Who is an employee for superannuation guarantee purposes?
Under the super guarantee system, super contributions are made on behalf of “employees”.
Section 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SG Act) provides that “employees” for the purposes of the SG Act are defined under their ordinary meaning. That is, the meaning of that term at common law.
In addition, there is an extended definition of “employee” which is wider than its ordinary meaning – in particular, section 12(3) of the SG Act deems a person who “works under a contract that is wholly or principally for the labour of the person” to be an employee for superannuation law purposes notwithstanding the fact that they are independent contractors. This means that if a contractor is paid “wholly or principally for their labour”, they will still be entitled to superannuation guarantee contributions even if there is no common law employment relationship.
The recent decisions of the Full Federal Court and the Administrative Appeals Tribunal on the expanded definition of “employee” under section 12(3) of the SG Act will be discussed in part 3 of this Series.
The ordinary meaning of “employee”
Until recently, the question of whether a worker is a common law employee has involved a deep dive into the true character of the relationship. The intentions of the parties may be unclear or ambiguous especially where the terms of the contract are disputed by the parties. Due to these difficulties, the ordinary meaning of “employee” has been the subject of a significant amount of judicial consideration in a variety of legislative contexts, including income tax, payroll tax and superannuation guarantee.
Under this approach defining the contractual relationship involved a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties by “looking beyond a worker’s contract to the social reality of the work relationship”. No one indicator of itself was determinative of that relationship meaning the totality of the relationship between the parties must be considered on balance to determine whether the worker is an employee or independent contractor (see, e.g. Hollis v Vabu Pty Ltd [2001] HCA 44). This traditional approach was often referred to as the multi-factorial test.
The High Court, in two recent landmark judgments (Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2) moved away from the multi-factorial test in favour of an approach that examined the primacy of the terms of the written agreement/contract as a determinative factor in distinguishing between an independent contractor and an employee regardless of how the parties conducted themselves. In light of the decisions of the High Court, the ATO has issued a decision impact statement and Superannuation Guarantee Ruling 2005/1 is being reviewed.
That said, the multi-factorial test will be applied where there is no written agreement between an employer and a contractor/employee.
Extended meaning of “employee” under section 12 of the SG Act – contractors, sportspersons, actors etc
While the definition of “employee” includes persons who would be regarded as employees at common law, it also extends to:
a person who is entitled to payment for the performance of duties as a member of the executive body of a body corporate (section 12(2));
a person that works under a contract that is wholly or principally for the labour of the person (section 12(3));
members of the Commonwealth and State Parliament (sections 12(4) and (5));
a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills (paragraph 12(8)(a));
a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast (paragraph 12(8)(c));
a person who is otherwise in the service of the Defence Force or the police force (paragraph 12(9)(b)); and
a person who is a member of an eligible local governing body (section 12(10)).
Removal of the $450 per month threshold
Previously, section 27 of the SG Act provided an exception to payment of super guarantee contributions where an employee earned pre-tax salary or wages less than $450 in a calendar month.
From 1 July 2022, the $450 per month threshold has been removed, and employers are required to make super guarantee contributions to their eligible employees, aged 18 years or older, regardless of how much the employee is paid.
The removal of this threshold has increased access to superannuation for low-income earners and casual and part-time workers, resulting in about 300,000 people eligible for super contributions. Employers should consider how this change will impact their business as having to remediate underpayments can be costly – budgeting for additional super guarantee payments and collecting superannuation fund details for employees who might not have previously been eligible for super guarantee contributions.
Exclusion of employees who perform domestic or private nature
Section 12(11) of the SG Act explicitly carves out “a person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week” from the meaning of “employee”.
In this context, “domestic or private nature” means either:
relating personally to you (not to a business of yours); or
relating to your home, household affairs or family such as work by a nanny, housekeeper or carer.
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If you have any questions about how super guarantee should apply in your circumstance, please contact our specialist team at:
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
