Employee or independent contractor? Practical tips for categorising workers for superannuation purposes

• Author: Mr Michael Chaaya, Linda Chan and Kendra Turner
• Law Firm: Corrs Chambers Westgarth
• Published date: 25 July 2023

In 2022, the High Court decided two cases in which it clarified the approach to determining whether workers are employees or independent contractors under common law. In 2023, the Full Federal Court gave further guidance on the meaning of 'employee' for the purposes of common law and superannuation law, and the ATO released draft guidance on the categorisation of workers and its compliance approach.

This article sets out a revised approach for businesses to consider when determining whether workers are employees or independent contractors for superannuation law purposes.

In February 2022, the High Court handed down two decisions concerning whether workers were employees or independent contractors: Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek).

In March 2023, the Full Federal Court considered the extended meaning of 'employee' under section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA), as this issue was remitted by the High Court of Australia to the Full Federal Court in relation to the Jamsek decision in Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 (Jamsek No. 3). In May 2023, the Full Federal Court considered whether the right to subcontract or assign, and the right of control, are indicative of an independent contracting relationship in JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 (JMC).

These decisions are important as employees are entitled to leave, redundancy pay, and superannuation (among other employee entitlements), while independent contractors are not entitled to these benefits.

In deciding Personnel and Jamsek, the High Court applied a new approach to determining whether workers are employees or independent contractors for common law purposes, which emphasised the primacy of the contractual relationship between the parties. This new approach was adopted by the Full Federal Court in deciding JMC. In deciding Jamsek No. 3, the Full Federal Court confirmed the existing ATO guidance on the status of individuals as independent contractors if they perform work for another party in a capacity other than their individual capacity.

In this Insight, we:

• summarise the key changes to the approach to categorising workers as employees or independent contractors, arising from the High Court and Full Federal Court decisions and the latest draft guidance from the ATO;
  
  
• summarise relevant considerations when classifying workers as employees or independent contractors for superannuation law purposes; and
  
  
• note the circumstances under which superannuation is not payable, even if a worker is considered an employee.

Key changes to the approach to categorising...