Does your contractor need to be paid superannuation? – They just might!
Posted on November 05, 2020
A recent decision of the full Federal Court will result in many contractors, who were previously considered to be outside the scope of compulsory superannuation payments, being entitled to such superannuation payments.
In Dental Corporation v Moffet  FCAFC 188, Dr Moffet, provided his services as a dentist to Dental Corporation under a services agreement.
Upon termination of the services agreement, Dr Moffet brought proceedings asserting that he was an employee of Dental Corporation and was entitled to be paid annual leave, long service leave and superannuation.
Both at first instance and on appeal, the Court found that Dr Moffet was not an employee of Dental Corporation but was an independent contractor conducting his own business. Therefore, he had no entitlement to annual leave or long service leave. However, on the issue of superannuation the Court was required to consider section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (Superannuation Act).
Section 12(3) defines an “employee” to include a person working under a “contract that is wholly or principally for the labour of the person”.
Section 12(3) can therefore apply to an independent contractor.
At first instance the Court found that Dr Moffet was entitled to superannuation and this finding was upheld on appeal by the full Court.
The Court said that in determining the application of section 12(3) of the Superannuation Act it was necessary to enquire into the purpose of the contract from the perspective of the person who is receiving the benefit of the service. The definition will be satisfied if the labour component is predominantly what the contract is for.
The Court was clear in finding that it is irrelevant to ask what Dr Moffet might have received from Dental Corporation.
The full Court found that in practice and under the services agreement, Dental Corporation received dentistry services from Dr Moffet, which included the treatment of patients, the management of the dental practice, the determination of fees and maintenance of patient records.
The full Court found that these services comprised Dr Moffet’s labour.
Additionally, as the services agreement provided that Dr Moffet was required to reimburse the dental practice if a minimum cash flow was not generated, this meant that the labour component of the dentistry services was the prominent feature.
Accordingly, the full Court found that the contract by Dr Moffet was wholly or principally for his labour thereby entitling him to superannuation under the Superannuation Act.
Where services are provided by an independent contractor, it is necessary to enquire as to whether, from the perspective of the party receiving the services, the contract is predominantly a contract for the supply of labour of the person. Where that is the case, then pursuant to section 12(3) of the Superannuation Act, superannuation payments will be required to be made.
We recommend strongly that you review existing independent contractor agreements with this enquiry in mind.
If you require assistance in reviewing your current independent contractor arrangements please contact the employment law team at Lynch Meyer on 08 8223 7600.