Tips for categorising workers for super

The High Court, in February 2022, 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 (SGAA), as this issue was remitted by the High Court 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.

This paper sets out a revised approach for business to consider when determining whether workers are employees or independent
contractors for superannuation law purposes by:

• summarising 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as employees or independent contractors, arising from the High Court and Full Federal Court decisions and the latest draft guidance from the ATO
• summarising relevant considerations when classifying workers as employees or independent contractors for superannuation law purposes
• noting the circumstances under which superannuation is not payable, even if a worker is considered an employee

Workers may be classified as either employees or independent contractors. Workers are only entitled to superannuation if they:

• are an employee under common law, the determination of which requires a characterisation of the relationship, determined with reference to the "totality of the relationship between the parties", identifying the legalrights and obligations which constitute the relationship
• meet the extended definition of 'employee' under section 12(3) of the SGAA, which notably includes persons who "work under a contract that is wholly or principally for the labour of the person".

- are members of a company's executive body
- work for various state or federal governments
- work in creative or performing industries, such
musicians, athletes, or who work in other activities
involving the exercise of intellectual, artistic, musical,
physical or other personal skills.

Previous approach
Historically, courts have determined whether workers were employees or independent contractors by taking a very broad view of the relationship between the parties, known as the 'multifactorial approach'. In applying the multifactorial approach, the courts looked to postcontractual conduct such as the day-to-day relationship between the parties and gave weight to factors that go towards (or against) a finding that a worker is employee
or independent contractor. Under the multi-factorial approach, the written contract between the parties was just one of a variety of factors which determined whether a worker was an employee or independent contractor.

New approach
In deciding Personnel and Jamsek, the High Court adopted a new approach in determining whether a worker is an employee under common law. The High Court emphasised the primacy of the contractual relationship in characterising the relationship between the parties as one of employment or otherwise, where the contract is not challenged as a sham, varied or otherwise displaced by the conduct of the parties. Therefore, an analysis of the incidia of employment should generally proceed by reference to the rights and duties established under the parties' contract. In Jamsek No. 3, the Full Federal Court confirmed the ATO guidance that a worker is not an employee within its common law meaning and under the extended definition of 'employee' where an individual performs work for another party through an entity such as a company, trust or partnership.