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Edited version of private advice

Authorisation Number: 1051852862577

Date of advice: 1 July 2021

Ruling

Subject: Superannuation guarantee obligations

Question 1

Were the Workers considered common law employees as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the from the period 1 July 2015 to 30 June 2020?

Answer

No. Refer to 'why we have made this decision'

Question 2

Were the Workers employees by virtue of subsection 12(3) of the SGAA?

Answer

No. Refer to 'why we have made this decision'

This advice applies for the following period:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

This arrangement commences on

1 July 20XX

Relevant facts and circumstances

An organisation (the Principal) is a not-for-profit incorporated association that runs theatre workshops aimed at adults, schools and corporate clients.

Adult workshops are generally run as a course, with classes once a week for six to eight weeks. School and corporate workshops are run in response to specific enquiries. There are also one-off classes and limited run classes.

The Principal contracts individuals (the Workers) to produce the improvisation classes. The multi-week classes are usually run by people in the local area, while one-off classes are often teachers from other countries or from interstate.

The Workers were contracted through an informal written contract (the Agreement). The number of classes taught, the length of the classes and the amount paid for the delivery were negotiated with the Worker. In earlier years, the agreements were often made informally through email exchange.

The Agreement provides the following:

•         The Worker is to discuss any rescheduling or postponement of classes ahead of time if possible.

•         The Worker is primarily responsible for booking a new venue or space for any reschedule or postponed workshop.

•         The Worker is to provide any materials (paper, pens) required for the class and is to develop and print any handouts to be provided by students.

•         The Worker is responsible for how the content is taught, including class plans, activities, resources and curriculum

•         The Worker is to retain the intellectual property in any class plan or curriculum which they develop

•         The Worker is to arrange for any substitutions and find replacement teachers in the event they are not able to attend their class. The Worker must negotiate the fee and payment of the substitute teacher.

•         The Workers were paid a fixed amount per workshop.

•         If the Worker developed their own curriculums, they were paid a percentage of the revenue from the class for use of their intellectual property.

•         The Worker must have public liability insurance that covers them for teaching activities.

The Workers had discretion over when the classes are taught. They agree to teach a certain number of classes on a certain number of days. Workers were expected to negotiate any rescheduling with their students.

The Workers were responsible for the safety of their students and are personally liable for any issues or destruction of property during their classes.

Invoices provided show that the Principal paid the Workers a fixed amount per workshop taught.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Question 1

Were the Workers common law employees of the Principal under subsection 12(1) of the SGAA for the period 1 July 2015 to 30 June 2020?

Summary

The facts and evidence suggest that the Workers were not employees of the Principal for the purposes of the SGAA under the common law test. The Principal does not have an obligation to pay superannuation contributions on behalf of the Workers.

Detailed reasoning

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? ('SGR 2005/1') explains when an individual is considered to be an 'employee' under section 12 of the SGAA. The question of whether someone is an employee is one of fact and is determined by examining the terms and circumstances of the contract, in conjunction with the key indicators expressed in common law. The totality of the relationship must be considered and no one indicator is, in itself, determinative of the relationship.

Control

The extent to which the engaging entity has the right to control the manner in which the work is performed is the classic test for determining the nature of a working relationship. A common law employee is told not only what work is to be done, but how and where it is to be done. With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lays not so much in its actual exercise, but in the right of the employer to exercise it.

Even though the modern approach to defining the contractual relationship is to have regard to the totality of the relationship between the parties, control is still an important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb (1986) 160 CLR 16 at 36) (Stevens v. Brodribb), where they state:

In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee.

Does the worker operate on his or her own account or in the business of the payer?

If the worker's services are an integral and essential part of the business that engages them (under a contract of service), they are considered by the courts to be a common law employee. If the worker is providing services as an individual carrying on their own business (under a contract for services), they are an independent contractor. It is necessary to keep in mind the distinction between a worker operating their own business and a worker operating in the business of the payer.

The professional skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skills or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills.

'Results' contracts

The meaning of the phrase 'producing a result' means the performance of a service by one party for another where the first mentioned party is free to employ their own means (that is, third party labour, plant and equipment) to achieve the contractually specified outcome. The essence of the contract has to be to achieve a result and not to do work.

Satisfactory completion of the specified services is the result for which the parties have bargained. That is, a payment becomes payable when, and only when, the contractual conditions have been fulfilled. Payment is often made for a negotiated contract price, as opposed to an hourly rate.

Whether the work can be delegated or subcontracted

The power to delegate or subcontract (in the sense of the capacity to engage others to do the work) is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee.

When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker; rather the employee has merely substituted or shared the workload.

However, a clause in the contract may permit the worker to delegate the task to another worker subject to approval of the principal, as the principal may not want an unknown worker to be working on their site or who may not be suitably qualified.

Therefore, under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). A person who has a right to delegate work (whether or not that right is exercised in practice) does not work under a contract wholly or principally for their labour. Unless the contract expressly requires the service provider to personally perform the contracted services, the contractor is free to arrange for his or her employees to perform all or some of the work or may subcontract all or some of the work to another service provider.

Risk

Generally speaking, employers are vicariously liable for negligence and injury caused by their employees, whereas a principal will not be liable for negligence or injury caused by an independent contractor.

Another consideration of risk is the liability for the cost of rectifying faulty work. That is, the key underlying consideration is whether the individual is exposed to commercial risk in terms of a liability to cover the cost of rectifying defective work.

This is consistent with the focus on the chance of profit and the risk of loss as a traditional indicator that a worker is an independent contractor conducting their own business.

Provision of tools and equipment and payment of business expenses

A worker/payee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required to complete their work by the employer. Furthermore, the employer is often also responsible for the business expenses incurred by the worker, since the worker has been integrated into the employer's business.

Independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses. Usually, they will have factored these costs in their overall fee or they will seek separate payment for such expenses from the principal.

In your case

In this instance, the Principal engaged the Workers through a written agreement to conduct a set number of workshops that are developed by the Worker. The Workers were paid a set, agreed upon sum, paid in instalments per workshop taught.

The Principal did not instruct the Workers on how the workshops were to be taught or managed. It is at the discretion of the Workers to develop curriculums and provide materials to students. The Worker retains all intellectual property in the materials they develop and are paid a percentage fee for the use of their intellectual property.

The information provided indicates that the Workers were engaged to achieve a specific result, being the teaching of a set number of workshops and the Worker's payment was dependent on the completion of these workshops.

Additionally, while all the time, dates and locations of the workshops were agreed upon between the Worker and the Principal, the Worker was required to organise a suitable replacement or reschedule a class if they were unable to attend. When the work was delegated to a substitute, the Worker was responsible for remunerating the substitute teacher.

The Workers were required to have public liability insurance and were responsible for the safety of the students during the workshops.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the Workers, the facts and evidence provided points to the conclusion that the Workers were not common law employees of the Principal.

As the facts and evidence indicate that the Workers were not your employees under common law, we are required to consider the expanded definition of employee under subsection 12(3) of the SGAA.

Question 2

Were the Workers your employees by virtue of subsection 12(3) of the SGAA?

Expanded definition of employee for SGAA purposes

The expanded definition of employee within subsection 12(3) of the SGAA, 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.

SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA.

Paragraph 78 of SGR 2005/1 states that where the terms of the contract, in light of the subsequent conduct of the parties, indicate that:

•         the individual is remunerated (either wholly or principally) for their personal labour and skills;

•         the individual must perform the contractual work personally (there is no right to delegate); and

•         the individual is not paid to achieve a result.

The contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA.

Wholly or principally for labour

In this context, the word "principally" assumes its commonly understood meaning, that is chiefly or mainly, and labour includes mental and artistic effort as well as physical toil.

A contract may be partly for labour and partly for something else, such as the supply of goods, materials or hire of plant or machinery. Subsection 12(3) of the SGAA only applies if the contract is wholly or principally for labour.

In this case, the Workers provided all the materials and equipment required to complete the job. The Workers were paid a set fee for the workshops which includes remuneration for the use of their intellectual property.

Based on the available facts and evidence, we consider that the Workers were paid primarily for their own labour and skills as the tools and equipment provided would be minimal.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the Workers did have the right to delegate work to others.

Not paid to achieve a result

As discussed earlier, we consider that the facts and evidence indicate that the Workers were paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, as the Workers do not satisfy any components of the expanded definition under subsection 12(3) of the SGAA, they do not meet the expanded definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers do not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly the Principal does not have an obligation to pay superannuation contributions for the benefit of the Workers under the SGAA.