Superannuation guarantee: how can an employer work out the value of the labour component of a contract that is wholly or principally for a person's labour under subsection 12(3) of the Superannuation Guarantee (Administration) Act 1992?

Under the Superannuation Guarantee (Administration) Act 1992 (SGAA), employers need to make superannuation contributions into a complying fund in respect of their eligible employees in accordance with minimum prescribed levels to avoid having to pay the superannuation guarantee charge.

Where a person is an employee under subsection 12(3) of the SGAA (i.e., not a common law employee) because they are contracted wholly or principally (more than 50%) for their labour, the salary or wages of the employee is defined as the labour component of the contract under paragraph 11(1)(ba) of the SGAA.

If the labour component of a contract cannot be worked out, an employer can use an acceptable market value of the labour component of the contract to represent the salary or wages of an employee.

'Labour' includes mental and artistic effort as well as physical toil ( Deputy Commissioner of Taxation v . Bolwell (1967) 1 ATR 862 at 873).

If the labour component of a contract that is wholly or principally for a person's labour is clearly identifiable, then this labour component will be the employee's salary or wages . This is the case where the labour and non-labour components of a contract are clearly expressed as separate parts of the contract. However, the Commissioner will not automatically accept the parties' costings (see Superannuation Guarantee Ruling SGR 93/1 at paragraph 30).

The Commissioner will accept a value of the labour component of a contract where an employer can demonstrate that the proposed value in the contract is a reasonably accurate reflection of the market value.

An employer would need to maintain records to show how the value of the labour component under a contract was worked out. The records should demonstrate that the value used was a reasonably accurate estimate of the market value.