Edited version of administratively binding advice

Authorisation Number: 1012496230016

Advice

Subject: Superannuation guarantee & Status of the worker

Question 1

Was the Worker considered your common law employee as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)

Advice

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

Question 2

Was the Worker your employee by virtue of subsection 12(3) of the SGAA?

Advice

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

This advice applies for the following period:

From 1 July 2010

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

We received correspondence from the Principal requesting clarification if one of their former workers was an employee or a contractor. In this letter you advised:

The Worker is paid weekly on a lead basis to measure and quote on your company's products to the customers they wish to service for you. You supply all of the samples and price lists for them to do their job.

The Worker is an independent contractor in every sense of the work, because the agreement was tailored for worker to work around their family circumstances.

There is no written contract.

As a contractor the Worker was responsible for all costs that were incurred whilst carrying out their business and is not paid any annual leave or other benefits.

These costs include;

telephone bills

computer equipment

petrol, motor vehicle repairs and depreciation

stationery

tools of the trade

The Worker was totally responsible for the amount of hours worked during any working week that suited their timetable.

The Worker is paid a percentage of the profits on each individual contract as it is presented by the company.

In turn, if the Worker makes any mistakes, a percentage of the profit is deducted from their next invoice as a "Re-work".

The Worker has worked in the business on and off over a number of years, however, they are questioning the three year period in which the Principal was flexible with the working hours to suit their circumstances.

In an e-mail, we requested you complete our Superannuation Guarantee: status of the worker questionnaire - Principal/Payer and return it to our office.

We wrote to the Worker and requested they complete our Superannuation Guarantee: Status of the worker questionnaire - Worker/Payee

We received the completed Superannuation guarantee: Status of the Worker questionnaire - Worker/Payee which provided the following information:

The Worker was engaged by the Principal to work within the business.

Their duties included:

Attend clients homes to show samples of the Principals products and take necessary measurements

Provide quotations to clients

When quotation accepted by clients, order products from suppliers and forward information in relation to the order to the Principal

Work one Saturday per month at the showrooms of the Principal

Terms and conditions of the formation of the contract

The Worker was engaged for this position as they were previously employed by the Principal.

There was no written agreement with the Principal.

The terms and conditions of the contract were:

The Worker was to be provided with details of a client who sought a quotation from the Principal.

The Worker would attend the clients address and provide services.

If the client proceeded with the order, the Worker would receive a set commission based on the profit made.

The Worker was advised that they were responsible for all of their own costs which included superannuation.

The Worker was required to work a minimum of one Saturday per month in the office showroom.

The Worker was not able to renegotiate the rate of pay or terms and conditions.

The Principal had the right to terminate or dismiss the Worker's services and could do so simply by stopping to provide the worker with any clients.

There was no agreement on notice given if the Principal no longer required the Workers services.

Control test

The Principal provided the Worker with training on specific products they sold.

The Worker received verbal instructions on how to order jobs for clients.

The hours of the Worker were determined by the Worker. The Principal provided details of the clients and the worker would then contact the client to arrange a time to see them which suited the client and the Worker.

The Worker would provide quotations via e-mail and write up orders in their own time and in their home office.

The Worker was required to have meetings with clients or potential clients.

The Worker was not entitled to receive paid breaks.

The Worker was allocated work by the Principal when work became available.

The Worker was directed where the job tasks were to be done and was directed to visit clients at their work or home addresses to provide quotations and/or samples. One Saturday per month the Worker was required to work in the showroom.

The Worker was supervised in that the costing of the jobs and were checked against invoices from suppliers. The invoices supplied were also checked to ensure that the invoicing showed the correct commission amount.

The Worker could not refuse to do a particular job or task, however, if it was impossible to make a suitable time with a client, for example if the worker already had an appointment scheduled at the time they wanted, they could return the job to the office.

If the Worker wanted to take time off, the Principal's permission was required and to provide prior notice. This would be done by phone or e-mail.

Integration test

During the period of the agreement the Worker did not advertise their services.

The Worker could not provide their services to other individuals or businesses independently while subcontracting to the Principal. However, the Worker thought they were to and therefore started to work for another company. When the Principal discovered this, they terminated the agreement.

The Worker worked alone.

The Worker did not train, supervise or assess the work of other employees or workers of the Principal.

The Worker had business cards promoting the Principal and all quotations and orders were on the Principal's Letterhead.

The Worker did not have their own business cards, stationery or other items promoting their business/services.

Neither the Principal nor the Worker advertised their business on the assets/equipment or tools used.

Results test

The Worker submitted invoices to the Principal.

The Principal set the fees and the rate of pay was not changed.

The payment was dependent on the completion of the task or job in that payment was only made to the Worker if the client proceeded with the quotation. After the Worker had placed the orders, they would be paid a set amount of commission based on the profit of that job.

The Worker was paid directly into their bank account.

The Worker did not receive payment or reimbursement for any allowances, such as car allowance, tool allowance, travel allowance, holiday pay, sick pay, training etc.

Delegation test

The Worker was given specific instructions by the Principal that they were to complete the work personally as they were hired for their personal skills and experience; this was advised to the Worker verbally.

The Worker could not organise their work or tasks to be completed by an employee of the Principals business, another person engaged by the Worker or any other person. The Worker was responsible for their own clients and if a client phoned whilst they were away, they were advised that the Worker would contact them upon their return. All quotes and paperwork regarding the clients were kept at the Worker's home office.

Risk test

The Worker was responsible for paying workers compensation insurance, private accident insurance, public liability insurance, car insurance and home insurance.

There were no claims made against these policies.

The Worker was not required to guarantee her work for any period of time.

If the Worker made a mistake, they would have to correct the work in their own time, pay for the materials used to correct the mistake and pay for breakages.

If the Worker made a mistake on an order, they would be required to pay a set percentage of the total cost incurred to fix the problem. In some cases of client complaints, the Worker would need to go back to the client in their own time to assess the problem prior to action being taken.

Provision of tools and equipment and payment of business expenses

The Worker supplied their own assets, equipment and tools such as:

Stationery for home office use

Motor vehicle to travel to and from client premises

Mobile phone

Laptop computer

Fax machine

Tools of the trade

The Worker was not reimbursed by the Principal for any assets, equipment or tools.

The Principal supplied all samples that would be shown to clients.

The Principal arranged delivery of materials to a job.

The Principal provided all samples which had a specific brand or supplier that they preferred to use.

We received the completed Superannuation guarantee: Status of the Worker questionnaire - Principal/Payer which provided the following information:

The Worker was engaged to promote and sell the Principal's products to their clients.

When a client enquiry was received by the Principal they would provide a 'lead' to the Worker who would visit the client with samples and organise a quote to supply the product. If the client accepted the quote, the Worker would write up the paperwork and orders for the job.

Terms and conditions of the formation of the contract

The Worker and the Principal had a prior relationship as the Worker had been previously employed by the Principal.

There was no written contract.

As the Worker has a young family, it was agreed to provide leads and samples to service in their own time without any restriction of a time table of any kind.

The Worker was paid a percentage of the profit on all orders handed in.

The Worker was able to renegotiate their rate of pay or terms and conditions. The Worker would cost and write up an order and received X% of the profit raised on the job.

The Principal had the right to dismiss or terminate the services of the Worker if a conflict of interest was identified.

There were Y contractors and Z employees engaged on the same or similar basis.

The employees received different entitlements in that the Principal paid their petrol costs, tools, and stationery, internet and phone costs.

Control

The Worker was fully trained to be a sales representative when they were previously engaged as an employee of the Principal.

The Worker determined their own hours of work to suit their family commitments.

The Worker was not required to attend meetings within the business of the Principal.

The Worker was not entitled to paid breaks and chose their own hours of work.

The Principal did not schedule the jobs or tasks to be carried out by the Worker, they were given leads and it was up to the worker when and how they chose to service the leads.

The Principal did not direct where the jobs/tasks were to be performed. The jobs were carried out at the clients' premises at a time to suit the client and the Worker.

The Worker was not supervised.

The Worker could refuse to do a particular job or task.

If the Worker wanted to take time off they were not required to seek the Principal's permission but they were required to provide prior notice so that leads could be redirected to another worker.

Integration test

The Worker could provide their services to other individuals or businesses if they had their own samples but could not do so if there would be a conflict of interest. This restriction around conflicts of interest was advised in writing several weeks before the arrangement ceased.

The Worker worked alone.

The Worker did not train, supervise or assess the work of other employees or workers of the Principal.

The Worker was provided with business cards at the Principal's expense.

The Worker did not have their own name badge, clothing, business cards, stationery or any other items promoting their business or services.

The Worker did not advertise the Principal's business on any of the assets, equipment or tools used.

The Worker did not advertise their own business or services on any of the assets, equipment or tools used.

Result test

The Worker submitted invoices to the Principal and was paid a percentage of the profit on each individual job.

The Worker set their own fees for the work/tasks done.

The Worker's rate of pay was negotiated as a senior rate and was not costing the Principal any employee benefits.

The Worker received a X% commission of the profit made on each individual job. The more profit that was able to be made the more commission received. Mistakes or bad advice were deducted from a later invoice from the Worker.

The Worker's payment was dependent upon a client placing an order for the Principal's products.

The Principal checked all invoices against the paperwork received.

The Worker was paid directly into their bank account.

The Worker did not receive payment or reimbursement in respect of allowances (car, tool, and travel), expenses (petrol, tools, materials, and phone), holiday or sick pay, workers compensation, superannuation and training.

The Principal did not deduct any amounts from the worker for income tax, superannuation or any other deductions.

Deductions were made for any errors made by the Worker, any re-works and mis-measures were the responsibility of the Worker.

Delegation/Substitution

The Worker was not provided any specific instructions about whether they were required to complete the work personally.

If the Worker was sick, they would reschedule the appointments.

If the Worker was going on holidays then no leads were provided by the Principal for that period.

The Worker could organise for an employee of the Principal's business to complete their work or tasks but could not engage another person without the Principal's approval.

If the Worker did not have the knowledge to complete a particular job, the work could be completed by another person with the approval of the Principal.

Risk test

The Worker was responsible for paying workers compensation insurance, private accident insurance and public liability insurance.

No claims were made against these policies.

The Worker was not required to guarantee their work for any period of time, but if an error was made a deduction was made from a subsequent invoice.

Tools and equipment

The Principal did not supply the Worker with any tools or equipment to complete the work; however, they did provide samples of their product for the Worker to show to clients.

The Worker was not reimbursed for any expenses, such as maintenance, repairs, registration or insurance.

Other information

Another worker engaged by the Principal was stood down under the terms of a written contract and set up in competition.

The remaining workers (including this Worker) were advised in writing that if they were to provide their services to this competition that a there would be a conflict of interest which would result in immediate dismissal.

The Worker agreed that there would be no dealings or exchange of price information in any way.

The Worker chose to do some work for the competition which was discovered by the Principal and their contract was terminated immediately.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Subsection 12(1) and

Superannuation Guarantee (Administration) Act 1992 Subsection 12(3).

Reasons for decision

Summary

The facts and evidence indicate the Worker was not your employee for the purposes of the SGAA under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA. You therefore did not have an obligation to pay superannuation contributions on behalf of the Worker.

Introduction

The SGAA states that an employer must provide the required minimum level of superannuation support for its employees (unless the employees are exempt employees) or 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. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract an 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 expanded definition of 'employee' in subsection 12(3) of the SGAA applies. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation.

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 difficult and will depend on the facts of each case.

Accordingly it is necessary to determine the true nature of the whole relationship between the principal and the workers, as to whether there was a common law employer and employee relationship, or whether the workers meet the expanded definition of employee under subsection 12(3) of the SGAA.

Question 1

Was the Worker your common law employee as defined in subsection 12(1) of the SGAA?

Common law employee

The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to produce the contracted result in return for an agreed payment, whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result).

The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts. As a result, a substantial and well-established body of case law has developed on the issue. Consideration should be given to the various indicators identified in judicial decisions. No list of factors is to be regarded as exhaustive and the weight to be given to particular facts will vary according to the circumstances. The totality of the relationship between the parties must be considered to determine whether, on balance, the worker is an employee or independent contractor.

In deciding whether an individual is a common law employee, there are a number of common law factors to consider. The common law factors we have considered are discussed below.

1. Terms of engagement

The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. For this test, we must determine the nature of the contract between the parties. We will consider whether the contract is written or verbal and whether the terms and conditions are express or implied. These factors are important in characterising the relationship between the parties.

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. In Hollis v. Vabu Pty Ltd (2001) 207 CLR 21 (Hollis v. Vabu Pty Ltd) it was noted that although no payments of annual leave or sick leave were given, and no superannuation deductions were made by Vabu in respect of the bicycle couriers, the relationship between the parties was found not merely from these contractual terms. The system which was operated under and the work practices imposed by Vabu went to establishing 'the totality of the relationship' between the parties and it is this which is to be considered.

Application of the common law to your case:

The Worker was engaged under this arrangement as they were previously employed by the Principal.

There was no written contract entered into. The Principal provided the worker samples of their products and would provide the Worker with details of clients whom they would schedule to meet and present the Principal's products.

If the client proceeded with an order the Worker would receive a set percentage of the profit on the order.

The Principal has advised that the Worker was able to renegotiate the rate of pay or terms and conditions, whilst the Worker has advised that they were not able to renegotiate their rate of pay.

Both the Principal and Worker agree that the Principal had the right to dismiss or terminate the Worker's services. The Worker advised that the Principal could simply stop providing clients and that there was no agreement in respect of a period of notice of termination.

The Principal advised that all workers were advised of a potential conflict of interest and any conflict of interest identified would result in immediate dismissal.

The method of recruitment and the terms could be utilised in both an employer and employee relationship and a principal and independent contractor relationship. Accordingly, this factor must be considered neutral.

Therefore, we are satisfied that the terms of engagement test in isolation are inconclusive.

2. Control

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

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. A high degree of direction and control is common in contracts for services because the payer has the right to specify in the contract how the services are to be performed. Similarly, the right to supervise how the work is to be performed does not constitute a contract of service where the essence is one of independent contractor.

Paragraphs 36 and 37 of Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? provides that while control is important, it is not the sole indicator of whether or not a relationship is one of employment. The approach of the Courts has been to regard it as one of a number of indicia which must be considered in determination of that question.

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

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

Application of the common law to your case:

The Principal advises:

· The Worker was trained as a sales representative when they were engaged as an employee of the business prior to their employment ceasing.

· The Worker was re-engaged as a contractor to provide the flexibility to operate their own diary to suit their family commitments.

· The Worker was not required to attend meetings within the business but was required to meet with clients at a time arranged by the Worker to present the Principal's products to the clients to generate a sale.

· The Worker chose their own hours of work and which days to work. The Worker was provided with client details and then they would contact the client to arrange a mutually agreeable time to attend their premises to present the products.

· The Worker was not supervised and could refuse to do a particular job or task.

· If the Worker wished to take time off they were not required to seek the Principal's permission but was required to provide prior notice to ensure no leads were provided during this time.

· The Worker advises:

o They were provided training on specific products of the Principal and received verbal instructions on how to order jobs for clients.

o Provided with client details and they would then contact the client to make a time to suit them that was mutually agreeable. The Worker would provide quotations via e-mail and write up orders at a time suitable at their home office.

o The Worker was required to work one Saturday per month in the showroom of the Principal to assist clients or potential clients. They did not receive any additional remuneration for the Saturday work.

o They were required to attend meetings with clients or potential clients but does not state if they were required to attend meetings within the Principal's business.

o Was not entitled to paid breaks.

o Was directed to visit clients at a location advised by the clients to provide samples and to provide quotations. They were required to work one Saturday per month in the showroom of the Principal.

o Their work was supervised in that the costings of the jobs were checked against invoices from suppliers and that the invoices were also checked to ensure that they were invoicing the correct commission amount.

o They could not refuse to do a particular job or task but then states that if they were unable to make a suitable time with a client they could return the lead to the Principal.

o If they wanted to take time off the Principal's permission was required and they had to provide prior notice.

Both the Principal and Worker have stated that the work was completed at locations specified by the end client. We consider this to be a neutral factor as this appears to be a common condition within this industry and both employees and independent contractors would be required to complete their work at the locations specified by the end client.

From the information provided by both parties, the Worker had the right to refuse work, set their own schedule and was not supervised in completing the work. Whilst the Worker contends that their work was supervised in that the orders to suppliers and invoices were reviewed by the Principal, the revision of orders and invoices is considered a normal business practice, not supervision.

Overall, we are satisfied that the control test in isolation is more in favour of the notion that the relationship between you and the Worker was one of principal and 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 known as the 'integration' test.

If the worker's services are an integral and essential part of the employer's business that engages them, they are considered by the courts to be a common law employee. If the worker is providing services as an individual carrying on their own business, they are an independent contractor.

It is necessary to keep in mind the distinction between a worker operating their own business and a worker operating in the business of the payer. The worker needs to be running their own business or enterprise and have independence in the conduct of their operations.

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

This was highlighted in Hollis v. Vabu Pty Ltd 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…

Consideration may also be given to whether the worker could be expected to generate goodwill in their own right. If the benefits from the creation of goodwill flow to the worker then this would indicate that they are an independent contractor. Alternatively, if goodwill flows to the principal, this suggests an employer/employee relationship.

It is therefore necessary to consider whether the worker is providing services as part of the principal's business (under a contract of service as an employee) or providing services as part of their own business (under a contract for services as an independent contractor).

Application of the common law to your case:

In relation to if the Worker could provide their services to other individuals or businesses, the Principal advises:

· The Worker could provide their services to other individuals or businesses if they had their own samples. The Worker was advised that they could not provide their services to other individuals or businesses if a conflict of interest arose and a warning letter was issued in respect of conflict of interests advising that if a conflict of interest was identified by the Principal, this would result in immediate dismissal.

The Worker advises:

· During the period worked for the Principal their services were not advertised.

· The Worker could not provide services to other individuals or businesses and was not allowed to work for another business while sub contracting to the Principal. However, legally it was thought that they were able to work for another business and commenced doing so.

· When the Principal became aware that the Worker was working for another business, their agreement was terminated.

· From the information provided, both parties agree that:

o The Worker worked alone.

o The Worker did not train, supervise or assess the work of other employees or workers of the Principal's business.

o The Worker was provided with business cards promoting the Principal's business.

o The Worker did not have a name badge, stationery or other items advertising their business.

o The Worker is registered for GST and provided invoices to the Principal in their business name.

Whilst the Worker does not advertise services to the general public, the information indicates that they could provide services to other individuals or businesses so long as they did not use the samples provided by the Principal and no conflict of interest arose.

The information indicates that a certain level of skill is required to enable a quotation to be provided and that the Worker may be able to make an independent career by selling that skill.

It is unlikely that the Worker would generate goodwill in their own right; rather, the goodwill would be generated by the Principal or other business that the Worker provides services too.

The Worker is providing invoices to the Principal in the name of their business and quoting an ABN which provides an indication that the Worker is conducting their own business.

Overall, we are satisfied that the integration test in isolation is more in favour of the notion that the relationship between you and the Worker was one of principal and independent contractor.

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. In World Book (Australia) Pty Ltd v. FC of T 92 ATC 4327 (World Book (Australia) Pty Ltd v. FC of T) 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.

While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service. For example, the Full Court of the Supreme Court of South Australia in the decision of Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd (2004) SASC 288 (Commissioner of State Taxation v. 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. It was found that the workers were paid for their time spent and labour, and not to produce a result.

Having regard to the true essence of the contract, the manner in which payment is structured will not of itself exclude genuine result based contracts. For example, there are results based contracts where the contract price is based on an estimate of the time and labour cost that is necessary to complete the task, or may even be calculated on that basis, subject to reasonable completion times. Generally, where a worker submits quotes or issues invoices for each job to the principal, this would be consistent with operating their own business. Nonetheless, the issuing of invoices is not necessarily determinative of the nature of the relationship.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties.

Application of the common law to your case:

The Worker submitted invoices to the Principal based on a percentage of the profit of each individual order that was generated as a result of a 'lead' from the Principal.

In respect of the setting of the percentage of profit to be paid to the Worker, the dependency of completion of the task for payment to be made and allowances, the Principal advises:

· The Worker set their own fees for the work done.

· The rate of pay changed as they negotiated a senior rate and this was agreed to.

· The Worker received a X% commission of whatever profit was made on each individual job, the more profit they were able to generate, the more commission made.

· Any mistakes or bad advice were deducted from a later invoice from the Worker.

· The Worker's payment was dependent on the completion of the task or job. The Worker did not get paid unless the client proceeded with an order.

· The Worker did not receive any payment or reimbursement for any allowances, expenses, holiday or sick pay, workers compensation, superannuation or training.

· The Worker advises:

o The Principal set the fees.

o The rate of pay never changes.

o Payment was dependent upon the completion of the task or job. Payment was only made if the client proceeded with the quotation. After the Worker had ordered the goods they would be paid a set amount of commission based on the profit for that job.

o They did not receive any payment or reimbursement for any allowances, expenses, holiday or sick pay, workers compensation, superannuation or training.

Under the agreement the Worker is paid a set percentage of the profit generated from a client accepting a quote that the Worker provided on behalf of the Principal and therefore dependant upon the completion of a task or job.

Overall, we are satisfied that the results test in isolation is more in favour of the notion that the relationship between you and the Worker was one of principal and independent contractor.

5. Delegation

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

If the contract does not expressly require the worker to personally perform the services, an independent contractor has the capacity to delegate or subcontract all (or some) of the work to others. Where the worker delegates, they are responsible for remunerating that worker.

In the case of Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at 425; 6 AITR 201 at 202, the High Court interpreted the words 'a contract which is wholly or substantially for the labour of the person to whom the payments are made' to decide that if a contract leaves a person completely free, if he or she chooses, to engage others to perform the work on his or her behalf means that the payments are not payments under a contract for labour. That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise.

If the contract leaves the contractor free to do the work himself or employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a result...

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

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

In the case of Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21, Bishop J said:

The fact that any substitute driver had to be approved by the company does not give the respondent [the principal] control over that delegation… the company surely had the right to be confident that any substitute driver was competent to do the job and maintain the "integrity" of the company as Mr Coomb put it.

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

Application of the common law to your case:

There was no written agreement between the Principal and the Worker. In respect of delegation, the Principal advises:

· They did not provide specific instructions about whether the Worker was to complete their work personally.

· If the Worker was sick, they would reschedule the appointments directly with the clients.

· If the Worker went on holidays, they would not provide them with any leads for that period of time.

· The Worker could organise the work to be completed by an employee of the business.

· The Worker could not organise the work to be completed by another person without the approval of the Principal and this may only happen if the Worker was not knowledgeable enough to do a particular job.

· The Worker advises:

o The Principal provided verbal instructions that they were to complete the work personally as they were hired for their personal skills and experience.

o If they were sick or on holidays no one did the work.

o They could not organise the work to be completed by an employee of the Principal's business, another person engaged by them or any other person.

o The Worker was responsible for their own clients and if a client phoned while they were away, they would be told that they would contact them upon their return.

o Both parties disagree as to whether the right to delegate existed or not.

As neither party agrees about whether or not the right to delegate existed, and in the absence of any evidence that the matter was ever raised in practice, the Commissioner considers the test inconclusive as to whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

Overall, we are satisfied that the delegation test in isolation is inconclusive.

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 service, or a contract with an independent contractor.

As stated by McKenna J in Ready Mixed Concrete (South East) Limited v. Minister Pensions and National Insurance [1968] 2 QB 497 at 526:

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

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.

Carrying their own insurance and indemnity policies is an indicator that a worker is engaged as an independent contractor.

Application of the common law to your case:

The Worker was responsible for paying workers compensation insurance, private accident insurance and public liability insurance. Furthermore, as the Worker used their own vehicle and home office, they were also responsible for motor vehicle and home insurance.

Whilst the worker was not required to guarantee their work for any period of time, both the Principal and the Worker have advised that if the Worker made a mistake they would have to correct the work in their own time, pay for the materials to correct the mistake or pay for the breakages.

The Principal advised that deductions were made for any errors made by the Worker. Any re-works were the responsibility of the Worker and were deducted from a later invoice.

The Worker advised that if they made a mistake on an order they would be required to pay a set percentage of the total cost incurred to fix the problem. If they needed to go back to the client this was done in their own time.

As the Worker was responsible for all insurance and was also responsible for either correcting or paying for errors the risk of commercial loss is with the Worker.

Overall, we are satisfied that the risk test in isolation was more in favour of the notion that the relationship between you and the Worker is one of principal and independent contractor.

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

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

In Stevens v. Brodribb at 36-37, the High Court observed that working on one's own account (as an independent contractor) often involves:

The provision of him by his own place of work or of his equipment, the creation of him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion…

Application of the common law to your case:

In respect of the provision of tools and equipment and payment of business expenses, the Principal advised:

· They did not supply the Worker with any assets, equipment or tools to complete their work.

· They did not reimburse the Worker for any of their assets, equipment or tools.

· The Worker would take product samples to customers depending on their requirements and order the product from whichever supplier deemed necessary.

· The Worker advised:

o They supplied stationery for their home office, vehicle to travel to client premises, mobile phone, laptop computer, fax machine and measuring equipment.

o The Principal did not reimburse the Worker for any of their assets, equipment or tools.

o The Principal provided product samples to show to clients.

o The Principal chose the samples which were a specific brand or from a supplier they preferred to use.

Whilst the Principal was responsible for providing product samples, these are not regarded as significant capital items when considering that the Worker was responsible for providing a home office with equipment and stationery and a motor vehicle to travel to client premises.

Overall, we are satisfied that the capital test in isolation is more in favour of the notion that the relationship between you and the Worker was one of principal and independent contractor.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the Worker, the facts and evidence provided points to the conclusion that the Worker was not a common law employee of the Principal.

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

Question 2

Was the worker your employee by virtue of subsection 12(3) of the SGAA?

Expanded definition of employee for SGAA purposes

The expanded definition of employee within subsection 12(3) of the SGAA, which states:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

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

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

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

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

· the individual is not paid to achieve a result.

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

Wholly or principally for labour

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

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

Based on the available facts and evidence, we consider that the Worker was paid primarily for their own labour and skills. There is no evidence that their remuneration was intended to cover any more than this as they were not required to supply any materials and had no significant ongoing expenses.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence are inconclusive in respect of if the Worker had the right to delegate work to others.

Not paid to achieve a result

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

Our conclusion regarding the expanded definition of employee

Accordingly, as the Worker does not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, the Worker does not meet the expanded definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between you and the Worker, the Commissioner is satisfied that with respect to work performed for the Principal, the Worker did not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly The Principal did not have an obligation to pay superannuation contributions for the benefit of the Worker under the SGAA.

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