You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.
Edited version of private advice
Authorisation Number: 1051859886175
Date of advice: 14 July 2021
Subject: Superannuation guarantee obligations
Are 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 20XX to 30 June 20XX?
No. Refer to 'why we have made this decision'
Are the Workers employees by virtue of subsection 12(3) of the SGAA?
No. Refer to 'why we have made this decision'
This ruling applies for the following period:
30 June 20XX
30 June 20XX
30 June 20XX
30 June 20XX
30 June 20XX
This arrangement commences on
1 July 20XX
Relevant fact and circumstances
An entity (the Principal) is registered as a charity. Individuals (the Workers) are engaged by the Principal to provide services to the public.
The Principal engages the Workers through an annual written agreement (the Agreement), which may be terminated within 14 days by either party.
Relevantly, the Agreement provides the following:
• Unless provided by the Principal, the Worker must supply their own tools, equipment or materials,
• Workers must maintain medical indemnity insurance and public liability insurance.
• Workers may not subcontract.
• Workers may provide services to a person other than the Principal provided there is no conflict of interest.
• Workers are responsible for their own professional development.
• The Worker may perform work from the location provided by the Principal or at a location provided by the Worker.
• Workers are paid for services on a sessional basis.
• There is a quota for the maximum number of sessions to be managed by the Worker.
• The Worker must provide documentation of sessional activities with their tax invoice for the total amount of services on a fortnightly basis.
All Workers use their own Australian Business Number (ABN).
Invoices provided show that the Workers bill the Principal for work done.
The Workers are responsible for the payment of taxes and any other liability associated with the provision of their services.
The Workers are not directed as to how their work is to be performed and are free to use their professional skills and expertise to achieve outcomes.
Relevant legislative provisions
Superannuation Guarantee Administration Act 1992 subsection 12(1)
Superannuation Guarantee Administration Act 1992 subsection 12(3)
Reasons for decision
Are the Workers common law employees of the Principal under subsection 12(1) of the SGAA for the period 1 July 2019 to 30 June 2024?
The facts and evidence suggest that the Workers are 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.
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.
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.
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.
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 engages the Workers through a written contract. The Workers are not directed as to how their work is to be performed but may conduct sessions in a manner which they deem appropriate. While the Principal provides premises from which the Worker may undertake their work, a Worker may also choose to perform their duties from another location.
Workers invoice the Principal fortnightly for the sessions they have completed and are paid per appointment undertaken. The Workers are engaged to use their professional skills to achieve a result; the completion of a set number of sessions according to the quotas agreed upon. The Workers are financially responsible for their professional development.
Workers may not delegate or subcontract their work. While, as mentioned above, the right to delegate is a significant factor in determining whether a worker is an employee or contractor, in this instance the nature of the services provided by the Workers makes delegation difficult.
The information provided shows that the Workers are liable for the work that they do and must have their own medical indemnity insurance and public liability insurance.
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 are not common law employees of the Principal.
As the facts and evidence indicate that the Workers are not your employees under common law, we are required to consider the expanded definition of employee under subsection 12(3) of the SGAA.
Are 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 provide their own materials to complete their job. They are paid a set fee per session conducted.
Based on the available facts and evidence, we consider that the Workers are paid primarily for their own labour and skills as the tools and equipment provided by the Principal would be minimal.
The individual must perform the duties themselves
In this instance, the Workers are not able to delegate their responsibilities. However, this primarily arises from the nature of the work being undertaken and the fact that the Agreement expressly forbids the delegation of responsibilities.
Not paid to achieve a result
In this instance, the Workers are engaged to use their professional skills to complete a set number of sessions according to the quota agreed upon. In this instance, we consider that the facts and circumstances indicate that the Workers are paid to achieve a result, being the completion of a set number of sessions.
Our conclusion regarding the expanded definition of employee
Accordingly, as the Workers do not satisfy all three 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.