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The application of SG to contractors clarified: part 4

By Bryce Figot and Daniel Butler, DBA Lawyers
04 April 2023 — 5 minute read

The Full Court of the Federal Court of Australia (Court) recently handed a judgment regarding how the superannuation guarantee (SG) legislation applies to certain contractors: Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 (Jamsek). This case has important implications for businesses that engage individuals where the payment is wholly or principally for that person’s labour.


Mr Martin Jamsek and Mr Robert Whitby drove delivery trucks for ZG Lighting Pty Ltd and its related companies or predecessors in business (collectively, ZG) for nearly 30 years. They commenced proceedings against ZG claiming they were employees of ZG for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA).

(References to legislation below are references to the SGAA.)

Both Mr Jamsek and Mr Whitby had to supply and maintain their own trucks and were not engaged in an individual capacity. Rather, Mr Jamsek was in partnership with his wife providing delivery services. Similarly, Mr Whitby was in partnership with his wife providing delivery services.

The primary judge of the Federal Court at first instance found they were neither employees, within the ordinary meaning of that term, nor ‘employees’ within the expanded meaning in s 12(3).

In the first appeal decision, the Court, held that Mr Jamsek and Mr Whitby were employees of ZG within the ordinary meaning of that term. The Court, in the first appeal decision, did not consider whether the expanded meaning of ‘employee’ in s 12(3) applied.

On appeal to the High Court, the High Court allowed ZG’s appeal, holding that they were not employees within the ordinary meaning of that term and remitted the matter back to the Court to determine whether Mr Jamsek and Mr Whitby were ZG’s employees within the expanded meaning in s 12(3).

The central question for determination in the second appeal hearing by the Court was essentially whether, when Mr Jamsek and Mr Whitby drove trucks for ZG, were they, to adapt the words of s 12(3), performing ‘work’ under contracts, the other party to which was ZG, which were ‘wholly or principally for [their] labour’.

Analysing whether an individual is engaged wholly or principally for their labour

The Court held that the primary judge was correct to find that Mr Jamsek and Mr Whitby were not ‘employees’ within the meaning of s 12(3).

The Court confirmed the decision in Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 (Moffet) which held that s 12(3) has three elements, namely:

(a) that there should be a ‘contract’;

(b) which is wholly or principally ‘for’ the labour of a person; and

(c) that the person must ‘work’ under that contract’.

The Court then proceeded to analyse each of these three elements in view of the facts and referring to relevant legislation and case law.

The contractual element

The Court noted that the first element of s 12(3) (ie, that there should be a ‘contract’) requires a bilateral exchange of promises of labour and payment between two sides of the contract. On one side of the contract, a promise to provide labour and on the other side of the contract, a promise to make payment. Thus, the first element was established (ie, there was a contract involving at least two parties).

Due to the importance of the outcome of this decision (ie, SG could have a much wider application than previously considered if it applied to partners, trustees and companies, etc) the Commissioner of Taxation was invited to be joined as a party to represent the ATO and the position for the revenue. The Commissioner helpfully submitted that s 12(3) only has application where the putative ‘employee’ is an identified natural person who is a party to the contract in their individual capacity, rather than in any other capacity such as a partner or trustee of a personal service trust.

The Court also considered the provisions in the SGAA (eg, ss 11(1)(ba), 11(19)(1) and 72) were consistent with this construction of the legislation.

The ‘for’ the labour of a person element

In respect of the second element of s 12(3), ie, the ‘for’ the labour of a person, the Court noted that this is to be assessed from the perspective of the putative ‘employer’ client, referring to Moffet as authority. This question ‘is to be determined by reference to [the] terms’ of the contract: Moffet’.

Importantly, in respect of the second ‘for’ element, the Court referring to case law authority confirmed that:

  • Section 12(3) is not satisfied where a contract is properly characterised as being for the provision of a result and not for labour at [36].
  • A contract that ‘leaves the contractor free to do the work himself or to employ other persons to carry it out’ is not ‘wholly or principally for the labour of the person’.

The person must ‘work’ under that contract’ element

The Court confirmed the primary judge’s finding that the contracts between the drivers and ZG were not wholly or principally for the labour of the drivers. The Court relied on seven reasons to reach this view, including, that:

  • The contracts were for the provision of labour and equipment being the trucks.
  • The contracts required the partnerships to deliver goods using a substantial capital asset, the trucks, for which the partnerships were wholly responsible. The partnerships took on all costs and risks associated with the trucks, and as part of this service, the partnerships were also responsible for maintaining insurance.
  • The contracts were able to delegate the work to a substitute driver with agreement from ZG.
  • The benefit received by ZG under the contracts was not divided into two separate components, one being labour to drive and the other being the use of a truck. What ZG received was a single integrated benefit being a delivery service to be carried out by the partnership, using the partnership’s resources at the partnership’s risk and fully insured at the partnership’s expense. Properly characterised, the benefit received by ZG was a delivery service which included a labour component which was not the ‘principal benefit’:


The Jamsek decision, which confirms the Court’s analysis in Moffet, provides clarity to the extended meaning of employee in s 12(3) on whether a payment is wholly or principally for a person’s labour.

Broadly, if the person engaged is not an individual (ie, a natural person) such as a partner in a partnership or trustee of a trust, SG should not apply. Furthermore, where the person is an independent contractor that is paid to produce a result or where they can substitute someone else to provide the service, then SG is less likely to apply.

Businesses and others that engage individuals are generally recommended to engage a company that employs the individual (ie, an incorporated contractor) to minimise risk of that individual constituting an employee for PAYG and SG purposes.

A review of contractor arrangements for every business is recommend to ensure they are supported by comprehensive written agreements and supporting legal opinion. DBA Lawyers is well placed to advise and assist with the employee versus contractor distinction especially from a SG, PAYG, payroll tax and related issues.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist, visit www.dbalawyers.com.au.

By Bryce Figot (This email address is being protected from spambots. You need JavaScript enabled to view it.) Special Counsel, and Daniel Butler (This email address is being protected from spambots. You need JavaScript enabled to view it.) Director, DBA Lawyers

The application of SG to contractors clarified: part 4
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