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Edited version of administratively binding advice
Authorisation Number: 1012090711638
This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached ATO advice fact sheet has more information
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Subject: Superannuation Guarantee
Question one
Is there an employer/employee relationship between the Principal and the worker where the worker is specified in an Agreement between the Principal and an intermediate company or trust for the purposes of the Superannuation Guarantee Administration Act 1992 (SGAA)?
Answer: No, please see reasons for decision below.
Question two
If the answer to Question 1 is yes, should the Principal be paying superannuation guarantee (SG) contributions directly to the employee's chosen superannuation fund?
Answer: Not relevant, please see reasons for decision below.
This advice applies for the following period:
From 1 July 2011
Relevant facts and circumstances
Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.
The Principal is a small company which utilises the services of contractors on an ongoing basis.
The contractors are engaged through their own private company (the contracting company) and in most cases, as far as the Principal is aware, they are the only employee of the contracting company.
The Principal engages the contracting company through a contract and provides for a particular person to carry out work on their behalf.
The contract, the Agreement, is generic for all contractor engagements although the Schedule of the Agreement will change to reflect the particular services that the contracting company is engaged to provide.
The work must be undertaken by the particular person nominated in the contract and is paid on an hourly/daily rate on an ongoing basis.
Even though the contracting entity is contracted for a particular person to undertake a set piece of work, they will still be paid even if they do not achieve a result.
At the end of each month the Principal receives a tax invoice from the contracting company which shows that hourly/daily rate multiplied by the number of hours/days that were worked plus Goods and Services tax (GST).
Relevant legislative provisions
Superannuation Guarantee Administration Act 1992 Section 12,
Reasons for decision
Question one
Superannuation Guarantee Ruling SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of the SGAA.
SGR 2005/1 states in paragraph 13 that:
"Where an individual performs work for another party through an entity such as a company or a trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or the trust (not the individual) has entered into an agreement rather than the individual. However, the individual may be the employee of the intermediary company or trust, depending on the terms of the arrangement."
Therefore, if a worker is contracted to perform work through an interposed entity, such as a company or trust, the contract is between the end-user and the company or trust. The end-user would not be an employer of the worker, but the worker may be a common law employee of the company or trustee.
Therefore, any worker specified in the Agreement between the Principal and the intermediary company are not considered to be an employee of the Principal for the purposes of the SGAA.
Question Two
As the worker is not an employee of the Principal there is no obligation for the Principal to pay SG contributions for the worker.
Other Issues for you to consider
You will need to ensure that the Agreement is with a company for this advice to be valid. The fact that an entity holds an Australian Business Number (ABN) does not mean that they are a company.
If you are engaging individuals or sole traders who hold an ABN then it is likely that there may be an SG obligation for those workers.
Under the superannuation guarantee law you must pay super contributions for your eligible employees, at a minimum rate of 9% of their ordinary time earnings, so they can enjoy the benefits of super in their retirement.
You must pay contributions into a complying super fund or retirement savings account (RSA) and pass on your employee's tax file number (TFN) to their super fund where you are required to do so. Your eligible employees may be entitled to choose their super fund - if so, you must provide them with a form enabling them to make their choice.
If you don't pay the minimum amount into the correct fund by the due date, you'll have to lodge a Superannuation guarantee charge statement - quarterly (NAT9599) and pay us the superannuation guarantee charge. This charge is the amount of shortfall super that needs to be paid for the employee, plus interest, plus an administration fee.
You must keep records that show:
o the amount of super you paid for each employee and how it was calculated
o that you have offered your eligible employees a choice of super fund
o how you calculated any reportable employer super contributions.
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