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Edited version of private advice
Authorisation Number: 1051936329308
Date of advice: 4 January 2022
Subject: Superannuation guarantee
Does a Superannuation Guarantee (SG) obligation arise under the Superannuation Guarantee (Administration) Act 1993 (SGAA) in relation to the consultancy arrangements by the Company entered into with a third party to deliver services on its behalf?
Relevant fact and circumstances
The Company is an unincorporated entity and a registered charity endorsed by the Australian Charities and Not-for-profits Commission (ACNC). It is exempt from income tax and is endorsed as a Deductible Gift Recipient.
The Company is frequently awarded contracts to provide services to other entities. These contracts often allow the Company to outsource and manage the delivery of the services through third party contractors (i.e. subcontract or delegate work to others) but the Company remains ultimately responsible for the agreed contract outcomes.
The Company either undertakes a tender process to find the most suitable party to deliver services on its behalf or chooses the most suitable party with the relevant skillset to deliver the services on its behalf without undertaking a tender process.
The Company has recently chosen a third party to provide certain services to other entities on its behalf under several contracts without undertaking a tender process.
The third party is an Australian Private Company that commenced in 20XX.
Some individuals of the third party are known to the Company via being current or former employees of the Company or being engaged by the Company for other work.
This Administratively Binding Advice request specifically relates to three Consultancy Arrangements that the Company has entered into with the third party.
You state that there is no contract which exists between the Company and the individual employees of the third party.
Under the terms of the contracts for the three Consultancy Arrangements:
• The third party's services and deliverables are outlined
• The projects are discrete and clearly definable with outcomes, milestones and deliverables
• Fees, payments and allowances are set out
• The third party will only be reimbursed for expenses as agreed in writing and in advance with the Company. All receipts and invoices must be retained as evidence and submitted to the third party upon invoicing.
• The third party is responsible for ensuring its personnel exercise the highest standard of Good Industry Practice and for ensuring its personnel are of good character,
• The third party agrees to perform the services. Where a person is nominated to complete some or all the services there needs to be prior written consent.
• The third party is responsible for ensuring that individuals perform the work of an acceptable standard and for paying the individual for their work.
• The third party is responsible for determining, arranging, and paying for its own insurance or protections including, Liability insurance, Indemnity insurance, Travel/Expatriate insurance.
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 Section 12
Superannuation Guarantee (Administration) Act 1992 Subsection 12(1)
Reasons for decision
A Superannuation Guarantee (SG) obligation does not arise under the SGAA in relation to the three consultancy arrangements the Company has entered into with a third-party company to deliver services on its behalf.
In order for a SG obligation to arise, an employer-employee relationship must first be established.
The ATO view of who is considered an employee for SG purposes is contained in SGR 2005/1 'Superannuation Guarantee: who is an employee?'. Paragraph 21 of SGC 2005/1 states that:
The SGAA defines 'employee' in section 12 (of the SGAA). The definition is both a clarifying and extending provision. Subsection 12(1) defines the term 'employee' as having its ordinary meaning - that is, its meaning under common law. If a worker is held to be an employee at common law, then they will be an employee under the SGAA (unless one of the limited exceptions in subsections 12(9A) and (11) applies).
Whether a person is an 'employee' under common law is a question of fact. The ordinary meaning of employee has been the subject of a significant amount of judicial consideration over the years. These cases have discussed a number of indicators that may be applied in determining whether an individual is a common law employee.
In this situation, the Company entered into three contracts with the third party to provide education services on the Company's behalf. These contracts specify which personnel are required to carry out these particular services for the Company; this part of the contract cannot be altered unless agreed prior by the Company, which is also specified in the contract.
The contracts specify that the Company is required to pay the third party certain fees, allowances and expenses relating to the personnel carrying out the services for the third party. On face value, this may give the impression that the Company is paying certain individuals directly for their services and that an employment relationship possibly exists. However; these payments are invoiced by and paid directly to the third party.
The Company may have entered into formal employment agreements with some of the same personnel in the past to perform other services. However, the Company has never entered into formal employment agreements with any of the personnel to perform the specific services that are outlined in the contracts with the third-party company.
Paragraph 13 of SGR 2005/1 states:
Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual.
Based on the information provided to us and in accordance with paragraph 15 of SGR 2005/1, we are satisfied that no employer-employee relationship exists between the Company and the individuals that perform work for the Company through the third party, either at common law or under the extended definition of employee under the SGAA. As such, we agree that these individuals are not the Company employees and therefore no SG obligations arise in relation to those three particular arrangements.
Outlining in the contract which particular personnel are to deliver the services on behalf of the third party does not result in the forming of an employment relationship; neither does agreeing to pay certain allowances to particular personnel either directly or via the third-party company, although to avoid confusion in any contracts going forward, we recommend specifying that all amounts are payable to the third-party company rather than to individual personnel directly.