This audit is the first time that the ANAO has looked at superannuation payments to independent contractors. The audit examined whether Commonwealth organisations were identifying contracts that were wholly or principally for the labour of the contractor and meeting statutory superannuation obligations under the Superannuation (Productivity Benefit) Act 1988.


The 34 organisations included in the audit were:

  • Aboriginal and Torres Strait Islander Services;
  • Attorney-General’s Department;
  • Australian Agency for International Development;
  • Australian Bureau of Statistics;
  • Australian Federal Police;
  • Australian Government Information Management Office (formerly National Office for the Information Economy);
  • Australian Industrial Registry;
  • Australian Public Service Commission;
  • Australian Radiation Protection and Nuclear Safety Agency;
  • Australian Taxation Office;
  • Bureau of Meteorology;
  • Centrelink;
  • CRS Australia;
  • Department of Agriculture, Fisheries and Forestry;
  • Department of Communications, Information Technology and the Arts;
  • Department of Defence;
  • Department of Education, Science and Training;
  • Department of Employment and Workplace Relations;
  • Department of Family and Community Services;
  • Department of Finance and Administration;
  • Department of Foreign Affairs and Trade;
  • Department of Health and Ageing;
  • Department of Immigration and Multicultural and Indigenous Affairs;
  • Department of the Environment and Heritage;
  • Department of the Prime Minister and Cabinet;
  • Department of the Treasury;
  • Department of Transport and Regional Services;
  • Department of Veterans’ Affairs;
  • Equal Opportunity for Women in the Workplace Agency;
  • Family Court of Australia;
  • Insolvency and Trustee Service, Australia;
  • National Oceans Office;
  • National Occupational Health and Safety Commission; and
  • Office of the Employment Advocate.



Successive Australian Governments have sought to improve self-provision in retirement and reduce reliance on the age pension. This has been done by requiring compulsory saving through mandatory superannuation contributions by employers on behalf of their employees. As a result of this policy, a number of superannuation arrangements exist covering both the private and public sectors.

The employer is legally responsible for making superannuation contributions for the benefit of the employee. If superannuation is not contributed in accordance with this, the employer is considered to be at fault and reparation will be required.

Contractors who operate under the business structure of an individual or sole trader fall outside the traditional definition of ‘employee' and, therefore, are not covered by the traditional mandatory superannuation regimes1 . Instead, these individuals have superannuation contributions paid on their behalf where the contracts they work under are considered to be for their labour.

The two pieces of relevant legislation that create a statutory obligation for the Commonwealth to provide superannuation contributions for certain contractors and consultants who are employed by the Commonwealth are as follows:

  • Superannuation (Productivity Benefit) Act 1988 (PB Act), which establishes superannuation arrangements for employees of the Commonwealth and ‘approved authorities' who are not covered by the Commonwealth Superannuation Scheme or the Public Sector Superannuation Scheme. The PB Act was expanded to cover labour contracts in July 1992, by reference to subsection 12(3) of the Superannuation Guarantee (Administration) Act 1992, which states:

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.

  • Superannuation Guarantee (Administration) Act 1992 (SG Act), which establishes a minimum level of superannuation contribution for the community. The SG Act applies to Commonwealth organisations where there has been a shortfall in the superannuation contributions paid under the PB Act.

The audit

Audit objectives

The objectives of the audit were to:

  • examine a number of contracts to determine whether the obligations under the Superannuation (Productivity Benefit) Act 1988 had been met; and
  • identify the level and appropriateness of advice given and received by Commonwealth organisations on the application of the Superannuation (Productivity Benefit) Act 1988.

Audit methodology

The audit methodology included testing a sample of contracts from the 2002-2003 financial year recorded in the Gazette Publishing System (GaPS) where the supplier was operating under the business structure of an individual. The sample, selected by the Australian Bureau of Statistics (ABS), was statistically based, and as a result, conclusions from the findings can be used to make valid inferences about the audit population .

The audit also examined the roles of the Department of Finance and Administration (Finance) and the Australian Taxation Office (ATO) as administrators of the PB Act and SG Acts, respectively, and the level and appropriateness of advice that they had provided to Commonwealth organisations on the application of the Acts.

Audit conclusion

The ANAO concluded that, of the contracts tested in the audit sample, superannuation obligations had been met in 25 instances. This was out of a total of 78 contracts where it was considered that the contract was wholly or principally for labour and where it was unclear4 as to whether the contract were wholly or principally for labour.

The ANAO concluded that, generally, there was a lack of awareness of the requirements of the PB Act within Commonwealth organisations, even though some had sought legal advice and developed policies, procedures and standard contract clauses that incorporated superannuation requirements for independent contractors.

Finance and the ATO had provided appropriate advice on the application of the PB and SG Acts, in various forms, over a number of years. However, the ANAO concluded that clarification of a number of issues was still required. The most significant of these issues were:

  • the interaction and boundaries between the PB and SG Acts;
  • whether there is a continuing role for the PB Act, and if so, how to make the PB Act less complex in achieving that role; and
  • mechanisms for monitoring Commonwealth organisations' compliance with the PB Act.

4 An unclear assessment was made of a contract where the legal advice sought by the ANAO from two legal advisors concluded differently as to whether the contract was wholly or principally for labour.

Organisations' responses to the recommendations

Finance and the ATO agreed with Recommendation No.1 and all organisations generally agreed with Recommendation No. 2.

Organisations' full responses to Recommendation No.2 and general comments are in Appendix 7.


1 For example, the Public Sector Superannuation Scheme (PSS), available to workers employed under the Public Service Act 1999, and other Australian Government employees.

2 The 34 organisations included in the audit are listed in Appendix 1.

3 The term administrator is used in the context of Administrative Arrangement Orders rather than the usage commonly applied in a superannuation context of the payment of superannuation contributions and benefits in respect of individual employees.