Sham Contracting and Superannuation payments

Implications for superannuation payments in Sham contracting arrangements

The Fair Work Act has provisions that outlaw sham arrangements. However it is possible to defend yourself if principals (employers) are able to show that "they did not know or were not reckless as to whether the true nature of the relationship was actually employment".

The most recent developments have emerged in cases involving the recovery of superannuation payments. In On Call Interpreters & Translators v Commissioner of Taxation(No. 3) FCA 366 (2011), the Federal Court considered whether legal translators were actually independent contractors.

In this situation translators were allocated jobs. The arrangement was that a client would call the principal (On Call) for a language translator to help them.

“On Call” would direct the translator to the client. The translator would perform the work and then “On Call” would invoice the client. “On Call” would then pay the contractor upon receipt of the fees from the client.

The Court held that the translator was not in business for themselves and therefore was not really an independent contractor. Even here was no control in the way that the translator did their work.

The court ruled that “On Call” owed for the outstanding superannuation payments on behalf of its language translators because they were deemed not to be independent contractors.

The On Call case underlines the importance of determining correctly whether your workers are employees or contractors. These types of decisions have a huge financial impact on a business.

Tips for appointing contractors you should follow

  • If the contractor is not "in business" then they may not in fact be an independent contractor.
  • The wording of an independent contractor's contract should set out clearly the actual business arrangements being made.
  • There should be an emphasis in the written appointment arrangements that the independent contractor actually has a business.
  • If there is any doubt when you appoint an independent contractor, then it is suggested you should pay some of the contractor's invoices towards the contractor's superannuation.


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