Edited version of your written advice

Authorisation Number: 1012798028623

Advice

Subject: Superannuation Guarantee Administration Act 1992 (SGAA)

Question 1

Are individuals engaged by your organisation considered your common law employees 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

Were the individuals your employees by virtue of subsection 12(8) of the SGAA?

Advice

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 advice applies for the following period:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The arrangement commences on:

1 July 2014

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.

• You engage the individuals in different teams on certain terms.

• You pay the individuals based on how they perform.

• Individuals are responsible for their own insurance.

• The individuals do not have managers. The contract allows either party to end the relationship.

• The contract with the individuals outline that they are responsible for their conduct whilst participating.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 6(1)

Superannuation Guarantee Administration Act 1992 subsection 11(1)

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Summary

The facts and evidence suggest that the individuals are not your employees under the SGAA under both the common law definition and the expanded definition in section 12(8) of the SGAA. You therefore do not have an obligation to pay superannuation contributions on behalf of the individuals.

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 as sportspersons. Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons (SGR 2009/1) provide guidance on when sportspersons are considered employees.

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(8) of the SGAA applies.

The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be 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(8) of the SGAA.

Question 1

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 individuals are engaged as casual participants. There is no intention by either party that the relationship will be an employment relationship. The level of remuneration, the time investment, and the amateur level of the individuals are all in favour of the conclusion that the relationship is not entered into as an employee and employer relationship.

2. Control

There is ultimately no real control over the individuals by the governing body. The individuals participate for personal fitness rather than remuneration and there is little evidence that the governing body exerts any significant control over the individuals. The contract allows the parties to terminate the relationship if they provide a notice in writing. Therefore this indicator is not in favour of an employee employer relationship.

3. Integration

There is no evidence that the individuals were integrated with your business. The only involvement they had with you is in regards to the participation in the organised activities. They received a uniform when they started, this is normal practice does not necessarily indicate integration. Therefore, this indicator does not support an employment relationship.

4. 'Results' test

The individuals are clearly paid for a specific result. They receive higher payments depending on how they perform. As payments made are purely results based, and there are no other payments made. Therefore this test is not in favour of an employment relationship.

5. Delegation

There is not enough evidence to make a determination on this factor. Therefore we consider it to be inconclusive.

6. Risk

The individuals need to maintain their own insurance. Furthermore, other clauses in the contract require them to be responsible for their own behaviour. From the facts provided this indicator does not support an employment relationship.

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

There is not enough evidence to make a determination on this factor. Therefore we consider it to be inconclusive.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the individuals, the facts and evidence provided points to the conclusion that the players are not your common law employees.

Question 2

Extended 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.

Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons (SGR 2009/1) provide guidance on when sportspersons are considered employees.

Paragraph 12 of SGR 2009/1 explains when services are made in connection with a sporting activity:

12. In the context in which the term appears, services are provided 'in connection with' a sporting activity if the services are directly referrable to the sporting activity such that the services can be said to be 'bound up' or 'involved in' that activity. The provision will also cover persons providing services required so that the sporting activity can be played. Such services may be provided before, during or after the sporting activity. Hence, paragraph 12(8)(b) will include persons such as umpires, referees and other sporting officials and technicians who are not already under a common law employment relationship with the relevant payer. The terms of paragraph 12(8)(b) will not be satisfied where services are provided at the same time as the sporting event but are provided for some other purpose, such as for example, advertising. In such circumstances, the direct causal link required by paragraph 12(8)(b) will not exist.

Paragraph 10 and 11 of SGR 2009/1 discussed the payments of prize money. It states:

10. In order to fall within the scope of paragraph 12(8)(a), the payment made to the sportsperson must be referable to the person's performance or participation in the performance of a sport or any similar activity, regardless of the result achieved from that participation. This causal link is apparent in the requirement that the sportsperson is 'paid to perform'. Further, under the terms of paragraph 12(8)(a), the sportsperson is required to actively participate in the sport or similar activity and that performance or participation must involve the sportsperson's physical or personal skills.

11. Therefore, a sportsperson paid 'appearance fees' and similar payments to participate in sporting activity is an employee of the payer under the SGAA. However, a sportsperson paid 'prize money' would not be an employee of the payer (unless the sportsperson is an employee at common law) because the prize money is not paid for the sportsperson's participation in a sporting activity. Prize money is only payable if a specific result has been achieved.

Application to your circumstances

In your case you make payments to individuals depending on how they perform.

Paragraph 10 of SGR 2009/1 makes it clear that in order to fall within the scope of paragraph 12(8)(a), the payment made to the sportsperson must be referable to the person's performance or participation in the performance of a sport or any similar activity, regardless of the result achieved from that participation.

As in this case, the payment is clearly linked to an outcome achieved by the individuals this payment is not considered to be 'salary or wages' under paragraph 12(8)(a) of the SGAA.

Conclusion - overall

As the payments are not a payments made as a part of a common law employment relationship and it cannot be included as 'salary or wages' and therefore OTE under section 12(8) of the SGAA, you do not have to make superannuation guarantee payments in regards to these payments made to the individuals.

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).