Employee or Independent Contractor? Superannuation Obligations

Batman provides security services to your organisation. Is he an independent contractor or an employee? Often, answering this question correctly is difficult and always costly if you get it wrong.

Many organisations engage the services of a worker under the auspices of a “contractor agreement” in the hope of reducing tax and other obligations. However, there is no “quick fix”. Simply calling a worker a “contractor” on paper is not determinative of the relationship. As the Federal Court said recently, “the parties cannot create something which has every feature of the rooster, but call it a duck and insist that everybody else recognise it as a duck”.

Employers must pay 9.5% of an employee’s salary to an approved superannuation fund. In this regard, “employee” has its ordinary meaning. However, the Superannuation Guarantee (Administration) Act 1992 extends the definition of “employee” for the purposes of superannuation contributions to include those that work under a contract that is wholly or principally for the labour of the person.

In two recent cases, the Administrative Appeals Tribunal decided that the workers were contractors rather than employees.

The first matter concerned the nature of the relationship between a commercial fishing vessel operator and its crew members. The operator’s vessel went to sea for an average of ten days at a time. The captain was joined on each voyage by up to four crew members who were usually experienced fishermen. While at sea, the vessel anchored at a central spot each day. The fisherman took smaller boats to head off to remote locations and return at the end of each day with their catch. The details of the catch were tallied by the captain and the operator paid the fisherman under the terms of an agreement between them.
The agreement described the fishermen as “joint venturers” for the purposes of a single voyage, but stated that a fisherman did not hold any right or interest in the vessel.

"The agreement described the fishermen as “joint venturers” for the purposes of a single voyage, but stated that a fisherman did not hold any right or interest in the vessel."

Although the cost of maintaining the vessel during the voyage was the operator’s responsibility, the fishermen also contributed towards the costs of operating the vessel. At the end of the voyage, the fish were sold to a buyer and the operator and the fisherman were each entitled to a share of the gross proceeds of the catch in accordance with the agreement. Each of them was required to bear the costs of sickness and accident insurance and it was agreed that “no party is liable for any accident or mishap that occurs during the voyage.”

The Tribunal found that the fishermen were contractors, and that the operator was not liable for the superannuation guarantee, stating that, “the contract is not wholly or principally for the labour of the crew member… it is a joint venture agreement that is intended to produce fish for sale. It is true the agreement contemplates the crew members contributing labour, in particular, but they are remunerated on the basis of an outcome. If there was no outcome – if they did not catch any fish… there would be no remuneration. Indeed, it was theoretically possible under the agreement the crew might return to port owing money to [the operator] if there were no fish caught on a voyage.”

The Tribunal also heard a dispute over the Tax Commissioner’s assessment that licensed plumbing sub-contractors were employees within the meaning of the Act. The Tribunal noted that the workers engaged were free to exercise their discretion in working for themselves as they did not receive instructions or directions on the manner in which the work allocated to them was to be done. The workers also were responsible for providing most of their tools and equipment and held insurance on the basis that the risks rested with each of them.

"In determining whether the workers were employees ..., the Tribunal considered whether the workers were working for themselves or providing labour in the service of another."

In determining whether the workers were employees under the extended definition in the Act, the Tribunal considered whether the workers were working for themselves or providing labour in the service of another. It found that, as each worker provided their own capital and faced a loss if the venture failed, they were not providing their services under a contract that was wholly or principally for their labour. They were therefore not employees under the extended definition and so not entitled to superannuation contributions.

Emil Ford Lawyers have assisted organisations which have found themselves in difficult situations arising from a misapprehension about the nature of the relationships with their workers.

We can assist your organisation by drafting agreements or reviewing documentation and processes to minimise the risk of unintended consequences, such as a liability to pay the superannuation guarantee to withhold money from wages and remit it to the ATO, or to pay state payroll tax … and to pay fines and interest!

If you have an employment query please contact %7F%9B%CA%D0%BB%A7k%99%DC%C9%B6yor %7F%A5%CA%CE%BA%A4%B9s%B0%C9%C1%C8%DAU.