The superannuation guarantee ("SG") rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers.
Employers need to pay a compulsory superannuation guarantee (SG) to those considered employees under the definition in the SG rules. However, the SG definition of an employee is broad (including some contractors), and just how far this definition extends has sparked debate lately about the rights of performers, gym instructors, and others who are not typically considered employees.
SG’s broader definition of an employee
Section 12 of the SG rules specifies who is deemed an employee for SG purposes. This section extends the definition of an employee beyond common law to cover:
- Company directors who are remunerated for performing duties;
- Contractors working under a contract wholly or principally for their labour;
- Specific state and Commonwealth government-contracted workers; and
- Those paid to perform or present any music, play, dance, entertainment, sport or other promotional activity. This includes people who provide services in connection with these activities or people paid to film, tape, disc or television.
For employers and business owners, it is crucial that if there is any uncertainty about workers' rights to SG, your position is confirmed. This might be an initial assessment of the position by us, confirmed by an employment lawyer, or clarified by applying for an ATO private ruling covering your specific workplace arrangements.
One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions for workers classified as employees for SG purposes.
The SG laws and complimentary director penalty regime ensure that every cent owed to an employee for SG is paid.
Who is not paid a super guarantee?
The super guarantee does not need to be paid to:
- Under 18s who do not work more than 30 hours a week.
- Private and domestic workers who do not work more than 30 hours a week.
- Non-resident employees who perform work outside of Australia.
- Employees temporarily working in Australia covered by an agreement.
- Some foreign executives who hold certain visas or entry permits.
Generally, SG is not payable if you have entered into a contract with a company, trust or partnership.
Are contractors entitled to SG?
If your contractor holds an Australian Business Number (ABN), this doesn't mean that SG cannot apply. Where the arrangement looks like a contract for providing an individual’s labour and skills, they will likely meet the definition of an employee, and SG will be payable.
The SG rules state that 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.”
This definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for super guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says; if the person is deemed an employee under the rules, they are entitled to SG and the employer is obligated to pay it.
The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them:
- under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
- for their personal labour and skills (payment isn't dependent on achieving a specified result)
- to perform the contract work (work cannot be delegated to someone else).
In a recent ruling, the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the worker's labour, but will always depend on the facts.
Are directors paid SG?
Yes. Directors (and members of executive bodies of bodies corporate) should be paid SG if they are remunerated for performing duties for the company.
What’s a service “in connection to”
The definition of an employee for SG purposes captures workers who work with performers, for example, individuals who are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then SG is likely payable.
Need assistance? Feel free to call our Melbourne team on (03) 9870 9050 to clarify, as you're much better planning for these payments than having to backdate payments, along with hefty fees and interest.
