What’s emerging? Federal Court considers relevance of hourly-based remuneration in assessing Superannuation Guarantee obligations

On 14 February 2025, the Federal Cout dismissed an appeal by the Commissioner of Taxation in the matter of Commissioner of Taxation v Hatfield Plumbing Pty Ltd (Trustee) [2025] FCA 182 which considered the taxpayer’s superannuation guarantee (SG) obligations in relation to an hourly-based remuneration arrangement.

In dismissing the Commissioner’s appeal of the Tribunal decision, Logan J found that the Tribunal had exhibited 'no legal error', having correctly found that Mr Hargreaves was not an ‘employee’ under the extended definition in section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). Relevantly, the Tribunal had made this conclusion on the basis that the contract was for a result, rather than wholly or principally for Mr Hargreaves’ labour, notwithstanding that the remuneration was structured on an hourly-rate basis.

This decision is a significant development, particularly noting that the Commissioner’s public guidance in TR 2023/4 provides that '(c)onsideration for a specified result is often a fixed sum paid on completion of the particular job as opposed to an amount paid by reference to hours worked, activities performed or a commission'. It is, however, important to note that the Commissioner has since appealed this decision to the Full Federal Court - so stay tuned for further updates on the matter!

The Peter Hatfield Trust had engaged Mr Hargreaves (a plumber) over several years as an independent contractor and assessed that he did not meet the extended definition of ‘employee’ in section 12(3) of the SGAA.

Mr Hargreaves worked under a verbal contract, had never discussed any right of delegation with the Peter Hatfield Trust, was paid at a fixed hourly rate, and invoiced on the basis of time worked (rather than on job completion). Of relevance, in making its conclusion, the Tribunal found that Mr Hargreaves had ‘control’ over his work – including the volume of work accepted, and a lack of supervision and direction in completing the work.

The Tribunal concluded that, coupled with Mr Hargreaves supplying his own tools of trade (including a full maintained car), this ‘control’ necessitated a conclusion that the contract was for a result, notwithstanding the hourly-based remuneration arrangement. Therefore, this meant that the contract was not wholly or principally for the labour of Mr. Hargreaves (and, hence, the individual was not an ‘employee’ for SG purposes).

The Tribunal observed that ‘(t)he hourly rate was simply an effective measure by which to charge for each job…  Mr Hargreaves was paid for time spent on each job, rather than on a fixed fee per job. No quotes were given. This structure is common in situations where the exact cost is unknown’.

The Commissioner appealed the decision to the Federal Court, where the key issues were: 

1. whether the Tribunal erred in law by applying principles applicable to determining the common law meaning of ‘employee’ (i.e. control, supply of tools of trade, etc), and
2. whether the Tribunal erred in law in its application of section 12(3) of the SGAA.

In the Federal Court, Justice Logan reiterated the position, established in recent case law, that a contract for the provision of a result is not wholly or principally for a person’s labour.

Relevantly, His Honour provided that ‘there is no bright line to be drawn between factors which are pertinent to the determination at common law ... (versus) section 12(3) of the SGAA’. Therefore, ‘in determining factors to which one might look ... (the common law factors) can be highly relevant in relation both to the common law test, as well as the test in section 12(3).’  

Relevantly, Justice Logan provided that ‘the manner of remuneration is but part of an overall factual matrix.’ In this case, Justice Logan observed the Tribunal’s finding that Mr Hargreaves was engaged to complete specific plumbing jobs and that the hourly basis was an effective measure given exact costs were unknown. Importantly, he noted that Mr Hargreaves retained ‘control’ over his work and, largely, supplied his own tools of trade.

Whilst ‘(a)t first blush, it does seem a little odd that the Tribunal made reference to ‘control’ in determining the meaning, effect and application of s 12(3), but the more one looks into authorities concerning that provision, the more one comes to appreciate the existence of an overlap in factors which can be relevant.’

As such, given the particular facts of the matter, Logan J held that Mr Hargreaves was engaged to produce a result and, hence, was not an employee under section 12(3) of the SGAA.

The Federal Court’s decision highlights that there is no one size fits all approach when it comes to determining whether an independent contractor meets the definition of ‘employee’ within section 12(3) of the SGAA. Justice Logan highlights that each case’s 'factual matrix' must be independently assessed and hourly-based remuneration, in and of itself, does not mean that the contract is precluded from constituting a results-based contract.

Another key, but associated, takeaway is that there can be an overlap of factors between the common law and section 12(3) assessments. In this case, control over work, supply of tools of trade and commerciality (i.e. hourly rate compensation was an effective measure because exact costs were unknown) - these were all relevant in concluding that the contract was for a result. 

While this decision will likely be of particular interest to organisations who structure independent contractor remuneration on an hourly-rate basis, caution should be exercised in broadly applying the decision, given its application to the particular facts of the matter. It remains fundamental, firstly, that the contractual rights and obligations between the parties are well understood and, ideally, documented (noting some of the challenges referred in the Tribunal decision in establishing the facts of the case due to the verbal contract).

Further, it is important to note, again, that the Commissioner has appealed the decision and, as such, we are likely to get (further) judicial commentary on if (and when) hourly rate contracts may be characterised as being ‘results’ contracts.

Should you have any questions regarding SG obligations for contractors within your workforce or wish to discuss your organisation’s broader SG obligations, please contact a member of our PwC team of specialists.