Edited version of your written advice

Authorisation Number: 1051255203801

Disclaimer

Date of advice: 9 August 2017

Ruling

Subject: Status of the worker

Question 1

Are the Workers considered the common law employees of the Principal as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 2016 to 30 June 2018 inclusive?

Advice

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

Question 2

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

Advice

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

This advice applies for the following period:

1 July 2016 to 30 June 2018

The arrangement commenced on:

1 July 2016

Relevant facts and circumstances

The Principal’s business operates under a company structure. The Principal advertised for workers on boards outside their premises and also on an employment website. The Workers were engaged on the basis of a Contractor’s Agreement (CA). The Principal advised that although they advertised for workers they had engaged workers mainly through word of mouth.

The CA requires the Worker to provide the Principal with a tax invoice, inclusive of an ABN, on a weekly basis.

The Principal engages a number of specialist providers. The Workers negotiate rates at the commencement of the contract and have the ability to negotiate new rates. The Workers are required to have an Australian Business Number (ABN), be suitably qualified, hold their own insurances, have a current first aid certificate and be a member of an association relevant to the nature of the services provided.

The Principal considers that they own the clients attending the practice and they bill the clients directly.

The Principal requires the Workers to be completely qualified and allows them to choose their own working hours and availability.

Services are performed at the Principal’s premises without supervision by the Principal, and the Workers are able to offer their services to other individuals or businesses.

The Principal allows the Workers a choice to wear either Worker or Principal’s clothing.

The Principal requires the Workers to issue weekly invoices on the basis of unit prices for services completed. The fee paid by the client and the payment made to the contractor is a set fee regardless of any additional time taken at the choice of the service provider. The Principal does not reimburse the Workers for any expenses.

The Principal allows other providers to be used at the Worker’s discretion, on the condition that the normal qualification and insurance requirements are met.

The Principal requires the Workers to hold their own accident and public liability insurance; however the Principal pays workers compensation insurance.

The principal provides materials and the premises at which the services are delivered. The Workers have the option to provide their own materials.

Worker questionnaires (WQs) were provided by three Workers and the responses were consistent across all three submissions.

In particular the Workers confirmed that they were engaged under the CA, were free to work their chosen hours, were able to delegate to other providers, were not trained or controlled by the Principal apart from the training in relation to some procedural and policy matters, and were able to refuse work.

The Workers advertised their services and negotiated pay and conditions with the Principal.

The Workers chose their own hours and reception made the booking on the basis of the Worker’s availability. The Workers completed work at the Principal’s premises, could refuse jobs, and could take time off without the Principal’s permission.

The Workers did not train or supervise staff and were not required to wear clothing advertising the Principal’s business.

The Workers were paid a negotiated amount for each service completed, submitted an invoice weekly for services completed, and received no reimbursements. The Workers were able to arrange another provider to complete their work at their discretion.

All Workers have an internet presence.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Summary

The facts and evidence suggest that the Workers were not employees of the Principal 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.

Question 1

Detailed reasoning

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).

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.

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.

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.

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.

Common law employee

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.

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?

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.

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

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.

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.

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.

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

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

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

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

Provision of tools and equipment and payment of business expenses

A worker/payee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required to complete their work by the employer.

Furthermore, the employer is often also responsible for the business expenses incurred by the worker, since the worker has been integrated into the employer’s business.

Independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses. Usually, they will have factored these costs in their overall fee or they will seek separate payment for such expenses from the principal.

In your case

The Workers were engaged under written agreements titled 'Contractor’s Agreement’ (CAs). No material evidence was provided to conclude anything other than the parties intended to engage on a principal/contractor basis.

All Workers have an internet presence. The Principal advertised for workers to provide services, however engagement was usually initiated by word of mouth. In this case, the circumstances surrounding the formation of the contract, as referred to in paragraph 31 of SGR 2005/1, are no more indicative of either an employment arrangement or a contractor arrangement.

The Workers were qualified professionals in alignment with the CA, had control over the manner in which they performed their work and were allowed to offer their services to other clients. Accordingly, the Workers can be seen as running their own enterprise. This contrasts to the finding in (Hollis v Vabu at 48) which states:

48. First, these 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. The notion that the couriers somehow were running their own enterprise is intuitively unsound, and denied by the facts disclosed in the record.

The Workers were required to be duly qualified and were to comply with reasonable directions given to them by the Principal in accordance with the CA. The CA did not include any express terms that went to the manner in which the services were to be delivered. There was no evidence provided that the Workers were subject to any form of ongoing supervision or were required to undertake any ongoing training provided by the Principal.

The Workers worked their own hours, were able to refuse jobs and were free to exercise their discretion as a contractor working for themselves. Effectively, the Principal orders and directions were only operative in terms of some procedures and policies and were not operative in relation to the actual services performed. This lack of the right by the Principal to control the manner in which the work was to be performed is an important factor in the determination of a working relationship.(Stevens v. Brodribb)

Both the Principal and the Workers advised that adhering to the dress code was optional. Work was able to be completed both at the Principal’s premises and at other locations. The Workers had no supervisory responsibilities or training roles under either the CA or at the direction of the Principal. The Workers worked alone and used professional skills that could be used in conducting business outside any engagement with the Principal.

Although the services are based on an hourly rate, the rate only applies while the Workers have a client. This contrasts to a situation where workers are engaged for a full day and are paid an hourly rate regardless of whether they are attending a client. Effectively, the essence of the contract is for the Worker to provide a service, the remuneration for which was only paid on the resultant job completion.

The CA enables the Worker to delegate their work provided that they have the written consent of the Principal. In these circumstances, the Workers will remain primarily liable to fulfil all of their obligations under the CA. Both the Principal and the Workers state that other providers are able to be used at the Worker’s discretion. The CA did not expressly require the Workers to personally perform the contracted services, however there was a requirement that the Worker, rather than other providers locum, were to invoice the Principal.

The CA details that the Workers are not covered by any insurance policies held by the Principal. In contrast, both the Principal and the Workers advised that the Principal holds worker’s compensation insurance in respect of the work performed by the Workers. Both parties have advised that the Workers are responsible for paying private accident and public liability insurance. Although contradictory advice was received in relation to worker’s compensation insurance, the contradiction is not material in terms of the employee/contractor status of the Workers. The Workers are responsible to re-perform any defective on non-conforming services they have provided.

The business premises are made available by the Principal and the Workers generally provide their own assets and incur insignificant consumable expenditure.

In summary, for the purposes of section 12(1) of the SGAA, on consideration of the relationship as a whole, the facts and evidence indicate that the Workers were not employees of the Principal as the parties generally acted in accordance with the terms of the CA. Departures and inconsistencies between the clauses of the CA and operational aspects were identified in relation to superannuation liability, dress code, and insurance requirements. These inconsistencies were not of a material nature in determining the status of the Workers

The terms of the CA allowed the skilled Workers to complete their services with freedom to exercise their discretion as to how the services were to be performed. The Worker’s remuneration was paid on the basis of the resultant job completion and they were allowed to delegate their work. Insurances were predominantly the responsibility of the Workers and they were responsible for re-performing any defective on non-conforming services they had provided.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the Workers, the facts and evidence provided points to the conclusion that the Workers were not common law employees of the Principal.

As the facts and evidence indicate that the Workers were 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

Detailed Reasoning

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 facts and evidence indicate that the Workers were paid primarily for their own labour and skills. There is no evidence that their remuneration was intended to cover any more than this as they were not required to supply materials of any substantial nature and had no significant ongoing expenses.

The individual must perform the duties themselves

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

As discussed earlier, we consider that the facts and evidence indicate that the Workers were 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

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

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