Edited version of your written advice

Authorisation Number: 1051278294826

Date of advice: 6 September 2017

Ruling

Subject: Superannuation guarantee

Question

Are workers engaged by you employees in accordance with section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

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

Your contentions have been taken into consideration. Please see ‘Reasons for decision’.

This advice applies for the following period:

1 February 201X to 30 June 201X

Relevant facts and circumstances

1. The Service Provider’s primary business is to provide a range of facilities and services to multiple Therapists operating within Clinic space.

2. The Therapists provide remedial massage and associated treatments directly to their clients.

Key elements of the current agreement and addendum

3. The Therapist can choose to provide massage treatments in other locations, however, the services provided by the Service Provider only relate to treatments conducted at the Clinic.

4. Each party is responsible for their own licensing, insurances, taxation and any other compliance obligations as separate commercial entities unrelated to each other.

5. The Therapist indemnifies the Service Provider from any and all damages, claims, actions or costs associated with any cause whatsoever on providing their treatment services, except if due to the negligence of the Service Provider.

6. The Service Provider provides the following equipment and supplies as part of its fees:

● furnished Clinic space allocated on a permanent basis

● maintenance of Clinic premises and equipment

● reception facilities

● centralised client management and booking system

● advertising and promotion

● eftpos & health fund rebate facilities

● basic consumables and supplies

● linen & laundry facilities

● massage treatment tables

7. The Therapist is required to clean the provided linen should they use it, and clean shared clinic space including their allocated treatment room.

8. The Therapist must conform to the Clinic’s Professional Code of Conduct and Operations Manual. Failure to do so may result in a breach of contract. Should the Therapist engage their own personnel to provide substitute services at the Clinic, then the Therapist will ensure that they comply with these Deeds.

9. Under usage of an allocated room by a Therapist may result in the Service Provider offering the room to another team member. The Therapist must provide one week’s written notice to the Service Provider of any hours the Therapist does not plan to utilise the allocated room resource. This will allow the Service Provider to reallocate use of the room to another team member.

10. The Therapist is responsible for their client bookings and running reception on their shift. This includes issuing invoices and collecting payments through the Service Provider’s client management system.

11. The Service Provider acts as an Agent on behalf of the Therapist and will process all payments from the client into the Service Providers holding account. Net payments are distributed to the Therapist on a weekly basis.

12. Should the Therapist engage their own personnel to provide substitute services on their behalf within the Clinic then the Service Provider will still charge the Therapist directly as per the agreement.

13. The Therapist owns any data relating to their client or any treatments performed on their behalf by their employee or subcontractor.

14. The Therapist agrees to keep all dealings with the Service Provider confidential. This includes but is not limited to:

● contractual documents

● policies and practices

● documents and templates

● financial information

● client information, other than information owned by the Therapist

15. The Therapist is liable for the cost of fixing any faulty work in regard to dissatisfaction with the treatment provided.

16. The Therapist has the right to refuse treatment to a client within industry standards.

17. The Therapist may bring their own equipment or supplies at their expense.

18. The Therapist is responsible for issuing health fund rebates and/or communicating with clients when health fund rebates can’t be issued or don’t apply.

19. Each party may terminate the agreement by giving one week’s written notice.

20. The Service Provider will provide recommended retail pricing for Therapists as guidance for charging clients. The Therapist is not bound by this pricing.

21. The Therapist must notify the Service Provider’s Practice Manager of all client feedback relating to their treatment experience. The Practise Manager has at their discretion the right to contact the client directly to resolve any grievance or acknowledge feedback. The Practice Manager retains the right to make the final decision on any refunds or compensation and shall pass on the full cost of compensating the client to the Therapist. The Practice Manager is also responsible for grievances and dispute resolution process between team members.

22. It is stated that Therapists are not required to wear a uniform or any branding of the Service Provider, and may choose to wear their own branding and/or use their own business cards, and provide direct contact details to their clients if they choose

Further key elements highlighted in the previous agreement

23. The Therapist can seek and accept work at other locations with other hirers, or maintain self-employment. However, the Service Provider may terminate the contract if that work is in direct competition with other Therapists. The Therapist specifically agrees they shall never actively divert or attempt to divert any business from the Service Provider’s clinic, or other businesses within, or solicit or attempt to solicit any clients from the clinic.

24. The Service Provider will advertise and promote the Therapist’s business. The Therapist may also choose to advertise and promote their own business, however, they are not to present themselves as representatives of the Service Provider.

25. The Therapist has the right to delegate work and/or shifts to other team members or workers not contracted by the Service Provider – this includes reception and administrative work. The Therapist is responsible for all related employment costs.

26. The Therapist is solely responsible for ensuring their health fund provider status remains active for the Clinic address.

27. Should the Therapist be unable to treat for any reason, it is the Therapist’s responsibility to ensure clients are contacted in regards to the rescheduling or cancellation. Where this is necessary, the Therapist will always offer treatment with alternative therapists at the Clinic.

28. The Therapist is responsible for maintaining a professional experience to clients and members of the public who attend the Clinic in order to present the Therapist and the Clinic as a whole in a professional light.

Reasons for decision

Summary

29. Work performed by the Therapists will not result in them being an employee under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA. You therefore will not have an obligation to pay superannuation contributions on behalf of the worker.

Detailed reasoning

Common law employee

30. 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.

Terms and circumstances of the formation of the contract

31. 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.

32. When considering the intentions of the parties in forming the contract, it must be determined 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

33. 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.

34. 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?

35. 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.

36. 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.

37. Consideration may also be given to whether the worker could be expected to generate goodwill in their own right.

Results test

38. 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.

39. 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.

Whether the work can be delegated or subcontracted

40. 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.

41. 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.

42. 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.

43. Therefore, under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). 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

44. 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.

45. 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.

46. 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

47. 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 usually responsible for the business expenses incurred by the worker, since the worker has been integrated into the employer’s business.

48. 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.

Current case

49. With respect to the common law tests mentioned above we have considered the relevant facts and evidence in the relationship between you and the Therapists.

50. Both the Service Provider and the Therapists are entering into a contract for service and not employment. Both parties acknowledge via the terms of the contract that the Therapist is running their own business from the Clinic.

51. The Therapists work independently to complete the treatment and choose their own working hours and days, with the option of using a substitute worker. They also have the right to refuse a particular treatment. The Service Provider does not dictate how the treatment is performed or supervise/assess the Therapist’s work. This is indicative that the Therapists have the level of control of an independent contractor.

52. The fact that the Therapists agree to perform administrative/cleaning duties and abide by a Code of Conduct and Operations Manual may indicate employer control, however, it is arguable that these functions are necessary in maintaining a productive and harmonious business for the Therapists working out of the Clinic.

53. The Therapists are running their own independent business and are free to accept work from the public both within and outside the Clinic, and from other businesses. This is also advertised on the Clinic’s website. The Therapists issue invoices under their own ABN, own any data relating to their client and are responsible for their own health fund provider status. These are all indications that the Therapists are providing services to you as an individual carrying on their own business.

54. Although Service Provider promotes that Therapists are working as a team and there are shared workplace functions, including treatment referrals between team members, it can be argued that these functions are important in maintaining a cohesive and productive business for the Therapists.

55. The Therapists are not paid on an hourly basis and receive a percentage payment of each particular treatment fee. On completion of the treatment the Therapist issues the client an invoice and collects the payment via the Service Provider’s client management system. The Service Provider then issues the Therapist a weekly invoice for the services it provides and then deducts this amount from a net payment made to the Therapist. Although the Service Provider is making the final payment to the Therapist based on the number of weekly treatments, the arrangement is in line with the Service provider’s agency role. This implies that the Therapist is being paid by the client for a result.

56. The Therapists have the right to delegate work and/or shifts to other team members or workers not contracted by the Service Provider. The right of delegation is a key indicator of a contractor, although it could be argued that the allocation of work to other ‘team members’ is not typical of a contractor, however where contractors are working together for the benefit of their own individual business then this would be plausible. It is also not clear how the health fund provider/payment arrangement would work for a non-contracted Therapist, or how often a non-contracted Therapist is engaged. However based on the information provided there is no evidence to conclude that the Therapists do not have the right of delegation.

57. The Therapists bear all risks associated with the performance of the services, workers compensation, public liability and negligence. The full costs of compensating the client for poor treatment are borne by the Therapist. It has been agreed between the parties that the Service Provider will process and have sole discretion in regard to a Therapist’s liability for a compensation payment. It can be argued that this forms part of the agency role as opposed to employer control.

58. A majority of the Therapists’ tools and equipment are provided for by the Service Provider, however it is acknowledged that this forms part of the fees paid in accordance with the agreement. It should be noted that there are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee.

59. The requirement that a worker wear a company uniform is an indicator of an employment relationship existing between the contracting parties. The Therapists are not required to wear a company uniform or branding in this case.

Conclusion - common law definition of employee

60. With respect to the relationship between the Service Provider and the Therapists, the facts and evidence provided point to the conclusion that they are not common law employees of Service Provider.

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

Expanded definition of employee for SGAA purposes

62. 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.

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

64. 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.

65. 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

66. 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.

67. 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.

68. Based on the available facts and evidence, we consider that the Therapists were paid primarily for their own labour and skills as any materials and equipment used in performing the services would not comprise more than 50% of the fees charged.

The individual must perform the duties themselves

69. As discussed earlier, we consider that the information provided implies that the Therapists do have the right to delegate work to others.

Not paid to achieve a result

70. As discussed above, we consider that the facts and evidence indicate that the Therapists are paid for a result.

Conclusion - expanded definition of employee

71. Accordingly, as the Therapists do not satisfy all three of the 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

72. Upon considering of all the available facts and evidence, the Commissioner is satisfied that the working relationship between the Therapists and the Service Provider does 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 Service Provider does not have an obligation to pay superannuation contributions for the benefit of the Therapists.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3).

We followed these ATO view documents

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

The written binding advice in the register has been edited and may not contain all the factual details relevant to each decision. Do not use it to predict ATO policy or decisions.

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