Edited version of administratively binding advice

Authorisation Number: 1012031412787

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 ATO advice fact sheet has more information

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Advice

Subject: ABA

Question

Is the Worker engaged by the Principal, an employee or independent contractor for the purposes of section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Based on the information provided the Worker is considered to be an 'employee' under the extended definition in subsection 12(3) of the SGAA. Accordingly the Principal has an obligation under the SGAA to make superannuation guarantee payments on behalf of the Worker.

This administratively binding advice applies for the following period

1 July 2010 up to an including 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

During 2011 the Commissioner received a request for advice from the Principal, with respect to superannuation guarantee and a worker engaged as a clinical coder. The request included the following information:

§ We have a person who comes to our workplace most Fridays.

§ The worker is engaged on an hourly rate and is paid on submission of a monthly invoice.

§ The worker has an ABN number and has always been paid an hourly rate which is higher than any of the regular employees to allow payment of PAYG and superannuation.

§ The most relevant Award would apply if the worker was a regular employee. It is difficult to determine the appropriate pay level that would apply.

§ The worker is also engaged to do the same kind of work at other businesses.

§ The worker has determined their own hours, and although the day they work is usually Friday, the time they arrive is determined by their own personal arrangements, and they advise of changes as they occur.

§ When they have other personal or work arrangements they do not work on Fridays.

§ They usually work 6 hours per week, but decides when they are available to suit their own schedule. The worker uses a computer and accesses information provided at the workplace.

§ There is no written contract in place.

During 2011 a valid request for ABA was received, which included the same information provided in the previous request dated during 2011. The letter also included the following additional information:

§ The worker initially offered their services on a casual basis whenever the work was available and we had a backlog. We have regular employees who do the same work, amongst other duties.

§ The hourly rate paid to the worker has always been determined by the worker with no negotiation involved.

During 2011 we wrote to you to acknowledge your request and request the completion of a Principal questionnaire and also to request a Worker questionnaire to be passed on to the worker in question.

We received a response from the Worker. The information from the questionnaire is summarised below:

§ The Worker has an ABN.

§ The Worker commenced work with the Principal during 2004.

§ Work with the Principal was secured by word of mouth.

§ There is no written agreement between the Worker and the Principal.

§ The Worker sets their own fees. At their own request the pay rate increased on 1 July 2007 and again on 1 January 2010.

§ The right of the principal to terminate the workers services has never been discussed or determined.

§ Basic induction training with the Principal was completed in respect of their filing system, records and computer systems.

§ The Worker was originally employed to work 5 hours a fortnight on a specific day. This has increased to 6 hours per week on a specific day.

§ There is no requirement to attend meetings within the Principals' business or with their clients.

§ The Worker is not entitled to paid breaks.

§ The Principal schedules the tasks to be carried out. The Worker is required to complete the forms for a specific week or month to meet deadlines.

§ The work is completed at the Principal's premises.

§ The Worker's work is supervised. Their attendance is monitored by the Principal and annual audits are performed.

§ The Worker cannot refuse to do a particular job or task.

§ The Worker is required to give prior notice for taking time off via verbal communication or email.

§ The Worker has not advertised their services during the period they have worked for the Principal.

§ The Worker can provide their services to other individuals and businesses independently of the Principal. This is a one day a week employment only so they hold several part time positions.

§ Work is not done alone.

§ Over a two to three month period the Worker checked the work of another employee and supplied feedback. They are is currently giving advice to another worker.

§ No uniform, name badge, business cards and other items with the Principal's logos were provided for them to wear.

§ The Worker does not have their own business uniform, name badge, business cards and other items with logos.

§ The Principal does not advertise their business on any of the assets, equipment/tools that they use.

§ The Worker submits invoices to the Principal. A copy of three invoices were provided showing accounts payable for services rendered for the work.

§ Payment was not dependant on the completion of a task/job.

§ Payment is made into the Workers bank account and by cheques made out to their own name.

§ The Worker does not receive any allowances or reimbursements. They do not receive any holiday pay, sick pay, workers compensation or superannuation.

§ The Principal did not give specific instructions about whether the Worker was to complete the work personally.

§ If the Worker is absent through illness or they go on holidays no one does their work whilst they are absent.

§ The Worker could not organise for the work or tasks to be completed by others.

§ The Worker does not pay any type of insurance in relation to this position. They do not know if the Principal has any insurance cover for them.

§ The Worker has not been required to guarantee their work for any period of time.

§ If the Worker makes a mistake or breaks something they do not have to correct the work in their own time, pay for materials to correct the mistake or pay for the breakage.

§ No materials were required for the job and no protective work gear was required.

We received a response from the Principal. The information provided is summarised below:

§ The worker commenced work with the Principal during 2009.

§ Work with the Principal was secured by word of mouth.

§ There is no written agreement between the Worker and the Principal.

§ The Principal required additional assistance with this task as existing staff could not keep up with demand form time to time. The work is to be submitted to a regulatory body within a specified timeframe. The Worker was recommended to the Principal as someone who could help with the backlog of work.

§ The Worker nominated their own pay rate and has subsequently increased the rate with no discussion with the Principal.

§ The Principal is not sure if they have the right to terminate the Workers services, however they have always assumed that they had the right to advise the Worker that they were not required if work flow dried up.

§ There were no other workers engaged on the same or similar basis as the Worker.

§ The Principal did not provide the Worker with any training.

§ The Worker offered a certain number of hours as they were available on a day that they were available due to their own personal schedule.

§ There is no requirement for the Worker to attend meetings within the Principals business or with their clients.

§ The Worker is not entitled to paid breaks. They take breaks as they require, e.g. to move their car. They bill the Principal for total hours worked.

§ The Principal schedules the tasks to be carried out. The only work required of the Worker is the specific task relating to the business.

§ The work is completed at the Principal's premises. The work needs to be done at the Principals premises as access is required to records and information kept on site due to privacy regulations.

§ No supervision was undertaken with the Worker as they are experienced in their field and was recommended by an auditor. Records are submitted to annual random audits as part of the Principals quality control.

§ The Worker can refuse to do a particular job or task as they are required to perform one task only.

§ The Worker is not required to seek permission or provide prior notice for taking time.

§ The Worker can provide their services to other individuals and businesses independently of the Principal. The Worker has always provided services to other centres concurrently. they currently works for two other facilities.

§ Work is done alone, however the Worker offered advice to an employed staff member who undertook the same type of work as part of the worker's duties.

§ The Worker does not supervise, train or assess the work of the employees or workers in the Principals business, other than to offer advice on occasion when asked. It is not a specified area of their work.

§ No uniform, name badge, business cards and other items with the Principal's logos were provided for the Worker to wear.

§ The Worker does not have their own business uniform, name badge, business cards and other items with logos.

§ The Principal does not advertise their business on any of the assets, equipment/tools that the Worker uses.

§ The Worker did not advertise their business on any of the assets, equipment/tools that they use.

§ The Worker submits invoices to the Principal. A copy of three invoices were provided showing accounts payable for services rendered for the work.

§ The Worker sets their own fees. Their rate of pay has changed over the period of engagement. No discussion was entered into.

§ The Workers payment does not depend on the completion of a task/.job. The Worker billed the Principal by monthly invoice for the number of hours worked during that period.

§ No checks were done to confirm that the Worker had completed their work before they were paid as they were working in the Principal's office with other staff and was visible to management of the Principal.

§ Payment is made into the Workers bank account.

§ The Worker does not receive any allowances or reimbursements. They do not receive any holiday pay, sick pay, workers compensation or superannuation.

§ The Principal did not deduct any amounts for income tax or superannuation or other deductions from the Workers payments.

§ The Principal did not give specific instructions about whether the Worker was to complete the work personally.

§ If the Worker is absent through illness or they go on holidays no one does their work whilst they are absent. Other staff at the Principal's premises undertakes the job as part of their weekly tasks so no one else is required to take on extra duties.

§ The Worker could not organise for the work or tasks to be completed by others.

§ The Principal has various types of insurance that cover staff and patients of the Principal but no extra cover was taken out specifically for the Worker. The Principal is not aware if the Worker carried their own insurance. No claims have ever been made.

§ The Worker is required to guarantee their work. The Worker has a responsibility to 'prove' the work has been completed correctly if audited by the relevant statutory agencies.

§ If the Worker makes a mistake they have to correct the work in their own time. The worker is paid an hourly rate to cover all time spent.

§ The Principal provided a computer at their premises for the Worker to use, which was used by regular staff when the Worker was not there.

§ No reimbursements were made to the Worker.

§ No materials were required for the job and no protective work gear was required.

§ The Worker commenced providing services to the Principal on a casual basis as needed. The arrangement was a mutually agreed one and the Worker specified the hours and weeks of availability to suit her own personal arrangements and to fit around other workplace commitments. At no stage was the arrangement intended to be an employer/employee situation. No discussion has ever been initiated to change the nature of the arrangement.

Relevant legislative provisions:

Superannuation Guarantee (Administration) Act 1992 section 12

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

Reasons for decision

Summary

The worker engaged by the Principal is an employee. The engagement is inconclusive under the common law definition of an employee but does satisfy the extended definition of employee under subsection 12(3) of the SGAA.

Accordingly, the Principal has an obligation under the SGAA to make superannuation guarantee payments on behalf of the worker.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its 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 that does 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 - 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.

Accordingly it is necessary to determine the true nature of the whole relationship that exists between the Worker and the Principal, as to whether there is a common law employer/employee relationship, or whether the workers meet the extended definition of employee under subsection 12(3) of the SGAA.

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. For example, if the employer provides the place of work, this might indicate an employment relationship, while the absence of holiday pay might suggest the opposite. 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 which will give the answer:

…it is the totality of the relationship between the parties which must be considered...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 ever 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).

A clause in a contract that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee must be considered with all the other terms of the contract. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole. That is, the parties cannot deem the relationship between themselves to be something that it is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label. Subsequent conduct of the parties may demonstrate the relationship has a character contrary to the terms of the contract.

In deciding whether the Worker is a common law employee the Principal there are a number of factors to consider. 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.

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. In the observation made by 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.

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 of the facts to your case

Both the Principal and the Worker agree that the Worker came to work for the Principal through word of mouth. Both also agree that no written contract was entered into.

The Worker was engaged on an hourly rate and is paid on submission of a monthly invoice.

The Principal contends in a letter that the initial arrangement with the Worker was that the Worker billed the Principal for a higher rate to compensate for payment of PAYG and Superannuation. Both parties have always been happy with this arrangement. Furthermore, at the time this arrangement was entered into neither party was of the opinion that the worker was to be engaged as an employee.

The Principal advises that the Worker nominated their own pay rate and has subsequently increased this rate with no discussion with the company. This is confirmed by the Worker.

The Worker has provided copies of several invoices that were provided to the Principal for the services. The invoices show the Workers personal details including ABN, the date worked, the number of hours, the hourly rate and the total amount owing.

The Worker has advised that the Principal had never discussed with them the right to dismiss or terminate their services. The Principal states that they always assumed that they had the right to advise the Worker that they were not required if work flow dried up.

In the Private ruling application form the Principal states that they have regular employees who do the same work as the Worker amongst other duties. The Principal further advises in the completed questionnaire that there are no other workers engaged on the same or similar basis as the Worker.

The Worker did not receive any benefits such as sick leave or holiday pay, nor did they receive any superannuation. However, as stated above, the absence of these benefits does not rule out the fact that an employer/employee relationship may have existed.

A review of Tax Office records reveals that the Worker registered for an Australian Business Number.

The Principal has never lodged a tax file number declaration with respect to the Worker, withheld tax from their remuneration, nor issued payment summaries; points consistent with a principal and independent contractor relationship.

A review of Tax Office records reveals that the Worker has not declared any salary and wages from the Principal from the commencement of their engagement to date.

Upon consideration of the facts and evidence, the Commissioner considers, on balance, the factors in the test are indicative of the Principal's intent to engage the Worker as an independent contractor.

2. Control

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 the master-servant relationship. The degree of control varies with the type 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. In Zuijs v.Wirth Brothers Pty Ltd (1955) 93 CLR 561 the High Court articulated the significance of control in an employment relationship in the following way:

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

Additionally, Dixon J in Humberstone v. Northern Timber Mills (1949) 79 CLR 389 stated:

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. 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 v. Writh Brothers Proprietary Ltd (Zuijis) 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 matters is the 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 of the Law to the facts provided

The Principal advises that they did not provide the Worker with any training; however the Worker has stated that they were provided with basic induction training to their filing system, records and computer systems.

The Worker advises that they were originally employed to work 5 hours fortnightly on a specific day. This was increased to 6 hours per week on a specific day.

The Principal response does not concur with this, the Principal states that the Worker was offered a certain number of hours as the Worker was available, on days that the Worker was available due to the Workers own personal schedule.

The Principal also advises that the Worker has determined their own hours, and although the day they comes in is usually Friday, the time they arrives is driven by their own personal arrangements and the Worker advises of their availability as they occur.

Both parties advise that the Worker was not required to attend meetings within the business and that there was no entitlement to paid breaks. The Principal states that the Worker takes their breaks as they require and bills the company for the total hours worked.

The Principal states that the only work required of the worker was the specific task they were engaged for. The Worker advises that they were required to key records for specific businesses and complete the required forms for specific weeks or month to meet deadlines. Both parties advise that the work was completed at the Principal's premises, the work was required to be done at the place of work as access was required to protect records and information kept on site due to privacy regulations.

The Principal advises that there was no supervision given as the Worker was experienced in their field and was recommended by an auditor. Records are submitted to annual random audits as part of the facilities quality control. The Worker states that their attendance was monitored by the Principal and that annual audits were performed.

The Principal states that the Worker was required to perform one task only. The Worker advises that they were not able to refuse to do a particular task or job.

The Principal and the Worker both advise that if the Worker required time off then the Worker was not required to seek the Principal's permission; however the Worker advises that they provided prior notice either via verbal communication or email messages for any required leave.

The most important question to focus on is whether the Principal had the ultimate authority to control the Worker.

Accordingly, with respect to the control test, the Worker worked 6 hours per week and chose their own time when to undertake this work. The work was to be performed at the Principal's premises due to privacy requirements. The Worker set their own hourly rate and has twice increased that rate without discussion with the Principal.

Therefore the Commissioner considers that the facts and evidence support the notion that the relationship between the Principal and the worker was that of principal/independent contractor.

3. Integration

Another significant factor in establishing the nature of a contractual relationship at common law is to determine whether the worker's services are an integral part of the employer's business (under a contract of service as an employee) or providing services as an individual carrying on his or her own business (under a contract for services as an independent contractor). This is otherwise known as the 'business' or 'integration' test.

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 or operator and whether they could be expected to generate goodwill in their own right.

In Montreal v. Montreal Locomotive Works (1947) 1 DLR 161, Lord Wright said:

...it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.

Similarly, in Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans (1952) 1 TLR 101 Denning LJ said:

...under a contract of service, a man is employed as part of the business, and his work is done as a 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 Full Bench of the High Court in Hollis v. Vabu (2001) 207 CLR 21 endorsed the proposition stated by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210 that the distinction between an employee and independent contractor is:

…rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own.

This factor was given significant prominence by the High Court as an aid to determining the common law contractual relationship between the parties to the dispute in the context of vicarious liability. In arriving at the conclusion that the bicycle courier was a common law employee of the courier company (which then became vicariously liable for the bicycle courier's negligence), Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ stated that:

Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations.

The 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 skill 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.

This was highlighted in Hollis v Vabu at paragraph 48, where the court said in relation to 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…

Application of the test to the facts provided

Both parties agree that the Worker could provide their services to others. The Worker states that their engagement with the Principal was one day per week and that they also hold several other part time positions.

The Principal advises that the Worker has always provided their services to other businesses concurrently and that they are currently working for two other facilities.

The Principal states that the Worker worked independently but also offered advice to employed staff that undertook the same work as part of their duties and was learning new skills. The Worker states that they did not work alone but has not provided a more comprehensive explanation of this.

Name badge, clothing, business cards or stationary or any other item promoting the Principal's business were not provided to the Worker for them to wear or use whilst undertaking their duties. Both parties agree that the Worker did not advertise their services whilst working with the Principal. The Principal further advises that the Worker was offered work at another centre on their recommendation.

Accordingly, with respect to the integration test, a review of all available facts and evidence are suggestive of a Principal/independent contractor relationship.

4. Results test

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 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.

Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. The production of a given result is considered to be a mark of independent contractor status (World Book (Australia) Pty Ltd v. FC of T (1992) ATC 4327).

'Results' contracts describe traditional principal/independent contractor arrangements where a specific identifiable task is performed. 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 (whether written, oral or implied), 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 dependant on, or referable to, the completion of the specified services.

While the notion of 'payment for result' is expected with a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in FC of T v. Barrett & Ors found that land salesmen, who were engaged by a firm of land agents to find purchasers for land entrusted to the firm for sale and who were remunerated by commission only were employees and not independent contractors. Likewise, the High Court in Hollis v. Vabu (2001) 207 CLR 21 considered that 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 Commissioner of State Taxation v. The Roy Morgan Research Centre Pty Ltd found that interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties and what the worker was hired to do.

Application of the Law to the facts provided

The information provided by the Principal and the Worker show that the Worker is remunerated at a fixed rate per hour. Payment is made on a monthly basis upon submission of an invoice from the Worker. Both agree that no specific tasks which must be completed in order to receive payment.

The Commissioner was not provided with any evidence to suggest that the Worker was required to achieve a result in order to receive payment.

Accordingly, with respect to the results test, the Commissioner considers the facts and evidence are highly indicative of an employer/employee relationship.

5. Delegation

The unlimited power to delegate or subcontract work is an important factor in deciding whether the worker is an employee or independent contractor. If an individual 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 result rather than person. However, delegation clauses are considered in the context of the contract as a whole 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 freely subcontract or employ others to perform the work.

Application of the test to the facts provided

Both the Principal and the Worker agree that there were no specific instructions given about whether the work was to be completed personally by the Worker.

The Worker has advised that no-one did their work whilst they were absent; however the Principal states that two staff at the centre also undertake this job as part of weekly tasks so no-one else was required to take on extra duties.

The Worker advises that they were not able to organise for their work to be completed by other employees of the business or another person engaged by them. This has been confirmed by the Principal.

Accordingly the Commissioner considers that the worker does not have a right to delegate and the results of this test are indicative of an employer/employee relationship.

6. Risk

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

The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance of commercial profit), the more they are likely to be regarded as being independent. Typically, a worker who derives piece rate payments and sustains large outgoings would be so exposed. The higher the proportion of the gross income of the worker which is required to be expended in deriving that income, and the more substantial the assets which the worker brings to the tasks, the more likely that the contract is for services, or a contract with 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.

Application of the test to the facts provided

The Principal has advised that the business has in place workers compensation insurance, private accident insurance and public liability insurance to cover staff and clients, there was no extra cover taken out. The Worker has advised that they did not pay any insurances relating to their role.

The Worker states that they were not required to guarantee their work for any period of time. In response to this question the Principal advised that the Worker has a responsibility to be able to prove the records have been completed correctly if audited by the relevant statutory agencies.

The Principal contends that the Worker would have to correct the work in their own time, the worker was paid an hourly rate to cover all time spent. The Worker advises that if a mistake was made that they would not have to correct the work in their own time.

On balance with respect to the risk test, the Commissioner is satisfied that the facts and evidence suggest that the relationship between the Principal and the Worker is that of an employer/employee.

7. Capital

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for his 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 and provide for 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 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 not an employee.

Application of the test to the facts provided

Both the Principal and the Worker agree that no tools or equipment are required for the position other than a computer which is provided by the Principal at their premises.

In the absence of any evidence to the contrary, it is considered that the worker will not bear any substantial costs in relation to their service to the Principal. Therefore the results of the capital test are indicative of an employer/employee relationship.

Conclusion - Common Law

On review the Commissioner is not satisfied that the facts and evidence are conclusive that the Worker is a common law employee in accordance with the SGAA.

As our decision is inconclusive, we are required to consider the extended definition in subsection 12(3) of the SGAA. The extended definition has been considered and is discussed below.

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

The extended definition of employees under subsection 12(3) of the SGAA 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.

Subsection 12(3) of the SGAA requires the individual to be working wholly or principally for the labour of the person to meet the extended definition. The SGR 2005/1 provides further guidance on this issue and states at paragraph 11 that:

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.

Each of the three conditions must be met to consider a contract to be wholly or principally for the labour of the individual.

Is the Worker remunerated wholly or principally for labour?

In assessing whether a person has been remunerated wholly or principally for labour and skills the ATO 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 is specified in the contract, however in this case there is no written contract.

In this case, based on the evidence provided, the Worker provided their skills for the Principal and was remunerated principally for their labour. There is no evidence to suggest that they were being paid for a result. Furthermore the evidence provided does not suggest that the Worker had any expenditure with respect to provision of equipment or materials to undertake her duties.

Based on the facts and evidence provided, there is no indication that the Worker is being remunerated for anything other than their labour.

Is the Worker required to perform the work personally?

The second requirement of subsection 12(3) of the SGAA is that it requires the labour of the individual personally. 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 a 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 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 this case, as previously discussed, the worker is not able to delegate their work to others.

Is the Worker paid to achieve a result?

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.

As previously discussed, the Worker is paid an hourly rate, this in conjunction with other relevant facts support a view that the Worker is not working for a result.

As the Worker meets all the requirements under 12(3) the Worker does meet the extended definition of an employee as set out under subsection 12(3) of the SGAA.

Conclusion

Upon review of the relationship as a whole, the Commissioner is satisfied that the Worker is an employee of the Principal for the purposes of the SGAA under the extended definition under subsection 12(3) of the SGAA.

Accordingly, the Principal has an obligation under the SGAA to provide superannuation contributions on behalf of the Worker.

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