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The recent case of Natalie Newton (trading as Combined Care for the Elderly) and Commissioner of Taxation [2011] AATA 897 (Newton) has held that workers of an aged-care service were employees rather than independent contractors. Consequently, the taxpayer was liable to pay the superannuation guarantee charge.

The Facts

Natalie Newton (trading under the business name Combined Care for the Elderly) provided community support services to people in need of physical assistance in their homes. The business had a list of workers who it engaged to conduct these services.

A customer would contact the business who in turn would contact one of the workers and offer the work. The worker could either accept or decline the assignment. Each worker had entered into a labour hire agreement with the business and acknowledged that they were independent practitioners/contractors and that the business was not their employer.

The Superannuation Guarantee (Administration) Act 1992 (Act) requires that employers who fail to provide the prescribed minimum level of superannuation to their employees must pay the superannuation guarantee charge (SGC) to the Australian Taxation Office.

The Commissioner issued Ms Newton with SGC assessments for failing to provide adequate superannuation support to her workers over a 6 month period.

At first hearing, the Tribunal had held that Ms Newton was exempt from the SGC because the workers were “paid to do work wholly or principally of a domestic or private nature”. However, that decision was overturned by the Federal Court and the case was sent back to the Tribunal for further consideration.

The key issue for determination by the Tribunal was whether the workers were employees or independent contractors. The answer to that issue would determine whether the business was an employer and therefore liable to pay the SGC.

The Decision

Ms Newton argued that because the workers were independent contractors her business was not their employer and consequently was not liable to pay the SGC. She relied on a number of factors to show that the workers were independent contractors, including that:

  • the workers provided the services pursuant to a signed labour hire agreement
  • the workers were obliged to produce a result, and
  • the contractual agreement between the workers and the business was described as one of an independent contractor.

The Tribunal decided that:

  • The workers were employees. Consequently, the business was an employer under the expanded definitions contained in the Act and therefore liable to pay the SGC.
  • Section 12(3) of the Act provides that if a person works under a contract relating to labour he or she undertakes (whether wholly or principally), then the person is an employee of the other party to the contract. In this case, Section 12(3) of the Act applied despite the parties attempting to describe their contractual relationship as being independent and the workers acknowledging their contractual relationship.
  • In the absence of any evidence from the business that the contract was not "wholly or principally for the labour of the person", the workers were held to be employees for the purposes of the Act.

The Tribunal relied on the fact that the workers were not free to delegate the work to others, the workers had entered into a labour hire agreement, and there was no evidence that the workers were required to produce a result.

The Lesson

Describing someone as an “independent contractor” in a labour contract is not sufficient to prove that a contractor is not an employee for the purposes of superannuation legislation.

In addition, whether a contractor is actually an employee depends on the particular circumstances of the case including whether the worker is able to freely delegate their work to others and if the worker is required to produce a result.

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