Am I Entitled to Superannuation as a Contractor

This article explains pension coverage, the relevant factors for determining whether your employee is an employee or a contractor, as well as the general principles and tools you can use to determine whether Super should be paid for your contractors. The recent decision of the Federal Supreme Court in the case of JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 (JMC) highlights common misconceptions that many companies operate when they hire independent contractors. The cases discussed in this warning clearly highlight the misunderstanding in which many entrepreneurs seem to operate. That is, if an employee is an independent contractor under general law, he or she is not subject to pension contributions. That is not correct. As discussed above, the importance of the employee for the purposes of the law is considerable and may mean that a company is required to pay pension contributions to its contractors. The most common mistake is the assumption that super doesn`t have to get paid for a contractor. It`s a simple mistake, but costly if a company does it wrong because ATO makes it easy to understand the difference. It is important to note that this means that, whether or not the person is a bona fide contractor under general law, it is rather relevant whether the person is an employee within the meaning of the law according to the three-step test described above.

If your entrepreneur is eligible to choose a super fund, but does not, to avoid penalties, you will need to ask us for the details of their stapled super fund. When are pension contributions due? However, if you mainly pay contractors for their work, the SG considers them employees. It is also important that the Commissioner assessed the applicant more than 5 years after the first retirement pension liabilities broke up. However, the work must be carried out personally by the contractor and not delegated to a subcontractor. Similarly, if the contractor is a business and one of its employees does the work for the customer, then that employee is not super paid by the customer. So how far back do you go? This is an issue that does not seem clear, with different views on the market. The legal situation is clear – there is no time limit. The Commissioner takes the practical approach of reviewing available documents – if there are no documents, he usually does not inquire further. But remember, just because a company destroys its records once legal deadlines are met doesn`t mean individuals do the same – if a person can create documents that go back further than the company`s, the commissioner may well rely on those records. A general opinion we have heard is that it is only necessary to go back 5 years – however, the facts in JMC suggest that this is not an accurate statement about the Commissioner`s practices, as the valuation in this case appears to have taken place more than 5 years after the first triggering of the superannuation liabilities. Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 (“Moffet Case”) involved a dentist who sold his practice but then continued to provide dental services as an independent contractor for the new owner.

He gave the new dental practice two advantages: 1) services as a dentist and 2) a guarantee of a minimum annual cash flow. The court found that his ability to maintain his coverage was based on his ability to provide dental services (provide work) and therefore concluded that the agreement was “wholly or essential to the new dental practice to maintain the benefits of his work.” As a result, the new dental practice was forced to make pension guarantee payments. The ATO has broad powers to review your commitments to determine whether you should have made superannuation payments. You can expect significant penalties if your company does not make pension payments correctly and on time, including the payment of management fees and interest with a pension guarantee fee (SGC). If you still do not pay these fees, the ATO can take more aggressive action, including issuing a fine notice asking you to reimburse the super unpaid. Finally, if you continue not to pay, you could face a fine of $10,500 or even up to 12 months in prison. Since this can be a significant and annoying burden, it`s best to understand your commitments from the beginning. If you are a contractor who is paid in whole or in large part of your work, you are considered an employee for exceptional purposes and you are entitled to super guarantee contributions under the same rules as employees. If you are an entrepreneur, you may still be eligible for Super from your employer. The Superannuation Guarantee (SG) is the minimum amount of retirement pension that you must pay into your employee`s super fund. Currently, the SG amounts to 10% of an employee`s ordinary salary (OTE) (increase to 10.5% from 1 July 2022). In fact, the OTE is the amount your employee earns for their normal working hours.

For example, the OTE includes commissions, shift shipments, allowances and bonuses, but excludes overtime payments. You do not have to pay a retirement pension to an entrepreneur who you paid less than $450 (before taxes) in a calendar month, are under 18 and work less than 30 hours per week, are a domestic or private worker (such as a nanny, caregiver or housekeeper) and work less than 30 hours per week, or an entrepreneur. which provides its services through a registered company. This means that when determining the type of employee, the court first takes into account the written provisions of the contract. Companies need to pay attention to this and ensure that all commitments are reduced to a written contract, whether for an employee or a contractor. Contractors who are primarily remunerated for their work are considered employees for the purposes of the pension guarantee. Therefore, we recommend that you use ATO tools to decide if your employees are eligible for super payments. In addition, you should seek other independent tax or legal advice if you are unsure. In fact, meeting your super obligations reduces the risk of your employees` claims for super unpaid and the obligation to pay superannuation guarantee fees. The Commissioner for Taxation (“the Commissioner”) is stepping up his efforts to identify the unpaid pension rights of companies that have wrongly worked on the assumption that entrepreneurs are not entitled to pension contributions. Under the Superannuation Guarantee (Administration) Act, 1992 (“the Act”), contractors may be entitled to a retirement pension if they are classified as employees for the purposes of the Act. The definition of “employee” in the Act is much broader than is generally understood.

When determining an employee`s status as a contractor or employee, the primacy of the written agreement between the parties is now emphasized, rather than applying the multifactorial approach first. The High Court noted that if the parties are bound by a valid written agreement that clearly states their rights and obligations, their relationship will not be affected by the parties` conduct if they comply with the provisions of the written contract. This means that their conduct, if they act as provided for in the contract, otherwise has no weight for the characterization of the employee as an employee or contractor. Your company must pay the retirement pension to everyone you hire and who is entitled to it. In most cases, they will be employees. However, in some cases, you may still have to pay a retirement pension to entrepreneurs, for example if they provide a large workforce under a contract. The ATO has extensive powers to enforce pension laws. It is important that you are clear about your obligations. The first rule is that you must pay a retirement pension for anyone who is an employee. Therefore, you must first decide whether a person you are hiring is an employee or a contractor. Hiring someone as a contractor who should be an employee is called a fake contract and results in high penalties.

Problems with fake contracts often arise when an employment relationship ends and a contractor thinks they are owed claims, or when an employee believes they are an employee and wants to receive claims. The Claimant did not make any pension contributions to Mr. Harrison. The Fair Work Ombudsman (WTO) uses a set of guidelines to determine whether someone is an employee or a contractor. However, the ATO is subject to the Superannuation Guarantee (Administration) Act. This leads to a larger pool of workers who may be entitled to a retirement pension. For example, the law states: Why is this issue important in the context of entrepreneurs and the superannuation? It is common knowledge that clients do not have to make pension guarantee payments to contractors because they are not employees. Given the High Court`s decisions regarding contractors, many clients have assumed that this has strengthened the argument that the superannuation does not have to be paid for people who have been hired as contractors.