Edited version of your written advice

Authorisation Number: 1051227940962

Date of advice: 7 June 2017

Ruling

Subject: Status of the Worker

Question 1

Are the Workers considered your common law employees ('the Principal’) as defined by subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 01/07/2016 to 30/06/2019 inclusive?

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 01/07/2016 to 30/06/2019 inclusive?

Advice

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

This advice applies for the following period:

1 July 2016 to 30 June 2019

The arrangement commences on:

1 July 2016

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

We considered these to be the relevant facts

You operate a business that runs multi-day tours for students. You engage Workers for many types of services, including tour guides who on average, work for you for one to three days per month.

Contact is established between you and the Workers under various conditions. Some are referred to your organisation by other tour guide Workers and others you establish contact via professional tour guide associations of which they are members. You advised that you don’t necessarily meet them before engaging them. The Workers’ memberships with professional associations point towards their ability to specialise in their work and offer their services independently and run their own businesses.

You provided a copy of the written contact that you enter into with the Workers. In essence, the agreement indicates:

● The Workers need to have their own ABN, skills, training, knowledge, qualifications and public liability insurance coverage in order to be engaged by you as a tour guides.

● The Workers need to be able to work independently while observing your guidelines, policies and procedures manual to ensure the safety and fair and equitable treatment of all clients participating in their tours.

● There is no provision for Workers to receive 'leave pay’, superannuation payments, and the Workers are responsible for their own income tax.

While the Principal determines what kind of trip is appropriate for the clients, the guide Workers are able to vary the tours or activities depending on the clienteles’ abilities and fitness levels.

The location of the work is determined by the Principal in accordance with what they determine is the appropriate trip for the clientele.

How the work is done is determined by the Workers as they deem appropriate for the clientele taking into account their abilities and fitness levels.

The Workers’ rates of pay vary and are negotiable. Some Workers have non-negotiable rates while others a 'per day’ rate is negotiated. The rates are determined by how much experience the Workers are bringing to the table.

You provided eight sample invoices issued to the Principal by the Workers. In each and every sample invoice, the Worker had their own ABN, all except two had their own trading names and indications that they charged for a result for example a set amount upon completion of each tour.

One of the invoices issued by the guide Workers indicates they advertise in their own right as a tour group on the internet.

The agreement entered into with the Workers specified that they needed to have qualifications, skills and specialised knowledge in order to be engaged by the Principal as a worker.

The Workers are not required to wear a uniform identifying the Principal’s tour company although this is the preference of the Principal. Some Workers choose to, and are able to wear their own uniforms identifying their own businesses.

The written agreement specifies that a Worker is able to delegate their work as they are expected to find their replacement if they commit to a trip with the Principal but later have to cancel.

There were no example of Workers delegating their work to others but the Principal responded to this question that if a Worker is not available, it is the Worker’s responsibility to find a replacement who has equal or higher qualification than the worker. The Workers are responsible for their own public liability insurance. This is documented in the Worker/Principal agreement.

The Principal provided minor tools and equipment only such as water quality testing kits, I-Pods and measuring tapes. The Worker/ Principal agreement expects the Worker to return any tools provided by the Principal to be returned in good working order and to notify any defects to the Principal. Any specialised equipment such as boomerangs, wetsuits or spotlight torches are provided by the Workers.

Reasons for decision

Why we have made this decision

Summary

1. The facts and evidence suggest that the Workers were 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 did not have an obligation to pay superannuation 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? 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

Were the Workers your common law employees as defined in subsection 12(1) of the SGAA for the period 1 July 2016 to 30 June 2019?

Common law employee

Terms and circumstances of the formation of the contract

7. 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.

8. 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

9. 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.

10. 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.

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

11. 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.

12. 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.

'Results’ contracts

13. 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.

14. 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

15. 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.

16. 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.

17. 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.

18. 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.

Risk

19. 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.

20. 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.

21. 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.

22. Provision of tools and equipment and payment of business expenses.

23. 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.

24. 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

25. The Principal didn’t advertise for the Workers, they found the Workers via word of mouth or via their membership with a professional association. Each Worker signed a Principal/Worker Agreement indicating they were engaged as contractors. They supplied invoices upon completion of tours to the Principal for payment and had an ABN. While the fact that the Workers had to be registered for an ABN is not indicative of whether they are employees or contractors (as per paragraph 16 of SGR 2005/1), all of these factors taken together indicate both parties intended for the Workers to be engaged as contractors. 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’. While not completely determinative of the working relationship, this does indicate a Principal/contractor relationship between the parties.

26. The Workers have the ability to vary the tours or activities indicating they have control over how the work is performed. They can negotiate their rates of pay based on their qualifications and experience indicative of the Workers being engaged as contractors. One of the Workers advertised in their own right as a tour group. None of the Workers are required to wear the Principal’s uniform and some workers choose to, and are able to wear their own uniforms identifying their own businesses. 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 independent contractors.

27. The written agreement specifies that a worker is able to delegate their work as they are expected to find their replacement if they commit to a trip with the Principal but later have to cancel. There were no examples provided of Workers delegating their work to others but the Principal responded to this question that if a Worker is not available, it is the Worker’s responsibility to find a replacement who has equal or higher qualification than the worker. This is specified on the copy of the Principal/Worker agreement provided. 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).

28. 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.

29. 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.

30. The invoices provided were structured for the Principal to pay on completion of a tour or several tours, hence this is considered to be results oriented as the Workers are free to employ their own means to achieve the result specified thereon.

31. The Workers are responsible for their own public liability insurance. This is documented in the Worker/Principal agreement. The Workers bore the risk of rectifying defects by having their own public liability insurance coverage should clients suffer injury or loss during one of the tours.

32. The Workers are able to influence their ability to charge a higher fee for their tours by their qualifications and experience. These are indicators that the Workers bore the risk 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.

33. The Principal provided minor tools and equipment only such as water quality testing kits, I-Pods and measuring tapes. The Worker/Principal agreement expects the worker to return any tools provided by the Principal to be returned in good working order and to notify any defects to the Principal. Any specialised equipment such as boomerangs, wetsuits or spotlight torches are provided by the Workers. As both Principal and Workers provided tools and equipment depending on the type of tours there is no clear indication that the workers were integrated into the business of the Principal.

34. 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 were not your employees as they were able to delegate, could employ their own means to achieve a specific outcome and were subject to risk.

Question 2

Were the Workers your employees by virtue of subsection 12(3) of the SGAA?

Expanded definition of employee for SGAA purposes

35. 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.

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

37. 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.

38. 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

39. 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.

40. 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.

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

The individual must perform the duties themselves

42. As discussed earlier, we consider that the facts and evidence indicate that the Workers did have the right to delegate work to others.

Not paid to achieve a result

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

44. 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

45. Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers did 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. Accordingly the Principal did not have an obligation to pay superannuation contributions for the benefit of the Workers under the SGAA.

We took these laws in to account

Superannuation Guarantee (Administration) Act 1992 subsection 12(1)

Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

We considered the following case law

Australian Mutual Provident Society v. Chaplin and Anor (1978) 18 ALR 385

Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21

Montreal v. Montreal Locomotive Works [1947] 1 DLR 161

Stevens v. Brodribb (1986) 160 CLR 16

We followed the following ATO view documents

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

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