Superannuation Guarantee Rules Catch Up With Venues And Gyms

The superannuation guarantee rules are broad and may extend beyond the definition of common law for some employees. This can include directors, contractors, entertainers and sports persons.

Employers need to pay compulsory Superannuation Guarantee (SG) to those considered employees under the definition in the SG rules. But, the SG definition of an employee is broad and it has sparked debate. What about the rights of performers, gym instructors and others not typically considered employees?

For employers and business owners, it is important that you confirm your position. This is especially the case if there is any uncertainty about the rights of your workers. This might be an initial assessment of the position by us or clarified by applying for a ATO private ruling.

One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions. One of the key features of the SG system is to ensure that appropriate contributions are being made for employees and to adequately support them in their retirement. The SG laws, and complimentary director penalty regime, ensure that every cent owing to an employee for SG is paid.

Who is not paid superannuation guarantee?

Superannuation guarantee does not need to be paid to:

Under 18s who do not work more than 30 hours a week.
Private and domestic workers who do not work more than 30 hours a week.
Non-resident employees who perform work outside of Australia.
Employees temporarily working in Australia covered by an agreement.
Some foreign executives who hold certain visas or entry permits.

Note: Generally, SG is not payable if you have entered into a contract with a company, trust or partnership.

Superannuation Guarantee’s broader definition of an employee:

There is a section of the SG rules, section 12, that specifies who is deemed to be an employee for SG purposes. This section extends the definition of an employee beyond common law to cover:

Company directors who are remunerated for performing duties;
Contractors working under a contract wholly or principally for their labour;
Certain state and Commonwealth government contracted workers; and
Those paid to perform or present any music, play, dance, entertainment, sport or other similar promotional activity.

Are contractors entitled to superannuation guarantee?

Even if your contractor has an Australian Business Number (ABN), it doesn’t automatically exempt them from SG obligations. Where the arrangement looks like it is a contract for the provision of an individual’s labour and skills, it is likely they will meet the definition of an employee and SG will be payable.

The SG rules state 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 definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for superannuation guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says. If the person is deemed to be an employee under the rules, they are entitled to SG.

The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them:

under a verbal or written contract that is mainly for their labour.
for their personal labour and skills (payment isn’t dependent on achieving a specified result)
to perform the contract work (work cannot be delegated to someone else). In a recent ruling, the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the labour of the worker, but this will always depend on the facts.

Are directors paid superannuation guarantee?

Yes. Directors should be paid SG if they are remunerated for performing duties for the company.

Entertainers, performers and sportspeople:

Generally, if a performer operates through a company, trust, or partnership then there is not an employment relationship and SG is not payable. However, individual artists, performers and sportspeople will be captured as employees under the SG rules (section 12(8)) where they are paid to:

perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills;
provide services in connection with an activity referred to above;
perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast.

Whoever is paying the individual for their labour, is generally responsible for the payment of that individual’s SG. For example, a music festival operator contracts a sole trader to perform at a festival. The operator might be liable for SG for that performer. Likewise, if the sole trader contracts band members to perform with them at the festival, then the sole trader is responsible for their SG. If however, the music festival worked with an agency to supply the performers (the music festival pays the agency, the agency pays the performers), then the agency is likely to be responsible for the SG of the artists if there is a liability. If the agency only charges a booking fee and the festival pays the performers directly, then the festival is likely to be responsible for the performer’s SG.

You can see from this how important it is to determine who meets the definition of an employee for SG purposes. If they meet the definition, also understand the parties to the deemed employment relationship.

What’s a service ‘in connection to’?

The definition of an employee for SG purposes captures workers who work with performers. Some examples include individuals that are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then it is likely SG is payable.

Is a gym instructor a sportsperson?

A gym instructor might be captured under the definition of a deemed employee under the SG rules. Whether the gym is liable to pay the instructor SG really depends on the facts of the individual arrangement.

Let’s look at the example of a gym instructor operating as a sole trader under an ABN.

There is a contract between the instructor and the gym (the employer) stating that the instructor is an independent contractor. They are responsible for their own SG payments and other employment obligations.
The instructor is paid per class, and per training session with clients, covering their time and labour.
The instructor utilises the equipment of the gym and its scheduling system.
The instructor wears the uniform of the gym.
The instructor is trained by the gym in how to deliver the services of the gym.

Employee?

Most likely. The ATO places a heavy significance on whether an individual is working to build their own business or someone else’s. If the instructor ‘…works under a contract that is wholly or principally for the labour of the person’ then this also brings them into the SG net.

If the employer, the gym, had not been paying SG, it could be questioned about the missed SG payments for the instructor since the employment relationship began.

Need help making an employee vs contractor classification, or professional advice on employer obligations, superannuation guarantee or employment contracts? Get in touch with us.

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant.