Superannuation for contractors – come one, come all

This article forms part of the series “Contractors vs Employees – Shifting Sands for Medical and Allied Health Practices

Determining whether an individual is an employee or contractor can leave you scratching your head. There is unfortunately little clarification in the context of superannuation entitlements and determining whether payments to a contractor are covered by the superannuation guarantee (SGC) regime further blurs the line between contractor and employee.

The SGC is administered under the Superannuation Guarantee (Administration) Act 1992 (SGAA). In addition to including all individuals who the common law characterises as an employee, through an assessment of all of the factors involved in the relationship, the definition of an “employee” in the SGAA is extended to include a person who works under a contract that is wholly or principally for their labour (contract for labour). This gives rise to the following questions: are my contractors, in fact, contractors? Or are they employees? Even if they are contractors, am I required to pay Superannuation?

When are contractors owed Superannuation?

The Tax Office Superannuation Guarantee Ruling SGR 2005/1 consider three factors to determine whether a person who engages a contractor must pay the SGC:

• is the individual remunerated for his or her personal labour and skills;

• is the individual required to perform the work personally, or do they have the ability to delegate; and

• is the individual paid to produce a result (or merely for their time or efforts)?

Depending on the answers to these questions, superannuation obligations may arise even where a person is otherwise a genuine independent contractor.

The allied health industry is at particular risk of this occurrence because of the nature of the work or services provided by health professionals. The SGC must be paid at least 4 times per year (in accordance with the quarterly due dates) if a minimum level of superannuation contributions, currently 9.5% of an employee’s ordinary time earnings, are not made on behalf of all of your “employees”. This means, your practice may be at significant risk of being held liable for backdated superannuation entitlements, even where, for example, a doctor, clinician or other professional was expressly hired under the label “contractor”.

For example, in the recent case of Moffet v Dental Corporation Pty Ltd [2019] FCA 344, the Federal Court found that even though a dental practitioner was, in the particular circumstances, properly characterised at common law as an independent contractor, he was nevertheless an “employee” for the purpose of the SGAA.

Next steps

Consider your current arrangements and review your practice structure. We invite you to contact us with any questions.

Rod Payne
T: 03 5226 8541

Paul Gray
Principal Lawyer
T: 03 5225 5231

Sonia McCabe
Senior Associate
T 03 5226 8558

Harriet Burton
T: 03 5225 5215

Paul Gray

Principal - Harwood Andrews

Paul is a Principal at Harwood Andrews. He brings a commercial approach to the law from a broad set of experiences as a business owner, private legal advisor and in-house counsel, and having worked with management teams over many years. Paul is valued for distilling issues down to what is really important and being prepared to make a risk call based on judgement and experience.

Paul’s key areas of practice include:
- commercial contracts and advice;
- business and share capital structuring;
- sale and purchase of business;
- procurement and service arrangements;
- technology, intellectual property, data protection and start-ups;
- consumer law;
- corporate advisory, including , company secretarial and directors' duties, shareholder relations; and
- capital raising and financing requirements

Paul also manages Harwood Andrews’ corporate counsel advisory service, built on a decade of experience as a client and managing legal functions within one of Australia’s biggest corporations.

Paul believes that evolving how legal services are delivered can be a win-win for lawyers and their clients, particularly how on how technology impacts the legal profession, legal advice and the delivery of efficient legal services.

Paul’s professional commitments include:
- Member of the Law Institute of Victoria
- Member of the Law Institute of Victoria’s Technology and the Law Committee

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