Changes to the Superannuation Guarantee – When is a Contractor Deemed an Employee?

18 Jun Changes to the Superannuation Guarantee – When is a Contractor Deemed an Employee?

From 1 July 2026, important changes to superannuation obligations will commence under the new “Payday Super” regime. [1]

The Payday Super reforms are implemented by the Treasury Laws Amendment (Payday Superannuation) Act 2025 and the Superannuation Guarantee Charge Amendment Act 2025. [2]

Presently, employers are generally required to pay superannuation guarantee contributions on a quarterly basis. However, under the reforms, employers will be required to pay superannuation at the same time they pay employees salary and wages. In most cases, these contributions will need to reach the employee’s nominated superannuation fund within 7 business days of payday. [3]

These changes are also a timely reminder for businesses to review contractor arrangements which may be affected.

When is a Contractor deemed an Employee

Genuine independent contractors are not considered “employees”, and as such are not entitled to employee benefits such as annual leave, sick leave, or superannuation.

However, under the Superannuation Guarantee (Administration) Act 1992 (the SGA Act), the definition of ‘employee’ is expanded, and some contractors may be deemed to be employees for superannuation purposes if they are captured by section 12(3) of the SGA Act.

Section 12(3) of the SGA Act provides:

“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.” [4]

What does “wholly or principally for the labour of the person” mean?  After all, any contract with a natural person involves that person doing work – also known as labour. But clearly, not all such contractors are deemed employees.

Section 12(3) therefore raises an important question: how can a business reduce the risk of a contractor being treated as an employee for superannuation purposes? The answer largely turns on the distinction between a contract for labour and a contract to produce a result. This distinction was discussed recently in the case of Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48  (Jamsek) [5] and is further expounded below.

Contract is with a natural person

The first element under section 12(3) of the SGA Act is that the person said to be an employee must be a natural person who works under the relevant contract. In other words, the contract must be with the individual personally, rather than with a partnership, company, or other corporate entity.

In Jamsek, the Full Federal Court considered whether two truck drivers were employees of ZG Operations for superannuation purposes under section 12(3) of the SGA Act. The relevant contracts were between ZG Operations and partnerships established by the drivers and their wives. The contracts were not with the individual drivers personally.

The Full Federal Court held at paragraphs [44] – [48] that while the superannuation legislation can treat a partnership as a legal person for some purposes under section 72(1) of the SGA Act, [6] this does not mean a partnership can itself be treated as an “employee” under section 12(3). Section 72 of the SGA Act is directed to imposing obligations on partnerships as employers. It does not deem a partnership to be a natural person capable of being an employee. [7]

As such, the relevant contract must be with the natural person, and not merely with another entity.

Contract for Labour not for an Outcome

The second element under section 12(3) of the SGA Act is that the contract must be ‘wholly or principally for the labour’ of the individual. This requires consideration of whether the contractor is engaged to provide their personal labour, or whether they are contracted to produce a result.[8]

The Court in Jamsek held that the drivers were not employees under section 12(3) of the SGA Act and found that the contracts between ZG Operations and the partnerships were not ‘wholly or principally’ for the drivers’ labour.

The Court considered several factors that may point against a contract being characterised as wholly or principally for labour:

1. the contractor is engaged to produce a result or outcome; [9]
2. the contractor is required to provide substantial equipment or capital assets to perform the work; [10] and
3. the contractor has a genuine right to delegate or subcontract the work. [11]

By contrast, where a contractor is engaged personally and paid by reference to hours worked, these factors suggest that the arrangement is characterised as a contract for labour. [12]

However, hourly rates are not determinative. The fact that a contractor is paid by reference to time does not necessarily mean that the contract is wholly or principally for labour. Many genuine independent professionals, (who are also natural persons) such as lawyers, accountants, and tradespeople, charge by reference to time spent. The key issue is whether the contractor is providing personal labour or delivering an agreed result.

Practical steps for businesses

In order for a contract with a natural person not to be deemed an employment contract under the SGA Act law it should specify:

1. the results or outcomes the contractor is engaged to provide;
2. that the contractor has a right to delegate or subcontract aspects of the work and that they even though they remain responsible for the work performed by any delegate or subcontractor; and
3. whether the contractor is required to provide his or her own equipment.

Harris & Company can assist with reviewing, updating, and preparing contractor agreements to ensure they properly reflect the intended commercial relationship. If you would like assistance, please do not hesitate to contact Grant Hansen at ghansen@harrisco.com.au or call +61 2 9261 8533.

This publication is intended to provide general information on the identified legal topics. It does not constitute legal advice and should not be relied upon as such.

[1] Fair Work Ombudsman, ‘Payday Super: New Rules Starting 1 July 2026’ (Web Page, 3 February 2026).

[2] Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth); Superannuation Guarantee Charge Amendment Act 2025 (Cth).

[3] Fair Work Ombudsman (n 1).

[4] Superannuation Guarantee (Administration) Act 1992 (Cth) s 12(3).

[5] Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48.

[6] Superannuation Guarantee (Administration) Act (n 4) s 72(1);

[7] Jamsek v ZG Operations Australia Pty Ltd (No 3) (n 5) [44] – [48].

[8] ibid [49].

[9] ibid [52].

[10] ibid [57].

[11] ibid [58].

[12] ibid [56].