Edited version of your written advice

Authorisation Number: 1051203092456

Date of advice: 31 March 2017

Ruling

Subject: Status of the Worker

Question 1

Are the Workers considered common law employees of the Principal as defined by subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period?

Advice

No. Please refer to 'why we have made this decision'.

Question 2

Are the Workers considered employees of the Principal by virtue of subsection 12(3) of the SGAA for the period?

Advice

No. Please refer to 'why we have made this decision'.

This advice applies for the following period:

We considered these to be relevant facts

You lodged a private ruling application on behalf of the Principal, requesting advice as to their superannuation guarantee ('SG') obligations in respect to the Workers.

Your application included the following attachments:

● An unsigned copy of a draft contract ('the Agreement') between the Principal and the merchandiser ('the Workers') under the ABN of the Worker; and

● Your arguments and references with respect to whether the Workers are considered common law employees of the Principal, or employees of the Principal under subsection 12(3) of the SGAA;

● You provided the following further information:

● Your responses to our request for further information regarding facts and circumstances relevant to the common law tests for delegation, results, control and integration;

● Copies of X invoices issued by separate Workers to the Principal for services; and

● A copy of an 'appointment letter' for an arrangement with a Worker.

● Based on the information provided, we considered the following to be relevant facts:

● The Principal is a manufacturer and supplier of XYZ. As part of its business, the Principal engages mostly individual merchandisers ('the Workers') to perform inspection and re-stocking activities at specific retail outlets.

● The Workers are engaged by the Principal under a contract ('the Agreement') which sets out the arrangement between the Workers and the Principal. The Agreement states that the Worker must have registered for an ABN and conduct their business under their own ABN.

● The Agreement provides that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks under the Agreement. The Principal may supply tools to assist with the completion of these tasks, and these remain the property of the Principal at all times.

● The Agreement states that the Workers shall, at their own expense, rectify any errors. You have advised that the Workers must rectify these mistakes in their own time.

● You have advised that the Principal does not stipulate to the Workers any hours of work or direct the Workers as to how to perform their duties, with the exception of a requirement that the Worker complies with the Principal's policies and procedures.

● The Agreement outlines the scope of duties and agreed procedure for how the Workers will perform services.

● The Agreement states that the Worker shall perform the procedures outlined in the scope of duties at the Worker's sole responsibility. Any actions performed outside the scope of duties will also be at the Worker's sole responsibility and discretion, and will not be condoned or acknowledged by the Principal.

● The Agreement states that the Worker agrees to comply with the Principal's policies and procedures, and conduct their duties in a professional manner.

● The Agreement states that the Worker has discretion as to whether to accept the allocated duties, the time and frequency of the performance of duties, and the manner of the performance of the duties.

● You have advised that the Workers do not perform services at the premises of the Principal.

● You have advised that there is no mutual obligation between the Principal and the Workers to supply work, and that most Workers are not dependent on the Principal as their sole source of income.

● The Agreement provides that the Workers have the right to undertake similar work provided by other principals and companies in the same industry. You have advised that many of the Workers exercise this right.

● The Agreement states that the Worker may delegate duties to others at their sole responsibility and discretion.

● You have advised that a number of the Workers use others (such as their spouse) to perform duties within the 'scope of duties', however it will only ever be the Worker who invoices the Principal and never the person delegated to perform the services.

● You have advised that there are no invoices or other documentation which demonstrate how work has been or can be delegated by the Workers, and that the Worker would issue an invoice in the 'normal manner' regardless of whether they had delegated tasks. You have advised that the arrangements between the Worker and the delegated person would be up to the Worker, and does not involve the Principal.

● The Agreement states that the Workers are covered under the Principal's workers compensation policy.

● You have advised that new Workers are introduced to a store by a representative of the Principal and they then undergo an online induction to work in the store. Once this is completed, the appointment of the Worker is approved by the Principal.

● The Agreement states that the Workers are supplied with shirts by the Principal, but they are not required to wear them. You have advised that once a new Worker is approved to work in the store, they are issued with an “ID card” by the store, not by the Principal. The ID card is required in order for the Worker to log in and work in the store. The Workers are not required to wear the 'company shirt' rather the ID card is their identification.

● The Agreement states that payment is only made on the completion of a visitation, and presentation of a tax invoice.

● The Agreement provides that payment shall be made against tax invoices presented by the Worker to the Principal, and that this shall be based on the 'store name and location', a rate of payment excluding GST and on a basis of 'Per Store Visit' at that store.

● You have advised that payment is determined by an agreed hourly rate per visit, and an agreed number of hours per visit, resulting in agreed amount per store visit.

● The copies of five invoices issued by separate Workers to the Principal demonstrate a basis of payment at a set hourly rate which is stated on the invoice, except for one invoice which does not state the rate but it is evident from the calculation. The set hourly rate differs per invoice.

We formed our view on the facts by relying on this information

● The private ruling application form and the attached documents.

● The further information provided by email.

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

1. The facts and evidence suggest that the Workers are not 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. Therefore the Principal does not have an obligation to pay SG contributions on behalf of the Workers.

Detailed reasoning

2. 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).

3. 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. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract an SGC liability.

4. 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(3) of the SGAA applies. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation.

5. 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.

6. 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(3) of the SGAA.

Question 1

Are the Workers common law employees of the Principal as defined by subsection 12(1) of the SGAA for the period?

Common law employee

7. 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).

8. 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.

9. 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

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

11. It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. In the observation made by Isaacs J in Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR

17:Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.

12. Therefore, 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. In Hollis v. Vabu Pty Ltd (2001) 207 CLR 21 (Hollis v. Vabu Pty Ltd) it was noted that although no payments of annual leave or sick leave were given, and no superannuation deductions were made by Vabu in respect of the bicycle couriers, the relationship between the parties was found not merely from these contractual terms. The system which was operated under and the work practices imposed by Vabu went to establishing 'the totality of the relationship' between the parties and it is this which is to be considered.

Application of the common law to your case

13. The Principal is a manufacturer and supplier of XYZ. As part of its business, the Principal engages mostly individual merchandisers ('the Workers') to perform inspection and re-stocking activities at specific retail outlets.

14. The Workers are engaged by the Principal under a contract ('the Agreement') which sets out the arrangement between the Workers and the Principal. The Agreement states that the Worker must have registered for an ABN and conduct their business under their own ABN.

15. Paragraph 28 of SGR 2005/1 provides that:

Contractual arrangements often contain a clause that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole - that is, the parties cannot deem the relationship between themselves to be something that is not.

16. However, in Australian Mutual Provident Society v. Chaplin and Anor (1978) 18 ALR 385 at 389-390 it was noted that 'such a clause may be used to overcome any ambiguity as to the true nature of the relationship'.

17. Based on the relevant information provided, there is nothing to suggest that the characterisation of the relationship between the parties as Principal and independent contractor is inconsistent with the true substance of the relationship.

18. Paragraph 31 of SGR 2005/1 provides that 'the circumstances surrounding the formation of the contract may assist in determining the true character of the contract'.

19. The fact that the Workers are required to be registered for an ABN at the time of commencing services is not indicative of whether the Workers are employees or independent contractors. Paragraph 16 of SGR 2005/1 provides that 'a person who holds an ABN may still be an employee for the purposes of the SGAA'.

20. 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 Workers is one of principal and independent contractor.

21. However, to determine the true nature of the relationship, it is necessary to consider other common law tests.

2. Control

22. The extent to which the employer 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 lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it.

23. Paragraph 35 of SGR 2005/1 states:

35. The mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship. In fact, a high degree of direction and control is not uncommon in contracts for services. The payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract; otherwise the contractor is free to exercise their discretion (subject to any terms implied by law). This is because the contractor is working for themselves.

24. Paragraphs 36 and 37 of SGR 2005/1 provide that while control is important, it is not the sole indicator of whether or not a relationship is one of employment. The approach of the Courts has been to regard it as one of a number of indicia which must be considered in determination of that question.

25. Even though the modern approach to defining the contractual relationship is to have regard to the totality of the relationship between the parties, control is still an important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb (1986) 160 CLR 16 at 36 (Stevens v. Brodribb), where they state:

In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee.

Application of the common law to your case

26. You have advised that the Principal does not stipulate to the Workers any hours of work or direct the Workers as to how to perform their duties, with the exception of a requirement that the Worker complies with the Principal's policies and procedures.

27. The Agreement outlines the scope of duties and agreed procedure for how the Workers will perform services.

28. The Agreement states that the Worker shall perform the procedures outlined in the scope of duties at the Worker's sole responsibility. Any actions performed outside the scope of duties will also be at the Worker's sole responsibility and discretion, and will not be condoned or acknowledged by the Principal.

29. The Agreement states that the Worker agrees to comply with the Principal's policies and procedures, and conduct their duties in a professional manner.

30. The Agreement states that the Worker has discretion as to whether to accept the allocated duties, the time and frequency of the performance of duties, and the manner of the performance of the duties.

31. The Agreement provides that the Workers have the right to undertake similar work provided by other principals and companies in the same industry. You have advised that many of the Workers exercise this right.

32. In accordance with paragraph 35 of SGR 2005/1, 'the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship. In fact, a high degree of direction and control is not uncommon in contracts for services'.

33. The specificity of the scope of duties and agreed procedure for how the Workers will perform services, as per the Agreement, should be considered in the context of the services to be provided. It is inherent in the provision of merchandising services, for a particular line of products and in specific stores, that a substantial degree of control will be required to ensure services are performed properly and in line with store requirements.

34. Nonetheless the Workers have the right to refuse allocated duties, and to alter the frequency and manner of how they perform their duties (including the times for visitation), so long as this does not deter from their ability to complete the duties outlined in the Agreement. This demonstrates some discretion on the part of the Workers for how they perform the services, within the scope of a monthly period.

35. Based on the information provided, we consider that the control test in isolation is more in favour of the notion that the relationship between the Principal and Workers is one of principal and independent contractor.

3. Integration

36. Another significant factor in establishing the nature of a contractual relationship at common law is to determine whether the worker's services are an integral part of the employer's business (under a contract of service as an employee) or providing services as an individual carrying on his or her own business (under a contract for services as an independent contractor). This is known as the 'integration' test.

37. If the worker's services are an integral and essential part of the employer's business that engages them, 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, they are an independent contractor.

38. 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. The worker needs to be running their own business or enterprise and have independence in the conduct of their operations.

39. In Montreal v. Montreal Locomotive Works [1947] 1 DLR 161, Lord Wright said:

...it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.

40. Similarly, in Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans [1952] 1 TLR 101 Denning LJ said:

...under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

41. The professional skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skills or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills.

42. This was highlighted in Hollis v. Vabu Pty Ltd at paragraph 48, where the court said in relation to bicycle couriers hired by Vabu:

The couriers were not providing skilled labour or labour which required special qualifications. A bicycle courier is unable to make an independent career as a free-lancer or to generate any 'goodwill' as a bicycle courier…

43. Consideration may also be given to whether the worker could be expected to generate goodwill in their own right. If the benefits from the creation of goodwill flow to the worker then this would indicate that they are an independent contractor. Alternatively, if goodwill flows to the principal, this suggests an employer/employee relationship.

44. It is therefore necessary to consider whether the worker is providing services as part of the principal's business (under a contract of service as an employee) or providing services as part of their own business (under a contract for services as an independent contractor).

Application of the common law to your case

45. The Agreement states that the Worker must have registered for an ABN and conduct their business under their own ABN.

46. You have advised that the Workers do not perform services at the premises of the Principal.

47. You have advised that there is no mutual obligation between the Principal and the Workers to supply work, and that most Workers are not dependent on the Principal as their sole source of income.

48. The Agreement provides that the Workers have the right to undertake similar work provided by other principals and companies in the same industry. You have advised that many of the Workers exercise this right.

49. In accordance with paragraphs 39 to 41 of SGR 2005/1, the fact that the Workers are free to engage with other principals and companies to provide similar services is generally indicative that the Workers are operating a business of their own as independent contractors.

50. You have advised that new Workers are introduced to a store by a representative of the Principal and they then undergo an online induction to work in the store. Once this is completed, the appointment of the Worker is approved by the Principal.

51. The Agreement states that the Workers are supplied with shirts by the Principal, but they are not required to wear them. You have advised that once a new Worker is approved to work in the store, they are issued with an “ID card” by the store, not by the Principal. The ID card is required in order for the Worker to log in and work in the store. The Workers are not required to wear the 'company shirt' rather the ID card is their identification.

52. Each of the X invoices issued by separate Workers to the Principal have been issued with the Worker's ABN quoted on the invoice, and two of the invoices have been issued under the Worker's trading name. On one of the invoices issued by a Worker to the Principal, it shows that GST has been calculated and charged by the Worker.

53. The fact that the Workers are responsible for their own income tax (i.e. they are not issued with PAYG payment summaries by the Principal) is consistent with the Workers operating a business of their own as independent contractors.

54. In circumstances where the Worker has issued invoices to the Principal under their trading name, and where GST has been calculated and charged by the Worker, these are strong indicators that the Worker intends to operate in a business of their own as an independent contractor.

55. The identification required by the Workers is issued by the store, not by the Principal. It is inherent in the performance of duties within the store that an ID card should be required, and this does not identify the Worker as an employee of the Principal. Whilst the Workers are supplied with 'company shirts' by the Principal, the Workers are not required to wear these shirts and they are not used to identify the Worker as being part of the business of the Principal.

56. These factors indicate that the Workers are not intending to provide services as part of the Principal's business, but as part of their own businesses as an independent contractors.

57. Overall, we are satisfied that the integration test in isolation is more in favour of the notion that the relationship between the Principal and Workers is one of principal and independent contractor.

4. 'Results' test

58. Under a results based contract, payment is often made for a negotiated contract price, as opposed to an hourly rate. 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.

59. 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.

60. Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FC of T 92 ATC 4327 (World Book (Australia) Pty Ltd v. FC of T) Sheller JA said:

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor.

61. While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service. For example, the Full Court of the Supreme Court of South Australia in the decision of Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd (2004) SASC 288 (Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd), found that interviewers who were only paid on the completion of each assignment not on an hourly basis, were employees and not independent contractors. It was found that the workers were paid for their time spent and labour, and not to produce a result.

62. Having regard to the true essence of the contract, the manner in which payment is structured will not of itself exclude genuine result based contracts. For example, there are results based contracts where the contract price is based on an estimate of the time and labour cost that is necessary to complete the task, or may even be calculated on that basis, subject to reasonable completion times. Generally, where a worker submits quotes or issues invoices for each job to the principal, this would be consistent with operating their own business. Nonetheless, the issuing of invoices is not necessarily determinative of the nature of the relationship.

63. Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties.

Application of the common law to your case

64. The Agreement provides that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks under the Agreement. The Principal may supply tools to assist with the completion of these tasks, and these remain the property of the Principal at all times.

65. The Agreement states that the Workers may delegate duties to others at their sole responsibility and discretion.

66. You have advised that the arrangements between the Worker and the delegated person would be up to the Worker, and does not involve the Principal.

67. You have advised that a number of the Workers use others (such as their spouse) to perform duties within the scope of duties, however it will only ever be the Worker who invoices the Principal and never the person delegated to perform the services.

68. Paragraph 43 of SGR 2005/1 states the following with respect to the meaning of the phrase 'the production of a given result':

43. The phrase 'the production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained.

69. The Agreement states that the Workers may delegate duties to others at their sole responsibility and discretion. The Agreement also provides that the Workers are required to supply their own property and equipment to perform the services.

70. These factors indicate that the Workers may employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome, being the services outlined in the Agreement, and therefore the Agreement may be considered as being for 'the production of a given result'.

71. The Agreement states that payment is only made on the completion of a visitation, and presentation of a tax invoice.

72. In accordance with paragraph 43 of SGR 2005/1, where 'remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result'. In these circumstances, remuneration is only payable on the completion of a visitation in accordance with the agreed scope of duties and the presentation of a tax invoice to the Principal.

73. The Agreement provides that payment shall be made against tax invoices presented by the Worker to the Principal, and that this shall be based on the 'store name and location', a rate of payment excluding GST and on a basis of 'Per Store Visit' at that store.

74. Generally, where a Worker submits quotes or issues invoices for each job to the Principal, this would be consistent with operating their own business. Nonetheless, the issuing of invoices is not necessarily determinative of the nature of the relationship.

75. You have advised that payment is determined by an agreed hourly rate per visit, and an agreed number of hours per visit, resulting in agreed amount per store visit.

76. The copies of X invoices issued by separate Workers to the Principal demonstrate a basis of payment at a set hourly rate which is stated on the invoice, except for one invoice which does not state the rate but it is evident from the calculation. The set hourly rate differs per invoice.

77. Based on the copies of X invoices provided, each invoice demonstrates a basis of payment at a set hourly rate which is either stated on the invoice or is evident from the calculation. The invoices vary as to whether there are a set number of hours per store visit. The payment is calculated by reference to a rate per hour only, and not by reference to any other tasks.

78. You have advised that payment is broadly determined and paid at an agreed hourly rate per visit and an agreed number of hours equating to an amount per store visit. We note that the Agreement remains an unsigned copy of a draft contract, and that under the Agreement there may be more consistency in the basis of payment.

79. Overall we are of the view that the 'hourly basis' is set as part of a piece-rate type basis of payment and that this factor is neutral on the question of whether this constitutes payment for a result. However, it is more clear that this is a payment for a result where the number of hours are also set.

80. In accordance with paragraph 45 of SGR 2005/1, the manner in which payment is structured will not in itself preclude the contract from being considered a 'result based' contract.

81. Overall, we are satisfied that the results 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 contractor.

5. Delegation

82. 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.

83. If the contract does not expressly require the worker to personally perform the services, an independent contractor has the capacity to delegate or subcontract all (or some) of the work to others. Where the worker delegates, they are responsible for remunerating that worker.

84. In the case of Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at 425; 6 AITR 201 at 202, the High Court interpreted the words 'a contract which is wholly or substantially for the labour of the person to whom the payments are made' to decide that if a contract leaves a person completely free, if he or she chooses, to engage others to perform the work on his or her behalf means that the payments are not payments under a contract for labour.

85. That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise.

If the contract leaves the contractor free to do the work himself or employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a result...

86. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the employee has merely substituted or shared the workload.

87. However, a clause in the contract may permit the worker to delegate the task to another worker subject to approval of the principal, as the principal may not want an unknown worker to be working on their site or who may not be suitably qualified.

88. In the case of Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21, Bishop J said:

The fact that any substitute driver had to be approved by the company does not give the respondent [the principal] control over that delegation… the company surely had the right to be confident that any substitute driver was competent to do the job and maintain the "integrity" of the company as Mr Coomb put it.

89. Therefore, under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). A person who has a right to delegate work (whether or not that right is exercised in practice) does not work under a contract wholly or principally for their labour. Unless the contract expressly requires the service provider to personally perform the contracted services, the contractor is free to arrange for his or her employees to perform all or some of the work or may subcontract all or some of the work to another service provider.

Application of the common law to your case

90. The Agreement states that the Workers may delegate duties to others at their sole responsibility and discretion.

91. You have advised that there are no invoices or other documentation which demonstrate how work has been or can be delegated by the Workers, and that the Worker would issue an invoice in the 'normal manner' regardless of whether they had delegated tasks. You have advised that the arrangements between the Worker and the delegated person would be up to the Worker, and does not involve the Principal.

92. You have advised that a number of the Workers use others (such as their spouse) to perform duties within the 'scope of duties', however it will only ever be the Worker who invoices the Principal and never the person delegated to perform the services.

93. These factors indicate that while the Worker's power to delegate is subject to the delegated person complying with the obligations imposed by the Agreement, there is no requirement for the Worker to obtain the consent of the Principal before delegating work, and these restrictions do not amount to giving the Principal control over the delegation (Bowerman v. Sinclair Halvorsen Pty Ltd).

94. In accordance with paragraph 49 of SGR 2005/1, unless the contract expressly requires the service provider to personally perform the contracted services, the Worker is free to arrange their personnel to perform all or some of the work in the completion of their duties.

95. Based on the information provided, the restrictions upon a power to delegate do not displace this power to the extent that the Worker is contractually required to personally perform the work. This indicates that the relationship between the Principal and the Worker is one of principal and independent contractor.

96. 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 principal and independent contractor.

6. Risk

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

98. The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance of commercial profit), the more they are likely to be regarded as being independent. Typically, a worker who derives piece rate payments and sustains large outgoings would be so exposed. The higher the proportion of the gross income of the worker which is required to be expended in deriving that income, and the more substantial the assets which the worker brings to the tasks, the more likely that the contract is for service, or a contract with an independent contractor.

99. As stated by McKenna J in Ready Mixed Concrete (South East) Limited v. Minister Pensions and National Insurance [1968] 2 QB 497 at 526:

…the owner of assets, the chance of profit and risk of loss in the business of carriage are his and not the company's.

100. 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.

101. Carrying their own insurance and indemnity policies is an indicator that a worker is engaged as an independent contractor.

Application of the common law to your case

102. The Agreement provides that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks under the Agreement. The Principal may supply tools to assist with the completion of these tasks, and these remain the property of the Principal at all times.

103. The Agreement states that the Workers shall, at their own expense, rectify any errors. You have advised that the Workers must rectify these mistakes in their own time.

104. The Agreement states that the Worker shall perform the procedures outlined in the scope of duties at the Worker's sole responsibility. Any actions performed outside the scope of duties will also be at the Worker's sole responsibility and discretion, and will not be condoned or acknowledged by the Principal.

105. The Agreement states that while the Workers may delegate duties to others, at their sole responsibility and discretion, the Principal will not be liable for payment of any duties not performed in accordance with the agreed scope of duties.

106. The Agreement states that the Workers are covered under the Principal's workers compensation policy.

107. The Agreement states that payment is only made on the completion of a visitation, and presentation of a tax invoice.

108. Where there is a high proportion of gross income expended by the Worker in deriving that income, and substantial assets which the Worker brings to the tasks, it is more likely that the Worker has been engaged as an independent contractor.

109. The fact that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks, indicates that the Workers are primarily responsible for the expenditure required to provide the services. However, the significance of this expenditure is considered in the context of the overall expenditure required for the tasks.

110. The fact that the Workers are responsible for rectifying any errors, at their own expense and in their own time, indicates that the Workers bear the commercial risk and responsibility for rectifying defective work and damage that occurs in the performance of duties.

111. The responsibility of the Workers extends to any actions performed outside the scope of duties including those performed by persons who have been delegated duties by the Workers. This further indicates that the Workers bear commercial risk and responsibility in the performance of the services.

112. The fact that the Workers are covered by the Principal's workers compensation policy is generally indicative of an employer/employee relationship.

113. It may be argued that the Workers are exposed to the risk of commercial loss, and the chance of commercial profit, by the fact that payment will only be considered on the completion of a visitation (with a requisite tax invoice) and the rate per hour is for a set number of hours per store visit.

114. However, as per the results test, we note that the Agreement remains an unsigned copy of a draft contract and that under the Agreement there may be more consistency in the basis of payment.

115. Based on the information provided, we consider that the risk 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 contractor.

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

116. A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for 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.

117. 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 will seek separate payment for such expenses from the principal.

118. In Stevens v. Brodribb at 36-37, the High Court observed that working on one's own account (as an independent contractor) often involves:

The provision of him by his own place of work or of his equipment, the creation of him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion…

Application of the common law to your case

119. The Agreement provides that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks under the Agreement. The Principal may supply tools to assist with the completion of these tasks, and these remain the property of the Principal at all times.

120. You have advised that the Workers do not perform services at the premises of the Principal.

121. Paragraph 52 of SGR 2005/1 states that:

It has been held that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

122. The fact that the Workers are required to supply their own vehicle, mobile phone, computer and any other tools or means to complete their tasks, indicates that the Workers are primarily responsible for the expenditure required to provide the services. However, the significance of this expenditure is considered in the context of the overall expenditure required for the tasks.

123. Overall, we are satisfied that the capital 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 contractor.

Our conclusion regarding the common law definition of employee

124. With respect to the relationship between the Principal and the Workers, the facts and evidence provided point to the conclusion that the Workers are not common law employees of the Principal.

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

Question 2

Are the Workers considered employees of the Principal by virtue of subsection 12(3) of the SGAA for the period?

Expanded definition of employee for SGAA purposes

126. The expanded definition of employee within subsection 12(3) of the SGAA, 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.

127. SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA.

128. 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

129. 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.

130. 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.

131. In this case, the Workers are remunerated for labour and skills associated with the provision of services as merchandisers, to perform inspection and re-stocking activities at specific retail outlets.

132. Based on the information provided, we consider that the Workers were paid primarily for their own labour and skills.

The individual must perform the duties themselves

133. As per the common law test for 'delegation', based on the information provided, the Workers are not required to perform the work personally and have the power to delegate at their sole responsibility and discretion.

Not paid to achieve a result

134. As per the 'results test' at common law, based on the information provided, we consider that the Workers are paid to achieve a result.

Our conclusion regarding the expanded definition of employee

135. 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

136. Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers do not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA.

137. Accordingly, the Principal does not have an obligation to pay superannuation contributions for the benefit of the Workers under the SGAA.

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).