Edited version of administratively binding advice

Authorisation Number: 1012634898576

Advice

Subject: Superannuation guarantee responsibility

Question 1

Are the workers considered your common law employees as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer

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

Question 2

Are the workers your employees by the expanded definitions of employee contained in subsection 12(3) and 12(8) of the SGAA?

Answer

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

Your contentions have been taken into consideration. Please see 'Why we have made this decision'.

This scheme commenced on

1 July 2013

We considered these to be the relevant facts

You engage workers to undertake certain services for your clients.

You engage the workers through an agent (the Agent).

You are invoiced for the services by the Agent.

You don't have a contract with the workers, you only transact with the Agent.

You only have an obligation to make payments to the Agent, not the workers.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the workers are not your employees for the purposes of the SGAA under either the common law definition or the expanded definitions as set out in subsections 12(3) or 12(8) of the SGAA. You therefore do not have an obligation to pay superannuation contributions on behalf of the workers.

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 and, if relevant, to workers engaged as artists, musicians and sportspersons.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also whether the expanded definitions of 'employee' in subsections 12(3) and 12(8) of the SGAA apply. If a worker is not an employee under subsections 12(1), 12(3) and 12(8) of the SGAA there cannot be an obligation to make superannuation contributions on behalf of the workers by the principal.

Question 1

Are the workers considered common law employees as defined in subsection 12(1) of the SGAA?

Common law employee

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 are:

• Terms of engagement test: What is the nature of the contract between the parties?

• The control test: The degree of control which the payer can exercise over the payee.

• The organisation or integration test: Whether the worker operates on their own account or in the business of the payer.

• The results test: Whether the worker is free to employ their own means and is paid to achieve the contractually specified outcome.

• The delegation test: Whether the work can be delegated or subcontracted (with or without the approval or consent of the principal).

• The risk test: Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance; and

• Capital provision test: Which party provides the majority of capital equipment and pays the majority of business expenses?

The relationship between an employee and employer is contractual. Where there is no contract there cannot be an employment relationship. Superannuation Guarantee Ruling SGR 2005/2: Superannuation guarantee: work arranged by intermediaries sets out the Tax Office's views on tripartite employment arrangements. Paragraphs 12 to 14 state:

12. If there is no contract between the worker and end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user. Similarly, if there is no contract between the worker and the intermediary, the worker cannot be an employee of the intermediary.

13. The manner in which the relationship between the parties to a tripartite working arrangement is labelled or described is not conclusive in determining the nature of the relationship involving the parties to the arrangement. Expressions such as 'employment agency' and 'labour hire firm' that are often used to describe the use of various forms of labour market intermediary have no precise legal meaning.

14. In tripartite working arrangements, it is the ultimate or legal control over the worker that is most relevant; not the day-to-day direction and control.

The explanation section of SGR 2005/2 explains further in paragraphs 32 to 34:

32. In employment arrangements involving an intermediary firm, a worker and an end-user, more than one contract is often formed. In these arrangements, it is first necessary to determine whether a legal relationship exists for the performance of work and with whom it exists. Only after this has been established can consideration be given to the issue of whether the relationship is one of employment or of some other kind. The question of whether the worker is an employee of the intermediary or of the end-user depends on the particular circumstances as disclosed by the facts found. The totality of the relationship between the parties must be considered.

33. The manner in which the relationship between the parties is labelled or described is not conclusive of the nature of the relationship involving an intermediary, worker and end-user. Expressions such as 'employment agency' and 'labour hire firms' are often used to describe the use of various forms of labour market intermediary. These terms have no precise legal meaning. In these tripartite working arrangements, it is necessary to look beyond the form of the contractual relationships and the labels attached to the relationships by the parties to establish the true nature of the relationships of the parties involved.

34. The relationship between an employer and an employee is contractual. An employment relationship cannot exist in the absence of a contract. The indicators listed by the courts in determining whether a contract is one of employment can only be applied once it is determined that a contract exists. They cannot be applied to determine whether a contract exists in the first place. The issue of whether a contract exists is a separate and distinct matter from the categorisation of a contract as one of employment or otherwise.

Therefore we need to establish firstly where a contract exists before we can apply any common law tests. In your case the workers are engaged through the Agent. There is no contract established between you and any workers. Upon completion of any duties the Agent invoices you and you make payments to the Agent.

As there is no contract between you and any workers, the ultimate control over the workers does not lie with you. This is the case even though you might have the day to day direction over the workers. As per paragraph 12 of SGR 2005/2 there cannot be an employment relationship between you and any workers engaged through the Agent if no contract exists.

As the facts and evidence indicate that the workers are not your employees under common law, we are required to consider the expanded definitions of employee under subsection 12(3) and 12(8) of the SGAA.

Question 2

Are the workers employees by the expanded definitions of employee contained in subsection 12(3) and 12(8) of the SGAA?

Expanded definition of employee for under Subsection 12(3) of the 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.

In your case there is no contract between the parties. Similarly to the common law test there cannot be an employment relationship established under the expanded definition under section 12(3) of the SGAA if there is no contract in the first place.

Expanded definition of Employee under Subsection 12 (8) of the SGAA

Subsection 11(1) of the SGAA provides an inclusive definition of the term 'salary or wages'. Under paragraph 11(1)(d) payments to a person for work referred to in subsection 12(8) are specifically included in salary or wages.

Paragraph 12(8)(a) of the SGAA states

a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.

Paragraph 12(8)(b) of the SGAA states

a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment.

In your case you informed us that the Agent has responsibility to pay the workers. You are invoiced for any services by the Agent on behalf of the workers but no contract exists between you and the workers.

As you do not have any contract with the workers and you only have an obligation to pay the Agent, not the workers, there cannot be an employment relationship under the expanded definition in subsection 12(8) of the SGAA.

Conclusion - overall

Upon considering all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for you, that the workers does not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definitions provided under subsection 12(3) and 12(8) of the SGAA. Accordingly you do not have an obligation to pay superannuation contributions for the benefit of the workers under the SGAA.

We took these laws into account

Superannuation Guarantee Administration Act 1992 subsection 11(1)

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

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