Edited version of your written advice

Authorisation Number: 1012815130766

Advice

Subject: status of the worker for superannuation guarantee

Question 1

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

Answer

Yes. Refer to 'why we have made this decision'

Question 2

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

Answer

Yes. Refer to 'why we have made this decision'

This advice applies for the following period:

1 July 2012 to 30 June 2014

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

The Principal requested advice regarding whether or not the worker had been an employee of the principal for the purposes of the Superannuation Guarantee Act 1992 (SGAA) during the period.

The Principal stated in their request for advice that:

• The worker performed duties for the Principal.

• The worker regulated their own hours of work as they thought necessary.

• The worker submitted invoices stating their ABN.

• The worker worked for several companies at the time of performing work for the Principal.

• The worker did not receive or request paid leave.

• The worker does have their own liability insurance.

• The worker used their own equipment and took work home.

The worker declared that since ceasing work for the Principal that SGR 2005/1 entitled them to have superannuation contributions made on their behalf by the Principal because:

• They entered into a verbal contract with the Principal to provide services for a number of hours per week for an initial period, then a lesser number of hours per week thereafter.

• They invoiced the Principal weekly.

• They performed all work personally and they were paid for all hours worked.

• Their contract was for wholly and principally their labour.

• While they contracted to other businesses whilst working for the Principal, they came and went in accordance with their agreed hours of contract.

The worker and the Principal provided copies of invoices prepared by the worker and sent to the Principal during the period the worker provided services to the Principal.

• The weekly invoices show the dates on and the location at which the hours of work were performed for the hourly rate and details of lunch breaks.

• Some invoices indicate that work was undertaken on particular occasions in the worker's home office.

• The other invoices for the period of the arrangement shows work done at the Principal's premises.

• Particular invoices show the worker was reimbursed for travel and training expenses.

The Principal completed a Superannuation Guarantee: Status of the worker Principal/ payer questionnaire. With the Principal's permission, we requested that the worker complete a Superannuation Guarantee: Status of the worker worker/ payee questionnaire. These questionnaires provided the following information:

• The Principal engaged the worker by word of mouth.

• The Principal and the worker both agree that a verbal contract was entered into between the parties for the worker to perform duties each week for an hourly rate set by the worker.

• Both parties labelled the relationship as one of principal or client and independent contractor.

• The bulk of the work was performed in the business premises of the Principal, although the worker could choose to work at their home if it was convenient for them.

• The Principal did not control what work was done; the worker decided what tasks were needed each week.

• The worker could negotiate with the Principal days of the week for the worker to perform duties which suited both parties.

• The worker did refuse work if they believed it was outside of the scope of the services they had agreed to provide.

• The worker was initially required to work a number of hours per week for an initial period, and then a lesser number of hours per week thereafter.

• The worker had an ABN and was known to be providing similar services to other businesses at night and on weekends.

• Both parties agree that payment to the worker was not dependent on the completion of specific tasks or particular projects.

• The information provided by both parties agrees that no specific directions were given in respect of the worker's right to delegate under the verbal agreement between the principal and worker.

• Both parties agree that no one else performed the services in the event of an absence of the worker.

• The information provided by both parties agrees that the worker was not required to guarantee their work for any period of time, or rectify any mistakes unpaid in their own time or at their expense.

• The parties disagree as to the question of insurances carried by the worker.

• The information provided by both parties agrees that the worker provided materials, their vehicle, and equipment to perform the services.

• The worker's responses and the invoices indicate that they used their own home in which to complete tasks from time to time.

• The Principal acknowledged that as an established business it was equipped with necessary equipment for the worker's tasks.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the worker was your employee for the purposes of the SGAA under both the common law definition and the expanded definition as set out in subsection 12(3) of the SGAA. You therefore have an obligation to pay superannuation contributions on behalf of the worker.

Detailed reasoning

Ordinary meaning of 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).

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) explains when an individual is considered to be an 'employee' under section 12 of the SGAA.

The question of whether someone is an employee is one of fact, and is determined by examining the terms and circumstances of the contract, in conjunction with the key indicators expressed in common law. The totality of the relationship must be considered to determine whether, on balance, the worker is an employee. No one indicator is in itself determinative of the relationship. These indicators are discussed below.

Terms and circumstances of the formation of the contract

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

When considering the intentions of the parties in forming the contract, the task is to decide what each party could reasonably conclude from the actions of the other. 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.

Control

The extent to which the engaging entity 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 lays not so much in its actual exercise, but in the right of the employer to exercise it.

Does the worker operate on his or her own account or in the business of the payer?

If the worker's services are an integral and essential part of the business that engages them (under a contract of service), 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 (under a contract for services), 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.

'Results' contracts

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. Payment is often made for a negotiated contract price, as opposed to an hourly rate.

Whether the work can be delegated or subcontracted

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.

Risk

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

Another consideration of risk is the liability for the cost of rectifying faulty work. That is, the key underlying consideration is whether the individual is exposed to commercial risk in terms of a liability to cover the cost of rectifying defective work.

This is consistent with the focus on the chance of profit and the risk of loss as a traditional indicator that a worker is an independent contractor conducting their own business.

Provision of tools and equipment and payment of business expenses

A worker/payee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required to complete their 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 they will seek separate payment for such expenses from the principal.

In your case

The Principal engaged the worker by word of mouth. The Principal and the worker both agree that a verbal contract was entered into between the parties for the worker to perform duties each week for an hourly rate set by the worker. This method of recruitment could be utilised in both an employer and employee relationship and a principal and independent contractor relationship. The regular hours performed each week could be considered to be more indicative of an employer and employee relationship. Therefore based on the information provided, we are satisfied that the terms of engagement test is inconclusive.

From the information provided, the bulk of the work was performed in the business premises of the Principal, although the worker could choose to work at their home if it was convenient for them. The Principal did not control what work was done, the worker decided what tasks were needed each week. The worker could negotiate with the Principal days of the week for the worker to perform duties which suited both parties. The worker did refuse work if they believed it was outside of the scope of the services they had agreed to provide. Therefore based on the information provided, we are satisfied that the control test in isolation is inconclusive.

The worker was initially required to work a number of hours per week for an initial period, and then a lesser number of hours per week thereafter. The worker performed the majority of the services at the Principal's place of business to complete tasks essential to the running of the Principal's business. While the worker had an ABN and was known to be providing similar services to other businesses at night and on weekends, they performed regular duties for the Principal for a numbers of hours each week. Both parties agree that the worker did not advertise or carry any items that would promote their business services to others. 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 employer and skilled employee.

Both parties agree that payment to the worker was not dependent on the completion of specific tasks or particular projects. The invoices provided indicate that the basis upon which the worker was paid was crucially the number of hours in which they had performed work for the Principal. The worker was reimbursed for travel and training expenses. 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 employer and employee.

The information provided by both parties agrees that no specific directions were given in respect of the worker's right to delegate. However both parties also agree that no one else performed the services in the event of an absence of the worker. As the worker was paid to perform work at an hourly rate while effectively integrated in the business of the Principal it is likely that the worker was required to perform the work personally, rather than bear any liability for the remuneration of a substitute worker. In fact the Principal advised that no other employee performed the services of the worker if they were absent. Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between you and the worker was one of employer and employee.

The information provided by both parties agrees that the worker was not required to guarantee their work for any period of time, or rectify any mistakes unpaid in their own time or at their expense. However they disagree as to the question of insurances carried by the worker. Overall, we are satisfied that the risk test in isolation is more in favour of the notion that the relationship between you and the worker was one of employer and employee.

The Principal acknowledged that as an established business it was equipped with necessary equipment for the worker's tasks. As the work was largely conducted in the Principal's business premises effectively the Principal did supply the majority of any materials and equipment, however the worker's vehicle and equipment were occasionally used to perform duties the worker was engaged to perform. The information provided by both parties agrees that the worker provided materials, equipment, and their vehicle to perform the services. The worker's responses and the invoices indicate that they completed tasks in their own home from time to time. Overall, we are satisfied that the capital test in isolation is inconclusive.

Our conclusion regarding the common law definition of employee

In summary and under subsection 12(1) of the SGAA, when looking at the relationship as a whole, the facts and evidence provided indicate that the worker was your employee, even though both parties labelled the relationship as one of principal and independent contractor. As stated above simply defining someone as a contractor does not necessarily lead to the conclusion that the individual is providing services in this particular relationship as part of an operation of their own independent business.

The facts and evidence provided indicate that the worker was effectively integrated into the Principal's business as a skilled staff member, performing regular though professional duties essential to the running of the Principal's business, for an hourly rate of pay, rather than being paid when and only when they completed a specific result, without the apparent right to delegate, and without liability for commercial risk.

Employee under subsection 12(3) of the SGAA

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.

In this case, based on the facts and evidence provided, the worker provided their skills to the Principal and was remunerated principally for their labour. There is no evidence that their remuneration was intended to cover any more than this, indeed the evidence provided indicates that the worker was reimbursed for travel and training expenses.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the worker did not have the right to delegate work to others.

Not paid to achieve a result

As previously discussed, the worker was paid an hourly rate, this in conjunction with other relevant facts and evidence indicates that the worker was not paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, the facts and evidence indicate that the worker also meets the extended 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 concludes that the worker meets the definition of an employee for the purposes of the SGAA under both the common law definition and expanded definition as set out in subsection 12(3) of the SGAA.

Therefore you did have an obligation to provide superannuation support to the worker in accordance with the SGAA for the period under review.

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