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Two decisions have renewed the focus on payments made by principals to individuals engaged as contractors. Previous case authorities provided that the superannuation guarantee would be payable in respect of individual contractors if engaged on terms similar to or in the nature of an employment relationship.

The Full Federal Court decision in Dental Corporation Pty Ltd v Moffet (2020) FCAFC 118 (Moffet’s case) has since clarified that there is no need to examine the nature of the engagement – all that is required for superannuation guarantee to be payable is satisfaction of three elements of s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGA Act), namely:

  1. there is a contract
  2. the contract is wholly or principally “for” the labour of a person, and
  3. that person must work under that contract.

Following Moffet’s case, the Commissioner of Taxation (Commissioner) has taken an interest in examining this type of work relationship and will pay closer attention to ensure contributions are paid. In this environment of increased regulatory scrutiny, principals are at risk of being liable to pay the superannuation guarantee for contractors. There are steps that can be taken to mitigate this risk, which we explore briefly below.

For clarity, the purpose of the third element is to exclude engagements with companies as independent contractors. A company that enters a contract as an independent contractor will not provide labour in its own right as the contracting party. Rather, any labour would be provided by some other person (for example, an employee of the company). Accordingly, s 12(3)(c) of the SGA Act would not be satisfied because the company is not working under the contract.

What is the issue?

Section 12 of the SGA Act extends the concepts of “employer” and “employee” beyond their ordinary meaning for the purposes of the administration of the superannuation guarantee scheme. Under s 12(3) of the SGA Act, a person who “works under a contract that is wholly or principally for the labour of the person” is deemed to be an employee for the purposes of the SGA Act.

In practical terms, a business that wholly or principally engages a person for their labour will be required to pay superannuation contributions on behalf of that person under s 12(3). This will be the case regardless of the nature of the engagement.

Some examples of the work relationships that may be captured include consultants, sole traders, and freelancers.

What do the cases say?

The relevant facts and findings in Moffet’s case can be briefly stated.

Dr Moffet sold his dental practice but continued providing dental services at the practice for a number of years under the terms of a services agreement. Dr Moffet was paid an agreed percentage of the revenue generated by the work he performed.

After resigning from the practice, Dr Moffet made a claim seeking to recover alleged underpayments for accrued annual leave and long service leave. The Full Court of the Federal Court confirmed an earlier decision that Dr Moffet was an independent contractor, and therefore was not entitled to annual leave or long service leave.

However, the Full Court also held that the dental practice was liable to pay the superannuation guarantee charge (SGC) because Dr Moffet had been wholly or principally engaged for his labour, enlivening s 12(3) of the SGA Act.

The Full Court found the assessment of whether a person is wholly or principally engaged for their labour involves consideration of the nature of the benefits derived from the engagement for the principal engaging the labour. It is irrelevant to consider what the person providing the labour receives under the engagement.

In other words, the relevant question was: What benefits did the dental practice receive from the agreement with Dr Moffet? If the predominant benefit was Dr Moffet’s labour, then the dental practice was required to pay superannuation contributions on behalf of Dr Moffet.

The Full Court considered that the dental practice derived two benefits from its engagement of Dr Moffet:

  1. Dr Moffet was personally required to provide services as a dentist and practice manager.
  2. Dr Moffet personally guaranteed a minimum annual cash flow.

The Full Court considered these benefits to be linked as Dr Moffet’s ability to generate cash flow was dependent on him providing labour. Accordingly, the Full Court determined that the agreement was wholly or substantially for the dental practice to receive the benefit of Dr Moffet’s labour, and therefore the practice was liable for the superannuation guarantee.

In The Trustee for Virdis Family Trust v FCT (2022) AATA 3 (5 January 2022) (Virdis case) the Administrative Appeals Tribunal (AAT) held that remuneration paid to a person working as a contractor for a plumbing business was subject to s 12(3) because the payments were wholly or principally for the labour of the person.

In this case, the person performing the plumbing services was engaged as a “Casual Sub-contractor”. A number of the terms of his engagement reflected employment terms; however, the contract stipulated that the person was responsible for his own superannuation contributions.

After conducting an audit, the Commissioner made an assessment and determined that the person had not received what they were entitled to for superannuation. The business challenged the assessment in the AAT on the basis that the person was not an employee and was therefore not entitled to superannuation.

The AAT determined that it was not necessary to decide whether the person was an employee. Instead, applying Moffet’s case, the AAT made the finding that the sole benefit derived from the contract to the plumbing business was the obligation of the person to provide labour. Accordingly, s 12(3) of the SGA Act applied to deem the person as an employee of the business for the purposes of the superannuation guarantee. The Member also expressly stated that liability to pay the superannuation guarantee was created under legislation and could not be absolved by the contractual term that the person was responsible for his own superannuation contributions.

What can be done to address the risk?

The first step to address the risk posed in this era of greater regulatory scrutiny is to assess whether any contractors have been engaged wholly or principally for their labour. If so, remuneration should be inclusive of superannuation and superannuation contributions paid each quarter to reduce the superannuation liability to nil.

Even where the contract is assessed as not being for the labour of the person contracting with the principal, the contract terms should address the potential superannuation liability should the assessment not be correct. For example, this may be achieved by including a clause that offsets liability for superannuation guarantee against the amounts paid to the individual contractor pursuant to the contract.


Companies and government departments that engage persons or individuals directly as independent contractors need to be aware there is increased regulatory scrutiny in this area, which heightens the risk of a finding of liability to pay the SGC. In light of this risk, businesses, departments and agencies should seriously consider whether they have engaged any independent contractors on this basis, and therefore whether any remediation efforts may be required in respect of superannuation.

Fortunately, these recent cases do not bear upon engagements with companies as independent contractors because companies do not provide labour in their own right as the contracting party. Therefore, there is no need to assess any contractor relationships with companies.

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