Put the work in upfront to avoid nasty surprises.
It is common in some industries for employers to engage workers as independent contractors rather than employees.
The law states that the Superannuation Guarantee is paid on behalf of employees, NOT contractors. However where an employer mistakenly treats a worker as a contractor (when really they are in effect an employee), they risk being caught with unpaid Superannuation Guarantee obligations as demonstrated in a recent case.
In this case, the Taxpayer was the operator of commercial fishing vessels and had treated the fishing crew members as independent contractors. Having examined the “Share Fishing Contract” between the Taxpayer and the crew members, the Tribunal found that the crew members were really employees rather than independent contractors as contended by the Taxpayer.
Substance over Form (Is it worth the paper it is written on)
The evidence presented to the Tribunal demonstrated a “complete absence of a business being carried on by the crew members”. Among other things, the Tribunal found that the Share Fishing Contract gave the Taxpayer the sole discretion to determine the duration and destination of voyages. The Taxpayer also had the right to determine how the catch was dealt with and the crew members’ entitlement. In other words, there was a lack of control or independence one would expect in a typical principal and contractor relationship.
As a result, the Taxpayer was ordered to pay the shortfall amounts of the Superannuation Guarantee with penalties and interest.
In contrast, another operator of a commercial fishing vessel successfully argued that the fishing crew members were independent contractors. The arrangement in this case is that once the vessel was moored at a particular location, the crew members would head off in their dories (small boats) in search of fish and operated independently. They were paid on the basis of their catch.
The arrangement between the Taxpayer and the fishing crew members was carefully documented as a joint venture agreement and the parties actions, such as invoicing and payment arrangements, reflected the written agreement. It is not surprising that the Tribunal found that the crew members were independent contractors on this occasion.
Collect Evidence as you Go, Not at the Last Minute
The cases above yet again demonstrate the importance of formally documenting the arrangement, acting in accordance with the document (substance over form) and keeping records of the actual implementation of any such arrangement. In the event of an ATO audit, it is the Taxpayer’s onus to establish that the workers are in fact independent contractors!