Edited version of administratively binding advice

Authorisation Number: 1012528888760

Advice

Subject: Superannuation guarantee (SG) - status of the worker

Question 1

Was the worker 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'

The arrangement commences on:

After 1 July 2010

Relevant facts and circumstances

· You applied for a private ruling in regards to your superannuation guarantee (SG) responsibilities for the worker

· You made the following statements in regards to the worker the worker's relationship with you as the principal:

· You took over the business from another entity.

· You provided a copy of a signed contract between the worker and the other entity executed after the business was sold to you. This agreement can therefore not be taken as a legal agreement between the two parties. However, both parties have stated that they believed the agreement to be a genuine expression of the terms of the arrangement. Therefore we have taken the contents of the agreement into consideration in providing this advice.

· You maintained the worker in the same role after the date of transmission of the business. You maintain that the extension of the contract was verbally agreed to with the same terms.

· The worker had the option to negotiate certain terms of their work with you.

· The worker was responsible for the costs associated with their role.

· The worker ran a separate business and took on other roles similar to the one the worker had with you.

· It was entirety up to the worker on how to achieve work results and the contract did not prevent the worker from engaging another person to perform the work for the worker.

The contract contained the following relevant information:

· The worker was to supply an ABN on execution.

· The worker is to be responsible for their own tax affairs.

· The contract set the territory in which the worker was to work.

· The contract makes it evident that the worker would be working alone.

· The contract covers how the worker is to be remunerated. Remuneration was solely by commission. The principal would calculate this and inform the worker and then pay the worker. The remuneration structure is such that the worker can influence their profit.

· The contract does not give rise to an employment relationship.

· The principal is to reasonably support the worker in their role.

· The contract gives the worker freedom to work for other companies doing the same work. However it limits the worker from acting in competition to the principal.

· The contract gives the worker freedom in how the worker is to perform the work except for a few limiting factors.

· The principal indemnifies the worker of risks associated with the worker's actions required under the contract

A completed Status of the Worker - Principal questionnaire contained the following statements regarding the relationship between the parties:

· The worker was unable to renegotiate their pay or terms and conditions.

· You retained the right to dismiss or terminate the services of the worker. The agreement could be ended by misconduct by either party or by either party giving enough notice.

· You engaged other workers on a similar basis. Some of these workers were your employees. You maintain that those workers that were your employees worked under different conditions. Employees were entitled to sick leave, annual leave, long service leave and super contributions. Allowances were also paid to employees.

· You did not provide any training to the worker.

· The hours and days of work were determined by the worker.

· You did not schedule the jobs and tasks to be carried out by the worker. The worker determined how to schedule and prioritise work.

· The worker decided where to work.

· The worker was not required to attend meetings with your business or your clients.

· The worker was not entitled to paid breaks.

· The worker was not directly supervised though you did have conversations with the worker to receive updates.

· The worker could refuse to undertake any tasks which were not in the agreement. You also claim that the company would deal with difficult customers which the worker refused to deal with.

· The worker did not need to seek your permission to take time off. Though, as a courtesy, the worker was required to notify you.

· The worker was able to provide their services to other organisations. The worker could work for other organisations as long as it was not competing with you. You are aware that the worker took up other positions whilst working for you.

· The worker worked by themselves.

· The worker was not required to train, supervise or assess the work of other employees or workers of your business.

· The worker was never provided with any materials such as clothing, name badges, business cards, stationary or any other item which promoted your business.

· The worker had their own personal email address.

· You did not advertise your business on any of the assets or equipment of the worker.

· The worker did not advertise their own business on the equipment or assets which the worker used.

· The worker did not submit quotes, invoices or any other type of document to you.

· The rate of pay (commission) was never changed.

· You made some checks to ensure that the worker completed their work before payment was made.

· You did not pay any allowances to the worker.

· You did not make any deductions for income tax, superannuation or for any other reason out of the payments you made to the worker.

· There was no specific instruction to the worker in regards to whether the worker was required to complete the work personally.

· When the worker was sick no one replaced the worker.

· The worker was able to engage someone to do the workers work for them. The agency agreement did not prevent the worker from delegating their duties. You do not know if the worker delegated work to anyone in practice.

· The worker was responsible for paying workers compensation insurance and private accident insurance. You were responsible for paying public liability insurance.

· No claim was ever made against any of the insurance policies.

· The worker never guaranteed their work for any period.

· When the worker made a mistake the worker was required to correct the work in their own time and pay for the cost of the mistake.

· You did not supply the worker with any assets, equipment or tools required for their job.

· You did not reimburse the worker for any of the assets, equipment or tools they used.

· The worker supplied their own vehicle, petrol, stationary, phone and internet.

· The worker decided what materials were needed for a job.

· The worker was offered a position as an employee in your business but the worker declined this offer.

A completed Status of the Worker - Worker questionnaire contained the following statements regarding the relationship between the parties:

· The worker obtained the work through word of mouth.

· The worker entered into a written agreement with you.

· The worker was not able to renegotiate their rate of pay.

· The principal had the right to terminate your position.

· The worker completed some training with the principal. For example the worker was provided with information on new product lines.

· The worker was given guidance as to which customers to service.

· The worker had control over setting work hours. The worker was required to report to the principal every week in the form of a report.

· The worker was required to attend meetings when a manager visited. The worker was also required to dial into conference calls and attend certain events.

· The worker was not entitled to paid breaks.

· The principal set certain tasks to be completed by the worker. The worker had a target to achieve for every week.

· The worker made some decisions in regards to where work was done. The principal also dictated to the worker where to work as a result of customers making enquiries with the principal.

· The worker was not directly supervised. The principal observed the work of the worker through the reports received and setting targets.

· The worker was unable to refuse to do a particular task.

· The worker was only able to take time off if permission was sought from the principal.

· The worker did not advertise their services to others whilst working for the principal.

· The worker was able to provide their services to other organisations and did this in practice.

· The worker worked alone.

· The worker did not supervise or assess the work of other employees or workers of the principal.

· The worker had business cards of the principal. The worker also wore some clothing identifiable as the principals at certain events.

· The worker carried business cards promoting the worker's own business.

· No advertising was done on the tools or equipment used by the worker.

· No quotes or invoices were sent to the principal except for the weekly reports. Payment was made into the worker's bank account.

· The principal set the rate of commission and the rate was never changed.

· The worker was expected to complete the work themselves.

· No one completed the worker's work whist they were away. Should the worker be unable to work, the worker referred clients to the office of the principal.

· The principal was responsible for public liability insurance.

· The worker was responsible for private accident insurance.

· No claim was made against any of the policies.

· There was no need for the worker to guarantee their work.

· The worker supplied a car, a phone and a laptop.

· The principal supplied some equipment and materials. The principal delivered these items.

The worker appeared to have the ability to take days and weeks off.

Though the principal and the worker claimed that targets were set the indications are that the targets were either flexible or not strictly adhered to by the worker.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Summary

The facts and evidence indicate that 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.

Detailed reasoning

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 SG 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.

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:

In your case you engaged the worker as an independent agent. The written agreement between you and the worker specifically includes that the worker would not be an employee of the company.

The worker was required to provide an ABN on engagement. Australian Business Register (ABR) records show that the worker obtained an ABN well before the worker's engagement with you. Furthermore you have informed us that the worker ran their own business and the worker did work for other organisations. This all indicates that you intended to engage the worker as an independent contractor.

The agreement stipulates that the worker was responsible for managing the worker's own tax affairs including GST. The worker states they were responsible for their own tax obligations. This fact indicates that you intended to engage the worker as an independent contractor and not integrate the worker into your own business by making PAYG withdrawals from a salary.

The worker was paid a set rate of pay. Apart from this pay the agreement did not provide for any other benefits such as leave or other entitlements. The worker also confirmed that no other benefits were paid to the worker. The fact that there are no other benefits paid to the worker under the agreement supports the conclusion that you intended to engage the worker as an independent contractor.

As mentioned above the parties cannot by a mere consensual label alter the inherent character of the relations that they have actually called into existence. However, the initial description of the relationship in the agreement, and considering what happened in practice suggests that a principal and independent contractor relationship was intended at engagement. Therefore the terms of engagement test, in isolation, is more in favour of an independent contractor/principal relationship.

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:

In your case the facts indicate that the worker had the freedom in regards to the following matters:

· The worker was able to choose the worker's hours and amount of work including when the worker took holidays.

· Within the worker's designated territory, the worker could decide where to work.

· The worker was free in regards to choosing clients.

· The worker had discretion in how work was done.

· The worker was generally free to dress as the worker liked.

· The agreement does not stipulate the manner in which the worker needed work.

You did reserve the right to control the worker in regards to the following matters:

· You determined an ultimate geographical boundary within which the worker was allowed to work.

· You restricted the worker from representing another company that would compete with you.

· The worker was required to report to you in regards to work done.

· The worker was required to follow up with certain clients at your instruction.

Overall it is evident that you did not have day to day control over the work performed by the worker. The worker was free in regards to where, when and how the work was to be performed. Though there were some elements over which you reserved the right to control the worker, these were minor. Though the worker was required to provide weekly reports it is evident that this would be a minor task.

Therefore we have found the control test in isolation to be in favour of an independent contractor/principal relationship

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 your case you explained that the worker needed to provide the worker's own ABN on execution. You and the worker have both agreed that the worker was allowed to represent other companies and in practice the worker took up other positions. Furthermore you have stated that the worker did not need to present as your employee when working but could dress as the worker liked. The worker has indicated that the worker did present in clothing identifiable as yours in certain circumstances. We consider that these occasions would not represent the worker's normal routine and that generally the worker would be able to dress as the worker liked. You and the worker agree that the worker did not work with your other workers or employees. These facts all support the conclusion that the worker was not integrated into your business.

The worker was required to report to you in regards to the amount of work done. Furthermore, the worker was able to rely on your company for reasonable support. These facts support a conclusion that the worker was somewhat integrated with your business.

On the balance the worker was more independent than integrated with your business. The worker did rely on your head office for some support but it was limited compared to the independence that the worker had in working alone and being able to act independently of you.

Therefore we have found that the integration test in isolation is more in favour of an independent contractor/principal 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. 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 was paid once a certain result was achieved.

As the Worker was only paid upon achieving a result we have found the result test in isolation to be in favour of a contractor/principal relationship.

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:

In your case you and the worker disagree as to whether the worker had the right to delegate the worker's role. You claim that the worker was never forbidden to delegate the role. The worker believes that the worker was expected to do the work personally. Neither party has provided evidence on what occurred in practice.

With the lack of evidence we will rely on the written agreement as an indication. The agreement does not expressly disallow the worker to delegate the worker's role. In the absence of any clear prohibition against delegation we accept that the worker had the ability to delegate the worker's duties.

Therefore we have found the delegation test in isolation to be in favour of an independent contractor/principal 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 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:

In your case you provided public indemnity for the worker for all claims, losses and damages which may be suffered by the worker as a result of the worker performing duties under the agreement. Furthermore, you as bore a lot of commercial risk. These facts indicate that you as the principal bore a large portion of the risk of the worker's actions.

The worker could influence their own profit. Therefore the worker bore commercial risk of profit.

The worker paid for workers compensation insurance, private accident insurance and car insurance.

As we are unable to determine whether the worker or the principal bore the majority of the risk we have found the risk test in isolation to be indeterminate.

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 your case you provided support to the worker in the form of certain tools and equipment. Though you provided support this would be a common arrangement in your sort of arrangement.

The worker was responsible for the costs associated with the worker's role including motor vehicle running costs, a laptop and stationery. Furthermore the worker would generally not get reimbursed.

Therefore we have found the capital test in isolation to be more in favour of an independent contractor/principal relationship.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the worker, the facts and evidence provided indicate 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.

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 they 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 the worker's own labour and skills.

The individual must perform the duties themselves

As discussed earlier, the contract did not prohibit the worker from delegating tasks and we consider that the facts and evidence support that 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 is not considered an employee under subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the principal, the worker did not meet the definition of an employee for the purposes of the SGAA under either under the common law definition in subsection 12(1) of the SGAA or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly the principal did not have an obligation to pay SG contributions for the benefit of the worker.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).