The High Court agrees that Mr Harrison is not an employee for superannuation purposes
The ongoing debate of contractor v employee status was explored in the landmark case of JMC v Commissioner of Taxation; MC Pty Ltd v Commissioner of Taxation  FCAFC 76 (JMC case).
The JMC case centred on whether a lecturer, Mr Harrison, was an employee or an independent contractor for superannuation purposes. JMC, a provider of higher education programmes, engaged Mr Harrison to provide teaching services as an independent contractor. It did not make superannuation contributions for him during his engagement with JMC.
The Commissioner of Taxation issued Superannuation Guarantee Charge assessments to JMC for Mr Harrison as it disagreed with the position taken by JMC and alleged that Mr Harrison fell within the ordinary or extended meaning of "employee" under the Superannuation Guarantee (Administration) Act 1992 (SGA Act). This was objected to by JMC.
The Full Federal Court looked at what was written in the contract between JMC and Mr Harrison. In doing so, the Court held that Mr Harrison did not fall within the ordinary meaning of an employee.
This decision was largely based on the contracted right of Mr Harrison to sub-contract his services. As a result of his right to sub-contract, even though there was no evidence Mr Harrison in fact exercised this right, the Full Federal Court found that the contract could not be wholly or principally for his own labour. This meant that Mr Harrison did not fall within the extended meaning of “employee” under the SGA Act. The Commissioner of Taxation sought leave to appeal the Full Federal Court’s finding, arguing the principal purpose of the contract was still for Mr Harrison’s labour. The High Court rejected the special leave application.
Key update for employers
The significance of written contracts
The Full Court’s decision, accepted by the High Court, again emphasises the importance of written contracts in determining employment status. Careful consideration should be given as to what is (and is not) included within a written contract between a contractor and a principal.
The 'how' is important
Ensure that written contracts not only stipulate which party determines what, where and when services are to be performed, but most significantly, how those services will be performed. An independent contractor controls how the work is done; whilst an employer has the right to control not only what is done, but how the work is performed.
The right to subcontract
There is significant weight placed by the Courts on the right to subcontract, and whether or not this right has been exercised. If a right to subcontract is in the contract, the contract will generally not be wholly or principally for the labour of that person.
Review, review and review
Review your written contracts to ensure that, as far as possible, they reflect the case law on contractor-principal relationships. While the contractor v employee issue is likely to be altered by the 'Closing Loopholes' amendments, the chart below can be used as a tool. Please note that the chart is not exhaustive and should be used as a guide only. Basically, a contractor provides services to the business (and is in business on their own account); an employee works in and for the business.
If you have any questions in relation to this case, please do reach out to a member of our Employment & Workplace Team.
Guide on the difference between a contractor and employee
|Indicative of a contractor-relationship
|Indicative of an employee-relationship
|Right to subcontract or delegate
|No right or limited right to subcontract
|Is paid after submitting an invoice
|Is paid a wage
|Has an ABN
|Has PAYG deducted from a wage
|Pays own superannuation contributions, payroll tax, WorkCover levies
|Is permitted to take paid holidays and other types of leave, for example, long service leave
|Required to maintain own insurance policies in relation to the provision of services
|Has limited control over how and when their work is performed, for example, has set hours
|Is able to perform work for other businesses
|Is unable to perform work for other businesses
|Supplies and maintains own equipment to perform the services
|Uses company's equipment to provide services and/or is required to wear a unifrom
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