On 13 October 2011, amendments were introduced to make directors
personally liable for unpaid superannuation contributions where the
company does not comply with its superannuation guarantee
Directors have an opportunity before the bill is passed to
ensure companies are paying the correct amount of superannuation.
Once the bill is passed, directors may become personally liable for
The new law
The amendments aim to protect employee superannuation
entitlements from 'phoenix activity', where companies are
wound up before paying employee entitlements and tax
However, the new law is broad enough to make directors
personally liable where there is a superannuation shortfall because
of innocent mistakes (for example, where superannuation is not
correctly calculated on overtime or payments to certain types of
The ATO will enforce the new law through the existing
'director penalty notice' regime, where a director is
issued with an administrative penalty equal to the unpaid tax or
superannuation guarantee shortfall amount.
While the legislation contains defences for directors who would
otherwise become personally liable for a penalty, the Courts have
interpreted these defences narrowly.
Risk areas for superannuation guarantee charge assessments -
payments for overtime and payments to contractors
Minimum superannuation contributions are calculated on
'ordinary time earnings'. The common understanding is that
payments for overtime are not included.
However, the meaning of 'ordinary time earnings' will
include salary or wages for 'overtime' in certain
circumstances. In Quest Personnel Temping Pty Ltd v
Commissioner of Taxation  FCA 85, the Federal Court
concluded that hours regularly worked above the minimum weekly
requirements were ordinary time earnings, despite being classified
as 'overtime' by the employer.
We have experience of the ATO raising superannuation guarantee
shortfall assessments based on the difference between the minimum
hours (as stated in the award or employment contract) and actual
Directors should check their company's compliance if
employees are regularly paid for working more than minimum
Payments made to contractors are another common audit
If a company 'contracts' with a person under a contract
that is primarily for the supply of labour and the relationship is
really one of employment, the company may also be required to make
superannuation contributions on top of the payments to the
There is a significant volume of case law on whether an
agreement is an employment relationship. A common mistake made by
companies is attempting to classify the relationship based on the
name of the agreement – a document titled 'services
agreement' may still evidence an employment relationship.
Another compliance risk is where a company engages in a genuine
contractual relationship, but the contractor is caught by the
extended definition of 'employee' under the legislation.
The extended definition includes a contractor working under a
contract that is wholly or principally for the labour of the
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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