In the recent Australian Administrative Tribunal (AAT) decision of Trustee for Virdis Family Trust t/a Rickard Heating Pty Ltd v FC of T [2022] AATA 3, the AAT relied on the decision in Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 (Moffet) to find that a plumber who was engaged as a contractor was an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SG Act).

Background facts

Here, the applicant carried on a business of selling and installing cooling and heating systems. The business engaged a number of employees, but from 2011 also engaged an individual (Mr P) to do plumbing work as a casual subcontractor.

The issue before the AAT was whether the business was liable to pay the super guarantee charge, on the basis that it was required to make super contributions in respect of Mr P, and such contributions were not made.

To answer this question, the AAT had to look at whether Mr P came under the definition of ‘employee’ for super guarantee purposes, noting that the SG Act defines ‘employee’ as having its ordinary meaning (section 12(1)) and also the following expanded definition under section 12(3) – “(3) 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.”

At the start of their working relationship, Mr P had a series of conversations with a director of the business. They agreed that Mr P would work for an hourly rate, plus payment for a tank of petrol a week.

There was also a written agreement which identified Mr P as being ‘employed’ in the position of ‘sub-contract plumber’. The agreement provided that ‘your ordinary hours of work will be 40 hours per week, plus any reasonable additional hours that are necessary to fulfil your duties or as otherwise required by your employer’. The agreement did not refer to anything about an ability for Mr P to delegate his work to be done under the agreement.

In practice, Mr P was told where he was required to work and he would then complete that work. He would keep a tally of the hours he worked, and each week he would render an invoice that had the number of hours he worked each day.

Findings of the AAT

The AAT referred to the test from Moffet as to what is required to meet the expanded definition of employee under section 12(3) of the SG Act, namely that:

There should be a contract;
Which is wholly or principally ‘for’ the labour of a person; and
That the person must ‘work’ under that contract.

The AAT applied this test and found that Mr P was an employee under the Moffet section 12(3) test, as follows:

There were both oral and written contracts between Mr P and the business;
The obligation to work, to provide labour, was personal to Mr P. There was no capacity, in either agreement, to delegate the obligation to work. Even though Mr P paid some expenses, this was hardly the benefit of the contract for the business. The main or substantial object of the contract was to secure Mr P’s labour (ie, it was ‘wholly or principally’ for Mr P’s labour);
there is no dispute Mr P worked under the contract.

On that basis, the AAT found that the business was liable to pay super on behalf of Mr P, and therefore, was liable to pay the super guarantee charge.

Having found that Mr P was an employee under the expanded definition under section 12(3) of the SG Act, the AAT did not need to consider whether Mr P was an employee within the ordinary meaning of the term.

Importance of the decision and call for action

This decision is important as it confirms the position in Moffet that the expanded definition of ‘employee’ under section 12(3) of the SG Act may be wider than previously thought. Specifically, it confirms that ‘contractors’ providing labour under a contract, particularly where that labour must be provided personally, are likely to be employees for super guarantee purposes and trigger super contribution obligations in relation to contractors.

It is now more important than ever for businesses to review their contractor arrangements to determine if super contributions should be made on behalf of their contractors. This may mean, for example, that for any non-incorporated contractors that super contributions should be made for those contractors. This may mean that the inclusive contractor rate paid to the contractor is reduced by the amount of contributions made on their behalf.

We also note that the review of SG obligations is a significant focus of the Australian Taxation Office at the moment. Therefore, businesses should review their compliance with their SG obligations, particularly as they relate to contractors, sooner rather than later.

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au

Jan Oh
Graduate Lawyer
T +61 3 9611 0158
E joh@sladen.com.au