ATO ID 2005/33: Superannuation Guarantee: long service leave payments from a worker entitlement fund
Date of decision: 22 July 2003
Year of income: Year ended 30 June 2003
Business line: Superannuation

Issue
Will either the worker entitlement fund or employer have an obligation under the Superannuation Guarantee (Administration) Act 1992 (SGAA) to make superannuation contributions on long service leave payments made to an individual from the fund?

Decision
Neither the worker entitlement fund nor the employer will have an obligation under the SGAA to make superannuation contributions on long service leave payments made to an individual from the fund. This is because:

Facts
The worker entitlement fund was created for building and construction workers, who by nature of the industry, rarely complete ten years service with one employer to become eligible for long service leave. Under the worker entitlement fund, workers can accrue long service leave credits with different employers. Employers make contributions to the fund for the provision of the employees' long service leave. Once the required credits have been accrued, the employees are entitled to receive a payment from the fund. Employers are not liable to pay any of the long service leave payments to an employee when on long service leave. Nor does the fund pay the entitlement to the employer to forward to the employee. The employee is not employed by the worker entitlement fund.

Reasons for decision
Summary: Does the fund have an obligation to make superannuation contributions on the leave service leave payments made to the individuals? An obligation under the SGAA to make superannuation contributions for the benefit of an individual will only arise where an employer/employee relationship exists. Section 12 of the SGAA defines the term the employee for the purposes of the SGAA. The definition includes those individuals who are common law employees and extends to those individuals who are or may not be common law employees (for example, contractors employed under a contract wholly or principally for their labour). At common law, the relationship between an employer and employee is a contractual one, or otherwise known as a contract of employment. The ordinary meaning of employee has been the subject of a significant amount of judicial consideration. The cases have discussed a number of indicators that may be applied in determining whether an individual is a common law employee. For example, where an individual is subject to the control and direction of the paying entity, this would indicate that the individual is a common law employee. If it is considered that the relationship at common law is one of principal and independent contractor or the determination of the status of the worker is unclear, the extended definition of employee in the SGAA must be considered. In the circumstances of this case, the individuals receiving the long service leave payments from the worker entitlement fund have no contractual relationship with the fund. The role of the fund is to provide a particular service for the employees working within the building and construction industry, which is the collection and disbursement of long service leave entitlements. The individuals are not performing any work or providing services or labour to the fund. The workers are not receiving any consideration or remuneration from the fund in return for the performance of work or the provision of labour or services. None of the indicators that are relevant in determining whether an individual is a common law employee are present. The individuals are not employees of the fund. Accordingly, the fund will not have an obligation under the SGAA to make superannuation contributions on the long service leave payments made by the fund to the individuals. Does the employer have an obligation to make superannuation contributions on the long service leave payments made by the fund? Section 5 of the Superannuation Guarantee Charge Act 1992 (SGCA) imposes a Superannuation Guarantee Charge (SGC) on an employer's superannuation guarantee shortfall in a quarter where insufficient superannuation guarantee contributions have been made for an employee. Sections 22 and 23 of the SGAA specify the method for reducing an employer's liability to the SGC. By making contributions to a complying superannuation fund, equal to a set percentage of the employee's notional earnings base, the employer may reduce the liability to the SGC to nil. In order to receive such contributions, the employee must receive a payment or earnings for work undertaken. Ordinary Time Earning (OTE) is the standard earnings base which is used to calculate the amount against which an employer is required to calculate the contributions necessary to satisfy their superannuation obligations in respect of their eligible employees. OTE is defined in subsection 6(1) of the SGAA and does include long service leave payments except for lump sum payments of unused long service leave on termination of employment. In relation to the facts of this case, the employees have not received a payment (in respect of their earnings base for ordinary hours worked) from the employer. As no payment has been made by the employer to the employee for the accrued long service leave, the employer has no obligation to provide superannuation guarantee contributions on the long service leave payments.

Legislative references: Superannuation Guarantee (Administration) Act 1992 section 12 subsection 6(1) section 22 section 23
Related public rulings and determinations: Superannuation Guarantee Ruling SGR 2005/1 | Superannuation Guarantee Ruling SGR 2005/2 | Superannuation Guarantee Ruling SGR 2009/2