When do superannuation entitlements arise for independent contractors?

Despite the well-established differences between independent contractors and employees in employment law, the obligations of parties in a contractor relationship become more uncertain when it comes to the payment of superannuation.

The Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth) (‘Superannuation Acts’) create a legislative scheme which effectively requires ‘employers’ (as defined in the Superannuation Acts) to make superannuation contributions to their ‘employees’.

Who qualifies as an employee?

For the purposes of the Superannuation Acts, the definition of an ‘employee’ is broader than in employment law. According to the Superannuation Acts:

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.

In Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48, the Federal Court confirmed that a person will be an ‘employee’ for the purposes of the Superannuation Acts where the following three elements are satisfied:

There should be a “contract”.

There must be an agreement in which the employer pays the contractor in exchange for a service.

The contract must be wholly or principally “for” the labour of a person.

This means the whole or principal benefit of the contract for the employer must be the labour of the contractor, rather than a contract to achieve a specific result, such as painting a house or fixing a sink.

The person must “work” under that contract

The work contemplated in the contract must be performed by the party in question.

What does this mean for you?

Where you engage a contractor primarily for their labour, you may be required to make superannuation contributions to avoid penalties under the Superannuation Acts.

Whether a contractor is entitled to superannuation will depend heavily on the facts of any particular arrangement. If the contractor does not provide any of their own tools or resources, and only provides their skills and labour, it is more likely that a superannuation entitlement will arise.

If you are seeking advice on whether you are required to make superannuation contributions to your contractors, or are an independent contractor and think you might be entitled to receive super, please contact the team at Baker Love Lawyers today.