circumstances in which an employment
relationship
arises between an employer and employee.

In Stevens
v Brodribb Sawmilling Co (1986) 160 CLR 16 the High Court
stated that the extent to which one
party
was
subject to the direction and control of the other party
in the manner in which they did their work under the
contract was a significant factor in determining the
parties' relationship.
However, the Court noted that there were a number of
other relevant factors to be considered in determining
whether
a particular relationship is one of employment or independent
contractor. The factors include:

  • the mode of remuneration of the worker
  • who provides and maintains necessary equipment
  • the obligation to work
  • provision
    of leave and other entitlements
  • place
    of work
  • ability of the worker to delegate
    the work, or whether the employer has a right to insist
    that the worker
    perform the work
  • whether income tax
    is deducted by the employer
  • whether
    the employer has a right to the exclusive services
    of the worker.

The degree to which the worker is integrated
into, and treated as part of the employer's
enterprise may also have some relevance: Hollis
v Vabu Pty Ltd (2001)
207 CLR 21.

In Vabu the High Court has recently
confirmed that no single factor is determinative
of the
character
of a
relationship
between parties. Rather, the character of a relationship
is to be determined having regard to, and weighing,
all of the relevant factors. While the degree
and nature of the control exercised over the
worker
is, and remains
after
Vabu, a significant factor, it is not the only
relevant factor. Rather, 'it is the totality
of the relationship between the parties which
must be considered'.

When is a person engaged
under a contract wholly or principally for their
labour?

The courts have only considered on a few
occasions the meaning of the words 'under a contract
that is wholly or principally for the labour of the person'.
The limited existing case law suggests that the notion
of 'labour' extends
to work which is physical, mental or artistic
(see Deputy Commissioner of Taxation v Bolwell (1967) 1
ATR 862 at
873). The following indicators of a contract
for the labour of a person have emerged from the cases:

  • The contract must require the performance of labour by
    the contractor.
  • Where the contractor
    is given a right to delegate the performance of the labour
    the contract is not 'wholly or principally
    for the labour' of the contractor (see
    Neale v Atlas Products (Vic) Pty Ltd (1955) 94
    CLR 419, at 424–425;
    Bolwell (above), at 871–872; World
    Book (Australia) Pty Ltd v Federal Commissioner
    of
    Taxation (1992) 108 ALR
    510, at 513–514).
  • A contract under which the engager has no right
    to direct or control the contractor in any
    respect whatsoever
    is also not 'a contract that is wholly or principally
    for the labour' of the contractor (World
    Book at 519).
  • Where the
    contractor undertakes to produce a given result
    the contract is not 'wholly or principally
    for the labour of the person' because the
    labour is undertaken to fulfil a contractual
    obligation (that is to say, to
    achieve the result contracted for) (World
    Book at 518–519).

How do you calculate and make
superannuation contributions under the PB Act?

If
you think that a person is a qualified employee, you will
need to refer to Superannuation Circular
Number 44 dated July 2004 available from the
Department of
Finance
and Administration website at <http://www.finance.gov.au/super> for
information on:

  • superannuation
    funds accepting PB Act contributions
  • calculation of the amount of contributions
  • when and where contributions must be made, and
  • 'safety net' arrangements and what to do
    if you have not made sufficient contributions for an
    employee
    or
    ex-employee.

Could you have obligations under
the Superannuation Guarantee (Administration) Act 1992?

In
certain circumstances, an employer may be liable to superannuation
guarantee shortfall
under the
SG Act in
respect of a contractor. This may be the
case, for example, where continuing contributions
were
not
made in respect
of a contractor who worked for less than
three months.

Further information . . .

The Australian Taxation Office's
Superannuation entitlements for contractors/consultants
and temporary employees engaged
through independent agencies is available
at <http://www.ato.gov.au/super>.

Also see Superannuation
Guarantee (SG) Ruling 93/1 and, in relation to people engaged
through
service
firms,
labour hire firms and employment agencies
see SG Ruling 93/2 at <http://law.ato.gov.au/atolaw>(public
rulings).

Jenny Francis is Counsel specialising in advice on public
financial law and has extensive experience advising clients
on a range of matters over the last thirteen years. More
recently Jenny has been closely involved with matters arising
out of the ANAO's audit on agencies' compliance
with the Superannuation (Productivity Benefit) Act 1988.

Leo
Hardiman is a Senior General Counsel who has extensive
experience in advising clients about all aspects of Commonwealth
revenue and financial law, including superannuation and
tax law. He also has an extensive background in employment
law. Together with Jenny, Leo was closely involved with
matters arising out of the ANAO's audit.

Notes

1 There are some specific exclusions from 'qualified
employee'. Members of the CSS or PSS are, for example,
specifically excluded from being qualified employees.

2 See Clause 5 of the Superannuation (Productivity Benefit)
(Qualified Employees) Declaration No. 3 of 1993 (made under
s 3F(1) of the PB Act) that provides persons who fall within
the definition of employee in s 12(3) of the Superannuation
Guarantee (Administration) Act 1992 (the SG Act) are 'qualified
employees' for the purposes of the PB Act. This declaration
has been in effect since 1 July 1992.

AGS contacts

This briefing was prepared by Jenny Francis
of our Canberra office. For further information please
contact Jenny
on tel 02 6253 7427, email jenny.francis@ags.gov.au or Leo Hardiman, Senior General Counsel on tel 02 6253
7074,
email leo.hardiman@ags.gov.au or any of the lawyers
listed below.

Canberra

Margaret Byrne

02 6253 7098

Sydney

Jim Heard

02 9581 7477

Melbourne

Martin Bruckard

03 9242 1386

Brisbane

Maurice Swan

07 3360 5702

Perth

Graeme Windsor

08 9268 1102

Adelaide

Sarah Court

08 8205 4231

Hobart

Peter Bowen

03 6220 5474

Darwin

Jude Lee

08 8943 1405

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

For enquiries regarding supply of issues, change of address
details etc.
T 02 6253 7052 F 02 6253 7313 E ags@ags.gov.au

The material in this briefing is provided to AGS clients
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the basis
of any of the material in this briefing.

Back to Legal Briefing
Index