Edited version of your written advice

Authorisation Number: 1012851840070

Date of advice: 2 September 2015

Ruling

Subject: Status of workers for superannuation guarantee

Question 1

Is 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

Is 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 2015 to 30 June 2020 (the relevant period)

The arrangement commences on:

1 July 2015

Relevant facts and circumstances

The Principal requested advice regarding whether or not the Workers are employees of the Principal for the purposes of the SGAA during the relevant period.

The Principal provided the following information in their request for advice:

• The Workers do not have to accept work, and provide their services to other businesses (not solely the Principal).

• The Workers must provide their own transport when undertaking work, for which they are not paid a per kilometre allowance or in any other form.

• The Workers must provide their own tools of trade.

• The Workers are paid a set price for the job they undertake according to time taken, difficulty, urgency, after-hours etc.

• The client must sign the 'job voucher' to say the job was completed to their satisfaction before the interpreter can be paid.

• If the Workers are late or not of appropriate standard they are not paid and under the contract can be penalised for each job not completed to requirements.

• Workers are also free to sub-contract work to other Workers with the rule being that if the client signs the job voucher then the job has been done to their satisfaction and the Worker on the Principal's register will be paid, and it is up to them to pay their sub-contractor.

• Workers are then paid when completed job vouchers are returned and this is regarded as their invoice to the Principal.

• If they do not return the job vouchers they are not paid until they do.

• The Principal has a database of Workers whom they contact on a needs-basis.

• Of the active Workers on the Principal's register, X% only undertake from 1 job per year to about 1 job per month. The other Y% are more regular.

• The Principal is aware that many also work for the other businesses.

The Principal completed a Superannuation Guarantee: Status of the worker Principal/ payer questionnaire. The questionnaire provided the following information:

• The Workers provide services for the Principal.

• The work is not performed daily, only when jobs are available. There are no Workers who work every day and most work irregularly.

• The Principal established the working relationships with the Workers by word of mouth and the Principal's website.

• The Principal did enter into a written agreement with the Workers (copy provided)

• Workers are able to renegotiate their pay or terms and conditions, the Principal advised that it is written in the contracting agreement that they can ask to change their payment amounts for work done.

• The Principal is unsure if it has the right to dismiss or terminate the Workers' services.

• If the work is not to the appropriate standard then the Principal does not use that Worker again.

• The Principal has Z Workers, none of whom are paid as employees.

• The Principal did not provide any training.

• The Principal assesses the competence of each Worker via a phone or in-person 'discussion' to determine if they are suited to the Principal's business. The Principal also provides each Worker with an information sheet (copy provided) to assist with adhering to the Principal's mission and procedures.

• All Workers determine their own days and hours they can work on a personal level. The Principal checks if they are available for a job and the Worker decides if they want to do the job. The hours actually worked depend on the job. The Worker has the right to leave the job at any time.

• While the Workers are not entitled to paid breaks, some client organisations provide breaks and pay the Worker for these breaks by including this in their hours worked.

• The Principal stated they do not schedule the jobs or tasks to be carried out by the Workers. The Principal provides the jobs but the Worker must allocate their work personally according to their diary, as many work for other businesses.

• The Principal directs where the jobs are to be performed in that the Principal advises the address where the work is to be undertaken. The Worker cannot decide where to undertake the job because of the nature of the work.

• Regarding supervision of the Workers, the Principal's clients, supervises the work and undertakes quality control and monitors attendance. The Principal is then advised if the work was not 'up to scratch,' or if the Worker did not turn up or was late. The client 'signs off' on the job.

• The Worker could refuse to do a particular job or task. They do not have to do any jobs and also have the right to remove themselves part way through any jobs. Approximately Y% of the jobs are refused by Workers and the Principal keeps approaching other Workers, until there is acceptance or the Principal cannot fulfil the job, which the Principal estimates happens two to three times per week.

• The Workers are not required to seek the Principal's permission or provide prior notice if they wanted to take time off, however Workers are encouraged to provide details of when they are taking time off or are not available.

• The Workers are able to provide their services to other individuals or businesses. Many also work for other services, and government departments. Few work solely for the Principal as their income would be minimal.

• The Workers work alone.

• The Workers do not train or supervise other workers.

• The Workers wear a photo ID with the Principal's logo because if not wearing it they are not given access to many government buildings or are turned away. They wear other badges when working for the Principal's competitors.

• The Workers do not wear or have badges or other items promoting their business or services.

• After each job the Workers provide quadruplicate job vouchers (copies provided) to the Principal which must be signed by the Principal's client and the Worker, and the details of the hours the job took as approved by the client. The job vouchers provide confirmation for the Principal that the Workers have completed their work before payment because both the Worker and client must fill them in and sign them.

• The Principal sets the fees for the jobs. Some Workers set their own fees but this is minimal.

• The rate of the fees is re-assessed every one to three years to take account of any changes to CPI or as a means of retaining valued Workers.

• Payment to Workers is not dependent on the completion of each job. Workers are paid if a client does not turn up, common with some types of job, or if a job was cancelled at short notice.

• Workers are paid for the work they complete by the Principal into their bank accounts.

• Workers are not paid any allowances, holiday pay, sick pay, or workers compensation. Travel allowance is paid if travel over 60kms is required for a job, however this is required only very rarely as most jobs are local. The Worker determines the amount of travel allowance paid.

• The Principal does not deduct any amounts for income tax or superannuation from payments to Workers.

• The Principal did not give specific instructions about whether the Workers are to complete their work personally.

• If the Workers are sick or on holidays, either the Principal or the Workers can arrange for their work to be done while they are absent. Sometimes the Workers get another Worker to do their job and pay them themselves. Mostly, if a Worker is away the Principal approaches another Worker to see if they can do the work.

• Workers cannot organise an employee of the Principal to complete their work. Workers can organise their work to be completed by another person engaged by the Worker with or without the Principal's approval, or any other person.

• In relation to work performed by the Workers, the Workers are responsible for paying workers compensation insurance, private accident insurance, public liability insurance.

• Workers were not required to guarantee their work for any period of time, due to the nature of the work.

• If Workers made a mistake or broke something when doing their work, they would have to correct the work in their own time, pay for the materials used to correct the mistake, and pay for the breakage.

• The Principal does not supply any tools, equipment, or pay Workers reimbursements for assets or tools. Workers must provide their own phone, computer, vehicle, diary etc. to allow a job to be completed.

The Principal maintains a website with pages headed 'Services' to advertise its services, and provide a means for potential clients and potential Workers to contact the Principal via phone or email. Addressed to potential Workers, each page of the 'Services' section has the same paragraph:

The Principal enters into a written agreement with the Workers. They provided an unsigned sample copy, which set out the expected behaviour, professionalism to be demonstrated by the Workers in performing the jobs. The written agreement was titled 'Conditions of contract' and contains the following relevant information:

• We subcontract to you the work of delivering services to clients.

• Workers shall perform job personally; replacement for the assignment is to be approved by the office.

• When subcontracted by us, Workers may present our business card only - they cannot use personal cards, or cards which may imply subcontracting by any other organisation.

• Workers must acknowledge and promptly rectify any mistakes.

• Workers may set their own rates and conditions.

• Workers may decline an assignment or withdraw from it.

• Workers may freely work for other agencies; however we are to be notified about all agencies you work for. Some agencies may approach you even while on the job with intention to "poach" you. Please advise the office about any such incident.

• Workers are personally responsible for the quality of their work.

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 Workers are your employees 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 Workers.

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.

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 Workers are your employees, even though both parties may label 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 worker in this particular relationship is providing services as part of an operation of their own independent business.

The facts and evidence provided indicate that the Workers are not operating their own businesses. Instead they are effectively integrated into your business as a skilled staff members, performing professional if irregular duties essential to the running of the your business, for an hourly rate of pay, rather than being paid when and only when they complete a specific result, without the apparent right to delegate, and without liability for commercial risk.

However, in order to leave no doubt as to the Commissioner's view of this matter, the extended definition has been considered and is discussed below.

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 Workers provide their knowledge and skills for the Principal and are remunerated principally for their labour with the written agreement requiring that the Workers perform the services personally. There is no evidence that the remuneration is intended to cover any more than this. A separate travel allowance is available for the low number of jobs per year requiring more than 60km of travel in order for the Worker to be present to perform the work.

The individual must perform the duties themselves

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

Not paid to achieve a result

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

Our conclusion regarding the expanded definition of employee

Accordingly, the facts and evidence indicate that the Workers also meet 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 relationships between you and the Workers, the Commissioner concludes that the Workers meet the definition of employees 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 do have an obligation to provide superannuation support to the Workers in accordance with the SGAA for the period under review.

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).