Advanced search

Top Navigation

Employee or contractor — SG and the right to delegate — Part 8

This is part 8 of our series of ‘employee versus contractor’ articles. Part 8 focuses the ATO’s decision impact statement (DIS) on the Full Federal Court (Full Court) in JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76. (The other articles, parts 1-7, are linked under the Related Articles heading below.)


The DIS provides guidance on the term ‘employee’ for the purposes of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA). Relevantly, s 12(1) of the SGAA states that the terms ‘employee’ and ‘employer’ have their ordinary meanings. However,
s 12(3) provides for an expanded definition of an employee for superannuation guarantee (SG) purposes, namely:

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.


JMC Pty Ltd (JMC) provides of higher education programs. From 2013 to 2018, JMC engaged the teaching services of Mr Harrison, a qualified sound technician, to give lectures and mark assignments.

Under several contracts between the parties, the key terms and conditions of Harrison’s engagement included the following:

  • JMC would pay Harrison an hourly rate.
  • Harrison was required to submit invoices and accompanying time sheets to JMC.
  • Any intellectual property created by Harrison while providing the services vested JMC.
  • Harrison would personally carry out the teaching services.
  • Harrison could subcontract or assign the teaching services to another person with JMC’s written consent.

Importantly, JMC did not provide contributions for SG purposes on the basis that Harrison was engaged as an independent contractor.

In 2019, the Commissioner issued notices of assessment for SG charges to JMC on the basis that Harrison was an employee within the scope of s 12(1) or s 12(3). JMC objected against the assessments, which the Commissioner disallowed. In turn, JMC appealed to the Federal Court. In the first instance, Wigney J found that Harrison was an employee of JMC under both provisions of the SGAA. JMC subsequently appealed the decision to the Full Court.

Full Court decision

The Full Court overturned the original decision of Wigney J in the Federal Court and found that Harrison was an independent contractor of JMC under both the ordinary meaning of the term employee (s 12(1)) and the expanded definition (s 12(3)).

The Full Court noted that the decision of Wigney J predated the High Court decisions of both Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 2 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek). Broadly, these two cases firmly established the primacy of the employment contract for determining whether an employee or contractor relationship exists. (Refer to part 2 in the Related Articles below for more detail on these cases.)

The court therefore considered Harrison’s contractual right to subcontract or assign his work in relation to s 12(1) and found:

  • The existence of such a right is generally inconsistent with an employee relationship.
  • The existence of an unfettered right to delegate, subcontract or assign work is almost conclusive against the worker being an employee.
  • It is the existence of the right not whether or not it has been exercised which is important for the relevant analysis.
  • Harrison’s right to subcontract and assign work, despite requiring JMC’s written consent, was real and substantial, which was inconsistent with an employment relationship.

In relation to s 12(3), the Full Court found that Harrison’s right to subcontract work meant that the contracts were not wholly or principally for Harrison’s labour. Instead, the contracts were for the provision of teaching services.

ATO View

Following the Full Court’s decision, the ATO released its DIS on 15 May 2024 that highlights the importance of the existence of a right to delegate for the purposes of determining the application of s 12(1) and s 12(3) of the SGAA. The ATO relevantly provides:

The existence of a contractual right within a contract that allows a worker to delegate, subcontract or assign their work to another, whether subject to the consent of an engaging entity or not, will result in the contract not being either wholly or principally for the labour of the worker.

In contracts where it is unclear as to whether a worker has a right to subcontract, delegate or assign their work, the ATO will determine the applicability of s 12(3) based on available evidence of the contractual arrangement.

The DIS provides welcome guidance for both workers and engaging entities by placing considerable weight on the right to delegate as a key factor in determining the classification of a relationship for SG purposes. Naturally, the other factors discussed in the ATO’s Taxation Ruling TR 2023/4 are also relevant in relation to the ordinary meaning of the term employee in s 12(1) and for other purposes such as for Pay As You Go (PAYG) withholding purposes in s 12-35 of sch 1 of the Taxation Administration Act 1953 (Cth).


We recommend those that engage contractors should ensure they have comprehensive written contracts that are appropriately worded. Existing contracts should be reviewed to determine what changes should be made. The right to subcontract is important from an SG perspective. However, such a right may not always be attractive unless certain conditions are included to ensure that any ‘substituted’ person is suitable, skilled and has been approved.

There is considerable complexity in ensuring that a true contractor relationship exists especially after recent changes to the Fair Work Act 2009 (Cth) (FWA) which, in essence, seeks to reverse the High Court decisions that focus on the primacy of the contract as reflected in Personnel Contracting and Jamsek. This reversal was stated to be due to the loophole arising from the High Court decisions according to the current Government. (Refer to part 7 in the Related Articles below for more detail on the FWA changes.)

Naturally, if requested, DBA Lawyers would be pleased to assist.

Related articles


*           *           *

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 should be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

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

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

By Daniel Butler, Director ([email protected]) DBA Lawyers and Fraser Stead, Lawyer ([email protected])

31 May 2024

Print Friendly, PDF & Email