Edited version of administratively binding advice

Authorisation Number: 1011617969660

This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached Tax Office advice fact sheet has more information.

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Advice

Subject: employer superannuation obligation

Question

Is the worker considered an employee of X for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice:

Yes. The worker is considered to be an employee of X for the purposes of the SGAA. Please see Explanation.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Your advice is based on the following facts.

You are the manager of a company that provides a service.

You engage both employees and contractors to provide these services. The worker is currently engaged as a contractor to the company.

The ATO received a private ruling application form from you requesting advice as to whether the worker was an employee of, or contractor to, the company. In your application you provided the following information:-

· The contractors are contracted to perform a certain task - the task being the moderation of users in an online environment. They undertake this over a period of time of their own choosing (as long or as short a period as they wish).Their work is then logged into a schedule of work, for reference (and shared to all contractors).

· Pay for each period of the contract is calculated in accordance with a successful outcome. The value of the contract is in part, determined by the number of hours worked, using an hourly rate. However, the value of each contract period is pre-determined - that is, the contractor charges a fee for the successful completion of the job, using an hourly rate to calculate a consistent and fair value. For example, the contractor cannot extend the hours worked and thereby increase the fees payable to the company. The contractor is paid a fixed price no matter how long it takes them to delver a successful outcome over the agreed contract period.

· The contractors are free to give away, swap or otherwise dispose of their obligations to another qualified contractor (Note: each contractor is required to prove their ability to complete the contracts provided, prior to being permitted to work for the company). The giving away, swapping and disposing of work from one contractor to another, is at the discretion of the contractor and happens frequently in practice. The contractor is also free to employ another qualified contractor to deliver the contract, if they obtain prior permission to do so from the company.

· The company does not provide any tools or assistance to the contractor to complete their contracts. The contractor is expected to provide their own tools, including computers and modems.

· The contractor must have an ABN and/or an ACN prior to being given work.

· The contractor is paid on the presentation of a tax invoice drawn up and presented to the company by the contractor in their trading name or the name of a business or company they work for or own (as a director).

· All tax liabilities of the contractor are the responsibility of the contractor. No PAYG is withheld by the company.

· GST is included and paid on all invoices, as required.

· All work in the fulfilment of a contract is at the cost and expense of the contractor. The company provides no compensation or pays any costs to the contractor to complete the work.

· The contractor is liable to make good any damage done in completion of the contract or otherwise compensate the company for damage that is the fault of the contractor. This is specified in every contract for all contractors.

We forwarded an employers questionnaire to you and requested additional information. You did not receive this questionnaire and requested another be sent to you.

The ATO also received a completed Worker/Payee Questionnaire signed by the worker.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 section 12

Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

Explanation:

(This does not form part of the Administratively Binding Advice)

The Superannuation Guarantee (Administration) Act 1992 (SGAA) states that an employer must provide the prescribed minimum level of superannuation support for their employees (unless the employees are exempt employees) or they must pay the superannuation guarantee charge (SGC).

While the term employee, which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. The employment relationship is often referred to as a contract of service. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 from a contract for service which is typically a contractor and principal type of relationship and will not attract any SGC liability.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the extended definition of employee in subsection 12(3) of the SGAA applies.

The task of defining the characteristics of the contract of service and the employment relationship has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be a difficult task and will depend on the facts of each case.

In an ongoing relationship, it is not always clear when the precise moment the legal criteria of a contract is fulfilled, therefore it becomes necessary to determine the true nature of the whole relationship as to whether there is a common law employer/employee relationship, or whether a staff member meets the extended definition of employee under subsection 12(3) of the SGAA.

As Gray J stated in Re Porter: re Transport Workers Union of Australia:

Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. As Mr Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.

Whether a worker engaged with you is an employee is a question of fact to be determined by examining the terms and circumstances of the engagement having regard to the key indicators expressed in the relevant case law. Defining the relationship is a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the principal and the worker must be considered.

The features regarded by the courts as key indicators of whether an individual is an employee or an independent contractor at common law are discussed below.

Common law employee

The courts have developed a method for applying the ordinary, or 'common law' meaning of an 'employee'. Their approach is to look at a wide range of factors, which indicate whether a person is an employee. The courts' decisions tend to be taken on balance, after considering the relevant factors.

The common law meaning of the term 'employee' was stated by the High Court in Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. It is clear from that case that there is no single objective test rather:

'... it is the totality of the relationship between the parties which must be considered ...', and

'... the question is one of degree for which there is no exclusive measure ...'.

While various factors have been identified by the Courts as indicators of the true nature of the relationship, those features are only a guide to answering that question. It is necessary in each case to examine all the terms of the contract and to determine whether, on balance, the person is working in the service of another (as an employee) or is working on his or her own behalf (as an independent contractor).

The parties involved cannot alter the true substance of the relationship by simply giving it a different label. Instead, the subsequent conduct of the parties may demonstrate the relationship has a character contrary to the terms of the contract.

Whether a person is an employee in common law is determined by the circumstances in each case. The characterisation of the relationship is made by assessing and putting in balance the relevant indicators as per SGR 2005/1.

In deciding whether the worker was a common law employee of the principal there are a number of factors to consider. Some of these factors are considered below.

1. Terms of engagement

The terms and conditions of the contract whether express or implied, in the light of the circumstances surrounding the making of the contract, whether verbal or written, will always be of considerable importance to the proper characterisation of the relationship between the parties.

Some conditions of engagement are closely associated with employment and may, therefore, be persuasive indicators. For example:

· provision of benefits such as annual, sick, and long service leave

· provision of other benefits prescribed under an award for employees

· payer prescribed times and location for the performance of work

· remuneration in the form of a salary or wage

· the worker uses assets and materials provided by the payer or is reimbursed, or paid a compensatory allowance, for expenses incurred in respect of use of own assets and materials, and

· payer discretion (within the constraints of industrial relations laws) in respect of task allocation and termination of engagement.

However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor. Entitlement to leave and other such benefits is not particularly determinative when considering if there was an employer/employee relationship. In Hollis v. Vabu (2001) 207 CLR 21 (Hollis), it was noted by the High Court that although no payments of annual leave or sick leave were given, the relationship between the parties is to be found not merely from these contractual terms but from establishing the 'totality of the relationship'

It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. Isaacs J in Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17:

Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.

Moreover, as stated by Sweidan A in Griffiths & Ors v Commissioner of Taxation (2009) AATA 0482 at paragraph 24:

"If, as found by the Tribunal, Mr Gronow was in fact an "employee" for the purposes of the SGAA then the fact that he might have reached an agreement with the applicant that the applicant need not make any superannuation contributions on his behalf is irrelevant. The SGAA simply imposes an obligation to pay SG charge if certain conditions are met - in particular if salary or wages are paid to an employee in a relevant period and if no, or insufficient, superannuation contributions are made on the employee's behalf in relation to that period. The parties cannot "contract out" of this obligation."

Therefore, simply defining someone as a contractor does not necessarily lead to the conclusion that the individual is providing services as part of an operation of their own independent business.

Application to your circumstances

The circumstances surrounding the formation of the contract, including how the worker will be appointed, play a part in determining the type of relationship of the parties. An employee is usually recruited through an advertisement by the employer or through a third party such as a recruitment agency, whereas an independent contractor is likely to advertise.

In the case of the worker:-

· they heard about the work through word of mouth.

· they are not entitled to benefits such as annual, sick or long service leave

· they are not required to wear a uniform

· the remuneration was via a submitted invoice and no tax was withheld.

· the principal has the right to suspend or dismiss the worker

An employer usually has the right to dismiss a worker at any time and does not need to compensate them for such a dismissal, subject to State and Federal legislation. In contrast, a contractor is contracted to complete a set task. The payer can only terminate the contract where the contractor has not fulfilled the conditions of the contract and/or not remedied a default within the specified timeframe.

The worker agrees that they are not entitled to any benefits although this is not particularly determinative when considering an employer/employee relationship. In Hollis v. Vabu it was noted by the High Court that although no payments of leave were given, the relationship between the parties is to be found not merely from these contractual terms but from establishing the totality of the relationship.

It must be acknowledged that a duly executed agreement has not been provided. However, the responses provided by both parties in the completed questionnaires, indicates that the working arrangement was conducted on terms similar to those set out in the unsigned agreement provided, and that a written agreement was entered into.

The Commissioner considers that it may have been the original intention of both parties to enter into a principal/independent contractor working arrangement.

However, having a worker acknowledge that their status is one of independent contractor cannot alter the true substance of the relationship if the underlying reality is one of employment.

In conclusion, the Commissioner considers the intention of the parties as was to establish a principal/independent contractor relationship.

2. Control - lawful authority to command

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of master/servant relationship. The degree of control varies on the types of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it.

Traditionally, a common law employee is told what work needs to be done, how it is to be done, and where it is to be done. However, the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship and a high degree of direction and control is not uncommon in contracts for services.

It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. As stated by Dixon J in Humberstone v. Northern Timber Mills:

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in performance of his work resided in the employer so that he was subject to the latter's orders and directions.

The right to control versus actual control is particularly relevant where the nature of the employment requires a considerable degree of experience, knowledge or skill. In these circumstances, it is to be expected that the employer will leave the performance of the activity up to the employee.

Hence the question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of their work resided in the employer so that he was subject to the latters orders and directions.

In Hollis v. Vabu (2001) 207 CLR 21 where the decision was that bicycle couriers were considered to be employees, Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ observed that:

Vabu's whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries… Their work was allocated by Vabu's fleet controller. They were to deliver goods in the manner in which Vabu directed. In this way, Vabu's business involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of Vabu's business.

The High Court in Zuijs described the significance of control in the following way in the context of skilled employment where the nature of the work performed left little scope for detailed control:

What matter is lawful authority to command as far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.

Application to your circumstances

You have advised that training is provided to new workers, who are advised of the tasks to be performed as well as the standard of the work required. Staff meetings are available to workers although they are not compulsory. It is possible that this is because some workers would find it difficult to attend due to other work obligations.

In consideration of the type of work performed by the worker and the skills they possessed, the Commissioner believes that telling the worker what was required to be done is a basic minimum of information required for them to determine whether they could/would accept the job, and did not amount to an exercise of control over how they were to perform the work.

The principal does not direct where the task is to be performed. The worker could perform the work wherever there was internet access.

When the task is to be performed is negotiated between the principal and the worker. A schedule of times is provided by the principal and the worker nominates the periods he wishes to work. From this information a timetable is then formulated and the worker is required to provide moderation services during the scheduled time ('shift'). If the worker is unable to provide their services during a particular shift they are free to swap or sell their nominated period with another approved moderator. Additionally, the worker was able to determine which tasks to complete within a shift and was able to determine what, if any, breaks they took so long as the tasks were completed.

While it is traditionally more indicative of an employer/employee relationship, the issue of seeking permission or providing prior notice for taking time off, is not especially conclusive in determining the true nature of the relationship. In an ongoing relationship between an independent contractor and principal, it is reasonable to conclude that a worker would need to provide adequate notice to the payer to organise a replacement if the work needed to continue.

Given that both parties have control of different elements of the relationship, with respect to the control test, the Commissioner is unable to determine whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

3. Integration - does the worker operate on their own account or in the business of the payer?

The integration test is primarily concerned with establishing whether the individual providing services does so as an individual carrying on a business of their own or as an integral part of another's business organisation.

Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their own enterprise as an independent contractor and whether they could be expected to generate goodwill in their own right.

In the case of Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans, Denning LJ said:

……under a contract of service a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business is not integrated into it but is only accessory to it.

The skill 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 skill or skill 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.

This was highlighted in Hollis v. Vabu at paragraph 48, where the court said in relation to the bicycle couriers hired by Vabu:

The couriers were not providing skilled labour or labour which required special qualifications. A bicycle courier is unable to make an independent career as a free-lancer or to generate any goodwill as a bicycle courier....

Activities or requirements of a worker which may indicate his/her integration into the business include:

· wearing a company uniform;

· the provision of protective equipment by the principal for the worker;

· an ongoing relationship between the principal and the worker; and

· the worker is effectively restricted to providing services for the one principal.

Application to your circumstances

Both the online users and clients paying for the moderation service would consider the worker an integral part of your business, not as an independent contractor with their own business.

There is no face-to-face contact with clients, so the provision of a company uniform is not relevant to this arrangement. What is relevant is that the worker is not restricted to providing services for the company exclusively, and although the worker did not advertise their services he was not restricted from doing so.

The questionnaire responses from both parties indicate that you did not supply materials or equipment for the worker to complete tasks and the worker was able to complete these tasks from their business premises or their home.

Accordingly, the Commissioner finds an inconclusive result with respect to the integration test.

4. Results contracts

Under a results based contract, payment is often made for a negotiated contract price as opposed to an hourly rate. 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 his or her own means (that is, third party labour, plant and equipment etc) to achieve a 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.

In Worldbook ACT 4327, Sheller JA said:

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor….

Results contracts describe traditional principal/independent contractor arrangements where a specific identifiable task is performed, e.g. the sale of encyclopaedias. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to the hours worked.

In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the result for which the parties have bargained. Conversely, under a contract of service, payment is not necessarily dependent on, and referable to, the completion of the specified services.

While the notion of payment for result is expected to be a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in Hollis v. Vabu considered that the payment to the bicycle couriers per delivery, rather than per time period engaged, was a natural means to remunerate employees whose sole purpose is to perform deliveries. Further, the Full Court of the Supreme Court of South Australia in the case of Commissioner of State Taxation v. The Roy Morgan Research Centre Pty Ltd found that the interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

Application to your circumstances

You have stated that the worker was contracted to perform the task of moderation of users in an online environment for a specifically negotiated period of time. You view this as performance of a task. However, the moderators work is continuous over a period of time where the worker manages the site for that period of time rather than working to achieve a specified result.

The worker is paid a pre determined hourly rate (similar to an employee) not a negotiated contract price. The amount that is paid to the worker is determined by the period of time and is a standard hourly rate that would only alter if the period of work changed.

The responses to the questionnaires and the attached invoices indicate that the worker regularly submitted invoices detailing the date worked and the number of hours worked on each day.

However, this evidence of itself is not a predominate factor in determining whether an individual was employed to achieve a specific result as Australian jurisdictions have ruled equally in favour of employer/employee and principal/independent contractor relationships whether payments were made upon completion of a task or paid by hourly rate. Indeed, the regular submitting of the invoices is analogous to the situation in which a worker submits timesheets in order to receive remuneration.

The unsigned agreement refers to the provision of services on the basis of a 'Mediation Timetable Schedule' which is accepted by the parties a month in advance and is referred to as an 'engagement'. You contend that the provision of services in this engagement period is the result for which the parties have negotiated. The Commissioner cannot identify specified services that the worker has agreed to perform as a contract for services, rather the parties have entered into a contract of services. It follows that there is no identifiable result the worker was engaged to perform; rather it appears that payment was based on the number of hours worked on a given day in accordance with a monthly roster.

With respect to the results test, the Commissioner considers the facts and evidence are indicative of a principal and employee relationship.

5. Delegation - whether the work can be delegated or subcontracted

The unlimited power to delegate or subcontract work is a strong indicator of whether the worker is an employee or independent contractor. If the person has unlimited power to delegate the work to others (with or without the approval or consent of the principal) this is a strong indication that the person is being engaged as an independent contractor.

Delegation is generally implied in a contract for services where the emphasis is on the result rather than the person. However, delegation clauses are considered in the context of the contract as a whole, which may be written or oral, to determine if they are consistent with the apparent essence of the contract or if they are merely self serving statements.

Delegation is not simply the 'delegation' of task from one employee to another or the ability to swap shifts or request a fellow employee to perform some duties - it is the ability to subcontract or employ others to perform the work.

Application to your circumstances

Item 4 of the unsigned agreement states that the worker is able to assign, sell, transmit and transfer the agreement and any rights arising out of the agreement to another party qualified to practise as a mediator for you, with the prior written consent. The worker may also engage, use or delegate to another person qualified to practise as a mediator for you in the provision of the services.

The most common practice amongst mediators appears to be that a worker will swap or sell a scheduled session with another co-worker. The fact that you are responsible for finding a substitute mediator if a worker is unexpectedly unable to work; indicates that perhaps true delegation is not available in practice, despite the clause in the employment agreement.

Given that the agreement gives delegation rights to the worker but the principal is ultimately responsible for providing a mediator; the Commissioner considers this test inconclusive and is unable to determine whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

6. Risk

In a contract of service an employee bears little or no risk. Also, an employee stands to make no profit above the agreed rate of payment. All commercial risk is borne by the employer. Further, the employer is responsible for any loss due to poor workmanship or negligence of the employee.

In general terms an independent contractor working on a contract for service stands to make a profit or loss on the contract and therefore bears the commercial risk. The contractor is responsible and liable for any poor workmanship or injury sustained in performance of the contract.

Another consideration of risk is the liability for the cost of rectifying faulty work. A key indicator in determining the employee or independent contractor status of a worker is the degree to which the individual is exposed to commercial risk in terms of a liability to cover the cost of rectifying defective work.

Application to your circumstances

In the questionnaire you state that the worker was required to take out their own workers compensation, private accident and public liability insurance, thus indicating that the worker bore the risk associated with any claims on the policies.

The worker, in their questionnaire, stated that neither the principal nor the worker was required to take out workers compensation, private accident and public liability insurance.

Both the principal and worker agree that the worker was not required to guarantee the work for any period of time, but disagree about who would fix any mistakes. The unsigned agreement states that all faults are to be corrected by the worker and/or at their cost.

Whilst the worker bears the risk of a mistake being made, he is unable to increase the remuneration he receives for the work performed in any way, that is, he is unable to profit from their own commercial decisions and bargaining.

The Commissioner considers this test to be inconclusive and does not support a principal and independent contractor relationship or an employer and employee relationship.

7. Capital - provision of tools and equipment and payment of business expenses

An employee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for 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 a business for themselves often pay for and provide their own assets, tools, equipment, maintenance costs and other expenses. As stated by McKenna J in Ready Mixed Concrete (South East) Limited v. Minister of Pensions and National Insurance [1968] 2 QB 497 at 526:

….the ownership of assets, the chance of profit and the risk of loss in the business of carriage are his and not the company's

The investment of capital, the maintenance of capital and risk of loss of capital in the event of an unsuccessful venture must be of a significant nature to deem a worker to not be an employee.

Application to your circumstances

The worker is required to provide their own computer with the applicable internet access. They are required to ensure that they have all the requirements for moderation purposes; ie; internet speeds, connections, computers and servers.

All expenses for the computer and internet access are paid by the worker and the work is done from the workers home, not at the offices of the principal.

Should the worker not be able to perform the work due to computer or internet failure the worker would bear the loss. The worker or the principal could allocate the work to another moderator and the worker would not be paid.

Accordingly, with respect to the capital expenses test, the Commissioner considers in the absence of any evidence to the contrary, the facts and evidence are indicative of a principal and independent contractor relationship.

Conclusion - common law

In conclusion it cannot be determined from the totality of the factors above that the worker is an employee under common law or an independent contractor. Where the common law tests are inconclusive, the extended definition of employee under subsection 12(3) of the SGAA is considered.

Extended definition of employee under subsection 12(3) of the SGAA

Superannuation Guarantee Ruling SGR 2005/1 provides further guidance on the extended definition of an employee under subsection 12(3) of the SGAA and at paragraph 11 states:

where the terms of the contract 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 of delegation); and

· the individual is not paid to achieve a result,

the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection.

In assessing whether a person has been remunerated wholly or principally for labour and skills, the Tax Office view is that in the context of subsection 12(3) of the SGAA, the word principally assumes its commonly understood meaning, that is, chiefly or mainly.

Generally, the value of various parts of a contract are specified (that is, the labour and non-labour components of the contract are clearly expressed). The ATO view is that a contract is principally for labour if the labour content exceeds 50% of the value of the contract. Therefore, contracts which, in the main, provide for payments in respect of the supply of goods, materials or hire of plant or machinery and any other related costs incurred by the recipient of such payments in the course of performing work under the contract are not principally for labour.

The arrangements in this case indicate that the payments to the worker are for labour rather than the use of tools and materials.

The second requirement of subsection 12(3) of the SGAA requires the contracted person's labour. That is, the worker does not have the right to delegate or subcontract the work to another party. Even if the contractor has no intention to delegate or subcontract the work and actually performs the work personally, the contract itself is still not for the labour of the person if there is the possibility of delegating the work to another person.

Paragraph 49 of SGR 2005/1 states that where a worker is engaged under contract:

If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal) there is a strong indication that the person is being engaged as an independent contractor. Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the result). 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.

In the case of the Company, if a worker cannot work a selected shift they can swap shifts with other authorised workers. This would not be considered true delegation as the worker is simply trading himself out of a particular work period, not delegating another person to perform the work on their behalf whilst he continued to receive payment. The principal will directly pay the substituted worker as if they had originally been the scheduled worker; no payment is paid to the original worker.

Whilst the worker may swap a shift with another moderator he does not sub-contract the work to some one else.

The worker believes that there is an expectation that he will carry out the work personally and he did not think that he could engage any other person to do the work. There is no indication that the worker can truly delegate some or all of their work to others.

The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the production of a given result, but instead should be for their labour.

It has been established, based on the facts, that the worker provides their labour in return for an agreed payment, therefore he is not paid to achieve a result. Their labour is provided for the maintenance and security of a software program available on the internet. The program concerned is continually accessed by users and maintained by the worker over a defined period of time.

Conclusion

In conclusion, after considering the available facts, the Commissioner is satisfied that the worker is engaged as an employee for the purposes of the SGAA.

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