The joint article by Gilbert + Tobin partners Patrice Elias and Muhunthan Kanagaratnam explained that this particular case involved a business which had engaged a sound engineer, Mr Harrison, to deliver lectures to its students and to mark student examinations or assignments.

“Mr Harrison was paid an hourly rate, submitted invoices, timesheets and weekly lesson plans, was not required to provide any of his own equipment, and ceded to the Applicant any intellectual property rights in any material arising from his teaching services,” said Ms Elias.

“Further, the [business] had a degree of oversight and control over Mr Harrison including when, how and where he was to provide the teaching services.  Mr Harrison could not unilaterally exercise his contractual right to sub-contract or assign the teaching services, and such a right was subject to the Applicant’s unfettered discretion to refuse to consent to any sub-contract or assignment.”

The business had not made any superannuation contributions in respect of Mr Harrison.

The issue in this decision was whether Mr Harrison was an employee having regard to both the ordinary or common law meaning of “employee” and the extended meaning of “employee” in section 12(3) of the Superannuation Guarantee (Administration) Act 1992.

The Federal Court held that Mr Harrison fell within both meanings of employee.

“Importantly, also, it appears that the Commissioner assessed the applicant more than 5 years after the first superannuation liabilities would have been triggered,” Ms Elias noted.

Mr Kanagaratnam said the Courts will typically assess whether or not a worker falls under the definition of an employee under general law based on factors such as terms of the contract, nature of the contracting parties, the existence of a right of control, the right to delegate work, manner of remuneration, provision of equipment, ability to perform work for others and assumption of risk.

“However, even if a person is found to be a contractor under the general law, the trap many businesses fall into is not considering the extended meaning of employee,” he warned.

“This is almost universally the issue we see as businesses go to extraordinary length to ensure a person is not an employee for various other purposes, but forget tax and, in particular, superannuation when seeking advice.”

Mr Kanagaratnam said if a person works under a contract that is “wholly or principally for the labour of the person”, that person will be regarded as an “employee” for the purposes of the SGA Act. 

“In other words, a business will have an obligation in relation to superannuation in respect of those persons, even if such a person is intended to be, or is in fact for other purposes, a contractor,” he said.

For a person to be an employee within the extended meaning there must be a contract, the contract must be wholly or principally for the labour of the person and the person must work under the contract.

“Importantly, a contract is not wholly or principally for the labour of the individual if the contract is a contract for the provision or production of a result and that individual is paid for that result,” he said.

Mr Kanagaratnam said that since the end of superannuation amnesty, the Commissioner of Taxation has taken active steps to inform independent contractors of their potential entitlements to superannuation and taken action against businesses who may not have paid superannuation for independent contractors.

“Inaction in any form is not an option – this is a ticking time-bomb because the Commissioner is actively pursuing this, either as gentle nudges to individuals who claim to be contractors or auditing businesses,” he warned.

“If the Commissioner comes knocking before a business has voluntarily approached the Commissioner, the applicable penalties are more significant, up to two times the sum of the superannuation not paid and the interest at 10 per cent on that shortfall and a small administrative fee.”

Businesses, he said, should go back and have a look at their contractors to determine whether any superannuation is due, particularly under the extended definition of “employee”. 

“If there is, voluntary disclosure to the Commissioner is recommended as a way of mitigating penalties,” he said.