A lie of the ‘superannuation’ land: What do physiotherapy businesses need to be mindful of when considering engaging independent contractors
As specialist lawyers for medical practices and allied health clinics, we often get queries from physiotherapy businesses regarding their liability to pay superannuation and other entitlements to contracted staff, most often massage therapists and pilates instructors, and also physiotherapists and other allied health professionals, and the distinction between employees and contractors more broadly. Misclassifying workers and incorrectly assessing liabilities are key areas of concern for clinics and the process of engaging independent contractors involves navigating a complex legal landscape.
It is a common misconception that if a physio clinic retains an independent contractor, your business will be exempt from making superannuation contributions. Whilst this might hold true in some cases, there are certain circumstances where, although an individual may be a contractor, the entity engaging the contractor could still be obligated to make superannuation contributions. This is because whilst the person may be a true ‘contractor’, they may be still considered an employee for superannuation purposes – it doesn’t matter if they have their own ABN.
When will I be liable to make superannuation contributions to an independent contractor?
The answer lies in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act) – it outlines an ‘extended test’ that determines the requirement for superannuation contributions. It states:
‘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.’
In essence, if an individual works under a contract primarily aimed at providing their labour, that individual will be considered an employee of the contracting party for the purposes of superannuation under the SGA Act.
What does ‘wholly or principally for the labour of’ mean?
In the case of Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] (Jamsek), the Full Court of the Federal Court of Australia, on remittal from the High Court of Australia, clarified the operation of this section. In Jamsek, the court clarified that to be considered as an ‘employee’ for superannuation purposes under the extended test:
• There should be a contract;
• Which is wholly or principally for the labour of a person; and
• That the person must work under that contract.
Important to note, the Court accepted that section 12(3) of the SGA Act will only apply when the “employee” is an identified natural person and party to the contract. Therefore, in order to satisfy this element, only a natural person can work under a contract (i.e. entering into a contract with a company, trust or partnership will mean you are not liable to pay super in that context). Not that you likely need this reminder, but it is important to remind businesses at this juncture that telling a physiotherapist to incorporate as a company just to avoid this payment of superannuation could be considered an avoidance scheme.
The Court also affirmed that section 12(3) will not be satisfied ‘where a contract is properly characterised as being for the provision of a result and not for labour.’ It is important to consider whether the work can be delegated to others, as if the physiotherapist can, they are less likely to be considered an employee for superannuation purposes.
What if the independent contractor is paying their own superannuation?
If a contractor is hired wholly or principally for labour then the person that hired them is responsible for paying their superannuation. The contractor may choose to make voluntary contributions, but it does not negate the businesses overarching liability to make the contributions if the physiotherapist satisfies the extended test.
What does this mean for my physiotherapy business?
While this case does not specifically involve a physiotherapy business, it serves as an important reminder to consider whether your clinic is potentially liable for superannuation contributions to independent contractors that you engage - whether they be massage therapists, pilates instructors, physios or other allied health professionals.
You should ensure your contracts are well-drafted and current to avoid potential legal complications and liabilities.
The interpretation of your situation falls on the wording of section 12(3) of the SGA Act and the specific details of your written agreement. If the independent contractor is indeed a ‘person’ operating under a contract that is ‘wholly or principally for the(ir) labour’, then your business will be at risk of liability for their superannuation contributions.
However, it is important to remember that even if an independent contractor is an employee for superannuation purposes, it doesn’t necessarily follow that they will be an employee for other purposes (e.g. pay-as-you-go withholding).).
It can be difficult to determine who is an employee at common law or for superannuation purposes under section 12(3) of the SGA Act. We can assist you in making this determination regarding your independent contractors, as well as creating Agreements that better manage your risk and take this into account. Feel free to reach out to us if you have any questions here.