Navigating superannuation obligations as an allied health practice manager can be complex, especially when engaging independent contractors. It is increasingly common for private practices to engage practitioners as independent contractors as this provides a great deal of flexibility to practices to manage workloads and minimise some of the liabilities associated with employment relationships.

However, while the distinction between an employee and a contractor is usually clearly delineated, there can be significant complexity in determining whether superannuation is payable to an independent contractor.
While the superannuation guarantee (SG) applies to all employees—whether full-time, part-time, or casual—many practice managers assume contractors automatically fall outside this requirement. However, there are circumstances where a contractor—even one with an ABN or registered business—may still be classified as an employee for superannuation purposes, requiring the engaging entity to make SG contributions. Misunderstanding these rules can lead to significant consequences, including liability for unpaid superannuation and penalties.

When Is Superannuation Payable to an Independant Contractor in Australia?

Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA), provides an expanded definition of an “employee” for SG purposes. It reads:

“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”

This means that regardless of how your agreement labels the relationship, the key factors determining SG liability are:

1. Is there a contract?
2. Does the engaged practitioner “work” under the terms of that contract?
3. Is the contract wholly or principally for the person’s labour?

If the answer to all three is yes, the contractor is likely considered an employee for superannuation purposes, meaning the practice is potentially liable for SG contributions to the practitioner.

These elements should be considered closely:

1. Is There a Contract?
   Generally, this element will be satisfied. A contract may be written or verbal, provided the terms are evidenced by the parties’ actions (e.g., one party provides labour in exchange for payment).
2. Does the engaged practitioner “work” under the terms of that contract?
   In 2023, the Full Court of the Federal Court clarified in Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 that section 12(3) applies only to natural persons—not companies, trusts, or partnerships. In Jamsek, the contractor operated as a partner in a partnership, can consequentially, the court held they could not be an ‘employee’ entitled to superannuation for the purpose of s12(3)
   This principle was affirmed in the Australian Tax Office Ruling 2023/4, which outlined the criteria for employee classification under tax and superannuation laws.
   However, despite this apparent exceptions, practice manager should be cautious before requiring contractors to incorporate or use another business structures principally to avoid being characterized as an employee for the purpose of SG obligations, as it may be that a later court could determine this arrangement to be a sham.
3. Is the Contract Wholly or Principally for the Person’s Labour?
   This is often the most complex factor. A court would likely need to assess whether the contract is primarily for labour (indicating an employment relationship) or for a specific result or other benefits (suggesting a genuine contractor arrangement).

There are a number of relevant considerations:

• Can a contractor delegate or subcontract the work?
  If the contract allows the worker to assign tasks to others, they are less likely to be classified as an employee, as naturally, the contract is not for the ‘labour’ of the contractor but for the delivery of the service. However, this right must be genuine—not a superficial clause that is never exercised.
• Is the contract for a specific result (rather than labour)?
  Contracts focused on delivering an outcome (e.g. the delivery of a service; like a report or assessment) rather than simple labour on an hourly basis are arrangments less likely to be caught by section 12(3).
• Does the contract involve more than just labour (e.g., equipment)?
  Per Jamsek, the contractor provided trucks and equipment, meaning the contract extended beyond mere labour. The Court held this was another relevant factor to consider in whether the arrangement was caught be section 12(3).

Key Takeaway: Each arrangement must be assessed individually, with close attention to the contract terms and actual working relationship. Notwithstanding the following features might need to be included in independent contractor agreement for a private practice:

• Stipulation that the contract is for the delivery of services not labour ;
  • Provide clear detail on the deliverable;
  • This may mean that the Contractor provides their own licence for tests and measures;
  • This may mean there is freedom for the Contractor to set their own time and availability;
  • This may mean
• The freedom for a contractor to sub-contract or assign the contract;
• The necessity for the contractor to provide their own equipment; and,
• Where possible, contract with the contractors business structure (trust, company or other entity that is not a sole trader).