Independent contractors may be considered employees for the purpose of Superannuation legislation

A recent decision of the Administrative Appeals Tribunal held that workers were not independent contractors (as was alleged by the taxpayer), but rather were employees. Consequently the taxpayer was liable to pay the superannuation guarantee charge. The case is Natalie Newton (trading as Combined Care for the Elderly) v Commissioner of Taxation[1] (Newton).

Lessons to be learnt

• Describing someone as an 'independent contractor' in a labour contract is not sufficient to prove that a contractor is not an employee for the purposes of superannuation legislation. As the Administrative Appeals Tribunal put it "a chicken labelled a turkey is still a chicken".
• Whether a contractor is actually an employee depends on the particular circumstances – including whether the worker is able to freely delegate their work to others and if the worker is required to produce a result.

You can read the case in full here on the Australasian Legal Information Institute Website.

Background

• The Superannuation Guarantee (Administration) Act 1992 (Act) requires employers who fail to provide the prescribed minimum level of superannuation to their employees to pay the superannuation guarantee charge (SGC) to the Australian Taxation Office.
• The Commissioner issued Natalie Newton with SGC assessments for failing to provide adequate superannuation support to her workers for the period July to December 2000.
• At first instance, the Federal Court held that Ms Newton (trading in her own name as 'Combined Care for the Elderly') was exempt from the SGC because the workers were 'paid to do work wholly or principally of a domestic or private nature'. However, the decision at first instance was overturned and the matter was sent back to the Tribunal for final determination.

Facts

• From July to December 2000, Combined Care for the Elderly provided community support services (including cooking, cleaning, shopping, showering, dressing and general household duties) to people in need of physical assistance in their homes.
• The business had a list of workers who it engaged to conduct these services.
• A customer would contact the business who in turn would contact one of the workers and offer the work. The worker could either accept or decline the assignment.
• Each worker had entered into a labour hire agreement with the business and acknowledged that they were independent practitioner/ contractors and that the business was not their employer.

The issue

The key issue for determination by the Administrative Appeals Tribunal was whether the workers were employees or independent contractors. The answer to that issue would determine whether the business was an employer and therefore liable to pay the SGC.

What did the taxpayer argue?

• Ms Newton argued that because the workers were independent contractors her business was not their employer and consequently was not liable to pay the SGC.
• She relied on a number of factors to show that the workers were independent contractors, including that:
  • the workers provided the services pursuant to a signed labour hire agreement;
  • the workers were obliged to produce a result; and
  • the contractual agreement between the workers and the business was described as one of an independent contractor.

What did the Tribunal decide?

The Tribunal decided that the workers were employees and consequently the business was an employer under the expanded definitions contained in the Act. Therefore the business was liable to pay the SGC.

Factors which the Tribunal relied on included:

• the workers were not free to delegate the work to others;
• the workers had entered into a labour hire agreement; and
• there was no evidence that the workers were required to produce a result.

The contractual relationship between the business and the workers was described as being independent. Further, the workers had acknowledged that their role was one as independent contractors who were not entitled to any superannuation guarantee. Even so, section 12(3) of the Act provides that if a person works under a contract that is wholly or principally for the labour of the person, then the person is an employee of the other party to the contract. Consequently, in the absence of any evidence from the business that the contract was not "wholly or principally for the labour of the person", the workers were held to be employees for the purposes of the Act.

More Information from Maddocks

For questions or more information about the above article, please call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Superannuation Team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on HR topics here.

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• Independent Contractor/Consultant Agreement here
• HR Policies and Procedures Manual here

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[1] [2011] AATA 897.