Private ruling: Superannuation guarantee liability - expanded meaning of employee
Date of advice: 15 May 2023
Published: 3 July 2023

Ruling: Q1: Are paid external performers and sole trader contractors considered to be employees of the College for superannuation guarantee under the extended definition in s 12(8) of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992)? Summary Paid external performers and sole traders contractors will be employees for superannuation guarantee purposes under the extended definition in 12(8) if they are paid to perform or provide services in connection with a performance. Payments will need to be considered on a payment-by-payment basis to determine the character of the payment to see whether a superannuation guarantee charge liability arises in accordance with paragraph 11(1)(d) SGAA. Facts and circumstances The employer is a College. Students participate in the musical performances and theatrical productions as part of the College's events. Students are not paid to participate in the musical performances and theatrical productions conducted as part of the College's educational programs. On occasions, the College may engage and pay an external party (e.g., musical accompanist) to perform with the students in the productions. The College may also engage and pay sole trader contractors to provide certain support services in relation to the productions, such as lighting and sound technicians, costume makers, stage prop design, photography and choreography. None of these services involve any active performance or participation in the productions. The College asserts that subsection 12(8)(a) does not apply to education related activity of the College's curriculum, and as a result, there is no obligation under 12(8)(b) to pay superannuation guarantee in respect of external parties or sole trader contractors. The law Relevantly, paragraph's 12(8)(a) and (b) of SGAA 1992 reads as follows: a) The following are employees for the purposes of this Act: (a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment; (b) a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment; (emphasis added) The purpose of the SGAA is to encourage employers to provide a minimum level of superannuation contributions support for employees. The SGAA defines 'employee' and 'employer' in section 12. Under subsection 12(1), if a person is an employee at common law, that person is an employee under the SGAA. Further, for the purposes of the SGAA, subsections 12(2) to 12(11) expand the meaning of 'employee' and 'employer' beyond situations where there is a common law employment relationship. (a) SGR 2005/1 - Superannuation guarantee - who is an employee? sets out the Commissioners interpretation of section 12. In this ruling, the Commissioner considers that paragraph 12(8)(a) requires active participation as they are "paid to perform or present". A necessary condition to meet paragraph12(8)(a) is that the particular person must be paid to provide services rather than for some other purpose. However, there is not the same requirement for active participation in paragraph12(8)(b). This means that the services provided by a person in connection with an 'activity' will result in that person being an employee for the purposes of superannuation guarantee. SGR 2009/1 Superannuation Guarantee: payments made to sportspersons although specifically dealing with sportspersons and prize money, still provides the Australian Taxation Office (ATO) view on the general operation of subsection 12(8). There is no distinction made in subsection 12(8) between sportspersons, dancers, musicians and so on. If a person is an employee within the meaning of section 12, the employer will only have a superannuation guarantee charge liability if the employee has been paid 'salary or wages' within the meaning of the Act. Relevantly, subsection 11(1)(d) includes in the definition of 'salary or wages': (d) payments to a person for work referred to in subsection 12(8). Accordingly, a person may be an employee if they are 'paid to perform' or 'paid for services provided in connection with an activity', but only those relevant payments will form part of their 'salary or wages'. If the person receives additional payments for some other purpose from the employer, those payments may not form part of the person's 'salary or wages' and not attract any liability for the superannuation guarantee charge. Application Meaning of "activity" in 12(8) The purpose of subsection 12(8) is to expand and make provision to avoid doubt as to the status of certain persons engaged in particular activities - in this case music", "play", "dance" or "entertainment". Subsection 12(8) by its terms applies to 'any... music, play, dance or entertainment... or any similar activity...involving the exercise of intellectual,... physical or other personal skills...'. In the context in which the term appears, it is considered that "music", "play", "dance" or "entertainment" should be given a broad meaning for the purposes of the SGAA and should not be read narrowly to limit the scope of subsection 12(8). In SGR 2009/1, the Commissioner's position was that the word "'similar' is used to show that 'activity' is limited to things of a like kind. 'It is considered that activities covered by paragraph 12(8)(a) are those which derive their sporting content from the performance or presentation because that is the common thread running through the listed activities." We can apply the same reasoning to the performances in this content. Relevantly, SGR 2009/1 stated that the scope of paragraph12(8)(a) was written to apply to 'any person' who is paid to perform, present or participate. They found that the application of the test is dependent on the character of the payments made and therefore there is no need to differentiate between 'amateur' or 'professional'. [1] Therefore, as the meaning of 'activity' in the SGAA is intended to be broad, we consider that the productions put on by the College are activities within the meaning of subsection 12(8). Are musical accompanist's paid to perform? The College has engaged professionals to perform alongside the students in the productions. For a musical accompanist to be considered an employee under paragraph 12(8)(a) they must be paid for the performance or presentation of music (or be paid for a similar activity). Therefore, if the worker is 'paid to perform' within the meaning of 12(8)(a) they will be considered an employee under the extended definition. The College is considered an employer for superannuation guarantee purposes in respect of the performance payments. Pursuant to the operation of paragraph 11(1)(d) SGAA, the employee's 'salary or wages' will only include payments made for work referred to in subsection 12(8). This means that superannuation will be paid when the employee is 'paid to perform'. Therefore, an employer is required to analyse each payment to determine whether they have an obligation to pay superannuation. Some payments may relate to tutoring services that generally have a different character to the payments for 'performance'. Are external conductors paid to provide services in connection with an activity? The College has engaged sole trader contractors to provide support services in respect of the productions. For a sole trader contractor to be considered an employee under paragraph 12(8)(b) they must be paid to provide services in connection with an activity referred to in paragraph (a). SGR 2005/1 [2] explains the operation of this provision in the following way at paragraph 88 [3] : 88. Paragraphs 12(8)(b) and 12(8)(c) of the SGAA do not require the person to actively participate in a performance, presentation, broadcast or other activity described within paragraph 12(8)(a) to be defined as an employee; rather the paragraphs specify that the person will be an employee if they provide a service in connection with the activity. For example, a technician engaged to control the sound quality for a concert is not an active participant in any performance. Even though the technician is not within paragraph 12(8)(a), they are still an employee because they are paid for services in connection with a musical performance. Relevantly, SGR 2009/1 also considered the operation of paragraph 12(8)(b) at paragraph 12 [4] : 12. In the context in which the term appears, services are provided 'in connection with' a sporting activity if the services are directly referrable to the sporting activity such that the services can be said to be 'bound up' or 'involved in' that activity. The provision will also cover persons providing services required so that the sporting activity can be played. Such services may be provided before, during or after the sporting activity. Hence, paragraph 12(8)(b) will include persons such as umpires, referees and other sporting officials and technicians who are not already under a common law employment relationship with the relevant payer. The terms of paragraph 12(8)(b) will not be satisfied where services are provided at the same time as the sporting event but are provided for some other purpose, such as for example, advertising. In such circumstances, the direct causal link required by paragraph 12(8)(b) will not exist. Paragraph12(8)(b) does not require a person to actively participate or perform in the sport or broadcast or other activity. However, it is a requirement of the provision that the person provides or performs services 'in connection with' the relevant activity, and not for some other purpose. [5] Analysis will need to be completed on a payment-by-payment basis to determine whether services relating to third-party contractors are in connection with a performance. Conclusion We therefore conclude that the performances put on by the College, fall within the ambit of 'activity' described in subsection 12(8). The musical accompanists are employees of the College for superannuation guarantee purposes under paragraph 12(8)(a) of the SGAA if they are 'paid to perform.' However, musical accompanists' 'salary or wages' will not include payments for services other than 'performances' in accordance with the operation of paragraph 11(1)(d). The sole trader contractors are employees of the College under paragraph 12(8)(b) of the SGAA in relation to payments for services provided in connection with an activity described in paragraph 12(8)(a). However, the nature of each payment will need to be considered to ensure that a superannuation guarantee charge liability arises. [1] Ibid p77. [2] Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? [3] It is also explained in SGR 2009/1 particularly at paragraph 82. [4] Although referring to sportspeople, the same principles apply to the performers activities described in subsection 12(8). [5] Superannuation Guarantee Ruling SGR 2009/1: payments made to sportspeople at [80].