Employers must pay a compulsory Superannuation Guarantee (SG) to those classified as employees according to SG regulations. The SG definition of an employee is extensive, and recent discussions have arisen regarding the rights of performers, gym instructors, and others who are not employees.
For employers and business owners, it’s essential to clarify uncertainties regarding workers’ rights to SG. This may include seeking an initial assessment from us, confirmation from an employment lawyer, or applying for an ATO private ruling regarding your specific workplace situation.
One factor that concerns employers is the absence of a definitive time limit for recovering outstanding SG obligations. In principle, the ATO can pursue unpaid superannuation contributions for employees classified under SG guidelines for as long as it seems necessary.
A primary aim of the SG system is to guarantee that suitable contributions are made for both employees and considered employees to effectively support their retirement. The SG laws, along with the complementary director penalty regime, guarantee that every dollar owed to an employee for SG is paid.
Who is Exempt from Superannuation Guarantee Payments?
Superannuation Guarantee (SG) does not need to be paid for the following individuals:
- Employees under 18 years of age who work 30 hours or fewer per week.
- Private and domestic workers who work 30 hours or fewer per week.
- Non-resident employees performing work outside of Australia.
- Employees temporarily working in Australia under a specific agreement.
- Certain foreign executives holding specific visas or entry permits.
In general, SG is not payable if you have entered into a contract with a company, trust, or partnership.
If you have Australian employees temporarily working outside of Australia in a country with a bilateral social security agreement, such as the United States, you should continue to pay SG. You may also need to apply for a certificate of coverage to avoid paying superannuation (or its equivalent) in the country where the employee is temporarily located.
SG’s Broader Definition of an Employee
There is a section of the SG rules, section 12 specifies who is considered 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 fulfilling responsibilities.
- Contractors working for their labour under a contract wholly or principally.
- Certain state and Commonwealth governments contracted workers.
- Those who get paid to perform or present any play, music, entertainment, dance, sport or other similar promotional activity. This includes individuals who offer services along with these activities or individuals paid in relation to tape, film, disc, or television.
Are Contractors Liable to SG?
If your contractor has an ABN, this in itself will not prevent SG from applying. Where the arrangement seems like it is a contract for the provision of an individual’s skills and labour, it is likely they will meet the definition of an employee, and SG will be payable.
The SG rules state if, “an individual works under a contract that is principally or wholly for the labour of an individual, the person is an employee of the other party to the contract.” This definition concerns many employers because the rates paid to contractors, along with the terms of their agreements, often include additional amounts for superannuation guarantee (SG) and other entitlements that would typically be provided to employees. However, for SG purposes, the specifics of the contract are irrelevant. If a person is deemed to be an employee according to the regulations, they are entitled to SG, and the employer is obligated to pay it.
The ATO states that SG must be paid to the contractor if you pay them:
- Under a written or verbal contract, which is for their labour.
- For their skills and labour.
- To perform the contract work (work cannot be assigned to someone else).
In a recent ruling, the ATO says that where the worker must use a substantial capital asset, this will help in arguing that the contract is not for the worker’s labour, but this will be based on the facts.
Are Directors Paid SG?
Yes, directors- those serving on executive bodies of companies- should receive SG if they earn compensation for their company duties. For entertainers, performers, and sportspeople, if a performer is engaged through a company, trust, or partnership, there typically isn’t an employment relationship, and SG is not applicable.
However, individual artists, performers, and sportspeople are considered employees under SG regulations (section 12(8)) if they are paid to:
- Perform, present, or participate in the performance or presentation of any music, play, dance, entertainment, sport, display, or promotional activity, or any similar activity that involves the use of intellectual, artistic, musical, physical, or other personal skills.
- Offer services in relation to the activity referred to above.
- Perform services in, or in relation to, making any film, disc or tape or any TV or radio broadcast.
The party paying an individual for their labour is typically responsible for their Superannuation Guarantee (SG). For example, a music festival operator hiring a sole trader to perform is responsible for the performer’s SG. If the sole trader hires band members, they are responsible for their SG. If an agency is involved, the agency may be liable for the SG, unless the festival pays the performers directly, in which case the festival is responsible. Understanding who qualifies as an employee for SG purposes is crucial in determining liability.
What does “service in connection to” mean?
The definition of an employee for Superannuation Guarantee (SG) purposes includes workers who assist performers, such as producers, videographers, and editors. If a person meets the SG definition of an employee, it is likely that SG contributions are required.
Is a gym instructor a sportsperson?
A gym instructor could be considered a deemed employee under the SG rules. Whether the gym is obligated to pay the instructor SG contributions depends on the specifics of their individual arrangement. Here are some examples of situations involving gym contractors working as sole traders under an Australian Business Number (ABN):
- There is a contract between the gym and the contractor that explicitly states the instructor is an independent contractor responsible for their own SG payments and other employment obligations.
- The instructor is compensated based on the number of training sessions and classes conducted with clients, covering their labour and time.
- The instructor uses the gym’s equipment and scheduling system.
- The instructor wears the gym’s uniform.
- The instructor receives training from the gym on how to deliver its services.