Edited version of your written advice

Authorisation Number: 1012948299125

Advice

Subject: Superannuation Guarantee status of the worker

Question 1

Are the Workers considered your common law employee 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 employee by virtue of subsection 12(3) of the SGAA?

Answer

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

This advice applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The arrangement commences on:

1 July 2015

Relevant facts and circumstances

The Principal applied for a private ruling regarding their superannuation guarantee (SG) responsibility for the Workers.

In your application you provide the following relevant statements:

• The Principal invites the Workers to provide their services.

• The Principal's selection criteria for Workers include:

• Workers must have specific expertise and be unbiased.

• Workers should be available to provide services at the anticipated time and be available to provide a report within a two month period

• The Principal has developed and approved 'Conflict of Interest Guidelines' to manage the declaration and assessment of any potential conflicts of interest in the performance of the services.

• Former staff of the Principal may be considered to perform this work, however all potential conflicts of interest must be disclosed to determine the appropriateness of the appointment.

• The Workers who perform the work are required to issue a report on the completion of their review.

• As an appreciation of the important contribution that the Workers make, the Principal offers a nominal payment to the Workers as recommended by the industry peak body.

• None of the Workers are otherwise ongoing employees of the Principal. The Workers do not sign employment contracts with the Principal and the Principal considers itself under no legal obligation to pay the Workers. In limited instances, the Workers may elect to not receive payment for their report.

• The Workers do not travel to the Principal's premises and incur no expenses in performing the work.

• Typically, a Worker will spend about two months performing the work.

You provided a sample payment form and a completed Status of the Worker questionnaire. This document contained the following relevant information:

Terms and the circumstances of the formation of the contract

• The Principal approaches all potential Workers informally to gauge availability.

• Workers proposed are primarily recognised in their field.

• The Principal does not enter into a written agreement with the Workers.

• The Principal will usually obtain an email confirmation from the Worker to confirm that they are willing to undertake the work.

• The Worker is not able to renegotiate their rate of pay or terms and conditions.

• Workers are paid an honorarium as recommended by industry.

• The honorarium is not in itself a payment for services as the amount is set and does not relate to the quantum of time expected for the task.

• The Principal does have the right to terminate the services of the Worker if the Worker does not provide the Principal with their report in a timely manner or do not respond to email reminders, they may be replaced and informed that their report is no longer required.

Control

• The Principal does not provide workers with any training.

• There are no set hours or hour requirements. It is at the Workers' discretion how long they spend. However usually the hours spent are considerable and bear no relationship to the quantum of the payment.

• The Workers are not required to attend meetings in the Principal's business.

• The Workers are not entitled to paid breaks.

• The Principal does not schedule the work to be completed by the Workers or direct where they are to be completed. The work is completely at the discretion of Workers, other than the Principal's request for the Workers to provide written reports within 2 months, if possible.

• The Principal does not supervise the Workers in any way.

• Workers provide the Principal with a written report and recommended outcome. The Principal checks the documentation for completeness and follows up any missing paperwork. The Principal has no attendance or quality control of input into their report. In fact it must be independent of the Principal.

• The Workers can refuse to undertake a particular report. The work is completely at the Worker's discretion whether they undertake and/or complete the task.

• Whether Workers are required by the Principal to seek permission or provide prior notice before taking time off is not applicable. The Workers are expected to manage the review in line with the expected timelines. They may choose to withdraw at any time at their own discretion.

Integration

• The Workers are free to provide their services to other businesses.

• The Workers work alone and do not supervise or train the Principal's staff.

• The Workers work independently on the task as they provide their own and unbiased recommendations.

Results test

At the conclusion of the report, the Worker is asked to complete a one-off honorarium form providing the Principal with their banking details for transfer of honorarium to occur.

The Principal pays the applicable honorarium as set by industry.

Payment is made upon the receipt of a completed assessment.

No amounts are deducted from payments made to workers, unless the Worker is an Australian resident without an ABN when the Principal deducts withholding tax.

International Workers are asked to complete a Statement by a Supplier.

Delegation test

The Principal does give an indication to Workers regarding their right to delegate.

A Worker receives an email with all related documents to be completed within 2 months. The nature of the task and expertise means only the Worker can complete the task.

If the Worker is unable to complete the report, a replacement Worker is sourced by the Principal.

The Workers are unable to engage any other person to perform the Work. Each review is a personal request to the Worker to provide a specialist, independent opinion.

Risk test

Neither the Principal nor the Workers provide any insurances in relation to the work.

Workers do not guarantee their work.

Provision of tools

The Principal did not provide any tools, equipment, gear, or reimbursements for the Workers to complete their work.

You confirmed whether a Worker undertakes more than one review at a time or in a given year, that:

• the expectation is to have a Worker perform one review in a given year and the Principal has a policy in place in relation to this; and

• in a given year the Principal has approximately 100 reports to complete and in limited circumstances there may be on the average no more than 3 Workers preparing more than one report.

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 not your employees 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 have no 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.

In your case

In this case the Workers are engaged with an intention for them to complete a report. The Principal engages a particular Worker based on their internally recognised expertise or knowledge. There is no contract of ongoing employment. As a particular Worker will only complete up to one review in a given year and is free to provide services to other businesses, it is unlikely that there is any intention of an ongoing employment relationship with the Workers. Overall, we are satisfied that the terms of engagement test in isolation is more in favour of the notion that the relationship between the Principal and the Workers is one of principal and independent contractors.

The Principal has very little control over the way in which the Workers complete reports. The Workers can manage their own time and the Principal does not direct specific tasks for the Workers to complete. It is important to the Principal for the workers to work independently and so the Principal does not supervise or assess the work completed by the Workers. We are satisfied that the control test is more in favour of a principal and independent contractor relationship.

The Workers are free to offer their services to other businesses. The Workers are generally engaged in some other form of full time work. The Principal highlights that it is important to accomplishing unbiased work that the Workers are independent from the Principal. The Workers are not supervised by the Principal and the Workers are not involved in training or supervising the Principal's staff. We are therefore satisfied that the integration test is more in favour of a principal independent contractor relationship.

Workers are engaged solely to complete a report. Upon the completion of the task they are paid into their bank account. There is no evidence to support the notion that payment is based on the amount of time dedicated to performing services. We are therefore satisfied that the results test is more in favour of a principal independent contractor relationship.

The Principal gives an indication to Workers that they do not have a right to delegate. The information provided indicates that in practice workers cannot get any other person to complete their reports due to the nature of the task and the expertise and international standing required to conduct a review. If the Workers are unable to complete a particular piece of work the Principal would organise a replacement Worker. Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between the Principal and the Workers is one of employer and employees.

While neither the Principal nor the Workers provide any insurances in relation to the work, it is uncertain if there is a requirement for it. No indication has been provided regarding whether Workers are required to fix mistakes in their own time. However, as their work is not scrutinised by the Principal it is unlikely that work would be sent back for correction. Workers do not guarantee their work. On their own these facts are not sufficient to make a decision regarding the risk test. Therefore we have found the risk test to be inconclusive.

Neither the Principal nor the Workers provide any significant capital or equipment to complete work. The actual work would be done by the Workers at their own premises. As there are no other facts we are unable to make a conclusion in regards to this test. Therefore we have found the capital test to be inconclusive.

Our conclusion regarding the common law definition of employee

With respect to the relationship between the Principal and the Workers, the facts and evidence provided points to the conclusion that the Workers are not a common law employee of the Principal.

As the facts and evidence indicate that the Workers are not the Principal's employees under common law, we are required to consider the expanded definition of employee under subsection 12(3) of the SGAA.

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.

Based on the available facts and evidence, we consider that the Workers are paid primarily for their own labour and skills.

There is no evidence of the Workers being paid for anything other than preparing reports. The Workers do not provide significant materials or equipment and are not reimbursed for expenses.

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 discussed earlier, we consider that the facts and evidence indicate that the Workers are paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, as the Workers do not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, they do not meet the expanded 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 the Principal and the Workers, the Commissioner concludes that the Workers do not meet the definition of an employee for the purposes of the SGAA under either the common law definition or expanded definition as set out in subsection 12(3) of the SGAA. Therefore the Principal does not have an obligation to provide superannuation support to the Workers in accordance with the SGAA for the period under review.

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