Australia: Employees v contractors and the entitlement to superannuation payments

Last Updated: 2 August 2017
Article by Michael Bishop and Ben Drysdale

A recent case before the Federal Court of Australia, Farnan v Insurance Logic Pty Ltd & Anor [2017] FCCA 595, provided a useful restatement of the key differences between employees and independent contractors. The Court also considered whether independent contractors are entitled to superannuation payments pursuant to the broader definition of 'employee' contained in the Superannuation Guarantee (Administration) Act 1992 (SGA Act).


Proceedings were issued by a consultant, Christine Farnan, who had been engaged by two insurance brokers to provide services in respect of obtaining financial services licensing. When her engagement was terminated, Ms Farnan claimed that during the course of her consultancy, she was a common law employee of the insurance companies and was therefore owed:

  • payment in lieu of notice of termination;
  • unpaid leave entitlements; and
  • superannuation.

Contractor or employee?

The nature of any person's employment is a legal and factual question, to be examined with reference to the terminology of any relevant contract in place. Fundamentally, the question is whether a person serves an employer in the employer's business, or carries on a trade or business of their own.

In this case, the Court provided a helpful summary of the factors to be considered when determining whether a person is an employee or an independent contractor. The answers to these questions are not intended to be determinative, but instead act as more of a guide for the Courts:

  • Is there a right to the exclusive services of the person engaged?
  • Who provides the place of work and tools or equipment required?
  • Whose goodwill is created as a result of the work?
  • Does the person have the right to delegate any work?

Contractors invoicing for gross payment

One further indicative factor, of particular significance to this case, was that Ms Farnan was remunerated without any deduction having been made for income tax. The Court heard evidence that Ms Farnan had submitted her invoices for the gross amount, and that she was aware that no amounts were being deducted for tax purposes.

The Court held that Ms Farnan had so acted in order to obtain the benefits of self-employment in relation to tax, flexibility in work hours and the ability to work for other clients, whilst attempting to deny that same status in order to obtain employment benefits like annual leave and notice payment.

Unsurprisingly, Ms Farnan was not permitted to pick and choose certain aspects of her employment status in this way, as the Court held that she was not an employee of the insurance brokers at common law.

Superannuation and independent contractors

The SGA Act has the effect of expanding the meaning of the terms 'employee' and 'employer' for the purposes of superannuation only. Section 12(3) of the SGA Act provides that if a person is contracted to work under a contract that is wholly or principally for the labour of that person, the person is an employee of the other party to the contract for the purposes of superannuation.

The expanded definition of 'employee' found in the SGA Act was considered at length in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No.3) [2011] FCA 336. Justice Bromberg in this case noted that the plain wording of section 12(3) is very broad, requiring thoughtful application in certain scenarios.

One illustrative example is that of the contract between a sole practitioner solicitor and a client, which would naturally be wholly or principally for the labour of the lawyer. It is improbable that the intention of Parliament in drafting the SGA Act was that the client of a sole practitioner lawyer would provide for the retirement of that lawyer in the course of the exchange of labour for fees.

Essentially, the Courts have determined that section 12(3) of the SGA Act seeks to provide for superannuation to be paid out of the exchange of work for payment in 'employment-like' settings. The key question to ask in such situations is whether the labour component of the contract for services in question could have been provided by the recipient of the labour employing an employee instead.

The Court in Farnan v Insurance Logic held that engaging a specialist consultant for the purposes of advising in respect of financial services licensing was analogous to the example of the solicitor and client. The view of the Court was that Ms Farnan was engaged to produce a result and for that reason was not an employee entitled to payment for superannuation under the extended definition of the SGA Act.

Sham contracting arrangements and risks for employers

The Fair Work Act 2009 contains three key provisions (ss 357-359) that employers should consider when exploring independent contracting arrangements. It is an offence to represent a contract of employment as a contract for services, creating what is known as a 'sham contracting arrangement'. It is also an offence to dismiss an employee in order to re-engage them as an independent contractor to perform the same or substantially similar work under a contract for services, or to persuade an employee to perform their work as an independent contractor.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Michael Bishop
Ben Drysdale
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.