In ZG Operations v Jamsek the Full Federal Court has determined that section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act) does not apply to an independent contractor relationship where the worker uses a company, trust or other service vehicle to contract with the putative employer instead of doing so in their personal capacity.
So What?
This means the contractor was not entitled to superannuation.
The Court held that section 12(3) could not apply to this relationship because the language of the provision requires the contract to be entered into by a natural person in their individual capacity.
In particular, section 12(3) was found only to be capable of operating where:
- an identified natural person (the Worker) is a party to the contract in their individual capacity;
- the Worker works under the contract; and
- the party on the other side of the contract makes payments to the Worker in respect of their labour under the contract.
This interpretation was contended for and supported by the Commissioner. This is not unexpected given the Commissioner’s public position in Superannuation Guarantee Ruling SGR 2005/1 that:
Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the [SGA Act], either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual.
Proposed amendments to the Fair Work Act
Employer obligations to pay superannuation remains a hot issue.
Currently, absent an entitlement to superannuation under an award or enterprise agreement, a worker who meets the definition of an ’employee’ under the SGA Act (including the extended definition in section 12(3)) cannot directly enforce the employer’s obligation to make superannuation contributions. Rather, the Commissioner is responsible for enforcing the employer’s liability to the superannuation guarantee charge in cases where superannuation contributions are not made voluntarily by the employer.
On 29 March 2023, the Government introduced a Bill amending the Fair Work Act 2009 (Cth) to include the obligation to pay superannuation contributions within the National Employment Standards as a workplace entitlement. If the Bill is passed, this will mean that “national system employees” (as defined in the Fair Work Act 2009) (or employee organisations or Fair Work Inspectors on their behalf) would be able to directly recover from an employer any unpaid superannuation contributions in circumstances where the employer would be liable for the superannuation guarantee charge. A failure of an employer to comply with the obligation would also be a civil penalty provision and could result in the imposition of penalties subject to certain carve outs where an employer is also pursued by the Commissioner of Taxation for an amount owed to an employee.
However, because the National Employment Standards apply only to common law employees, it appears that these amendments will not affect the situation of an independent contractor who is an ‘employee’ only under the extended definition in section 12(3) of the SGA Act. In such cases, the existing system of enforcement of the superannuation guarantee charge by the Commissioner will remain the only option for recovery of unpaid superannuation contributions.
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