If you engage independent contractors or consultants, you may be liable to pay an additional amount of super added onto an agreed contract price.
If so, have you asked whether compulsory super payments need to be paid to them?
It’s your duty as an employer to provide a legal minimum level of superannuation to your employees. Take a look at the Superannuation Guarantee (Administration) Act of 1992, which we’ll call “the Act” from here.
Are you an accidental employer?
The Act is very specific in its definition of employee and employer. You can avoid being classified as an employer by mistake by being mindful of this. If you directly engage independent contractors/consultants, you should be careful as to the nature of your contract with them.
Although the Act states that “employee” takes its traditional common law meaning, it can be further defined that:
“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”.
(“Principally” means “mainly or first and foremost”)
There are certain factors that also determine whether a person is an employee that is – within the traditional common law meaning.
These include factors such as:
- use of own tools and equipment
Just because you call a person a “contractor” doesn’t make them one and it won’t change the true reality of that person’s engagement.
We consider the quote used in the recent decision of Natalie Newton v Commissioner of Taxation:
“a chicken labelled a turkey is still a chicken.”
( AATA 897 at para 24).
If a person is an employee within the traditional common law meaning, the employer must pay superannuation for the employee.
Is it a normal employment relationship?
In situations where a traditional employment relationship does not exist, you will still need to consider whether the contract exists “principally for the labour” of the independent contractor or consultant.
The following factors will be relevant:
- Is the independent contractor/consultant paid mainly for their personal labour and skills?
- If so, this is evidence that the contract is “wholly or principally for their labour”;
- Does the independent contractor/consultant have a right to delegate work to another person?
- If there is no such right (i.e. you want them personally to deliver the services), this will be evidence that the contract is “wholly or principally for their labour”.
- Does the contract require the achievement or delivery of a specified result?(i.e. the contract payment is due when, and only when, the given result has been achieved)
- If so, this may be evidence that the contract is not “wholly or principally for their labour”. Rather, it is a contract principally for the delivery of the given result.
Do you have a question about superannuation and independent contractors or consultants?
In case you are in doubt, we recommend that you take legal advice from one of our employment law specialists. We now have a dedicated team to help you in engaging with us. They’ll help you by:
- understanding what your need is and what your time frames are
- identifying the best lawyer on our team for you and your need
- explaining what it will cost
- explaining what you need to do next and what initial information you will need to have for us
- getting your initial appointment locked in
- listening to your feedback and putting it into action
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