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Edited version of your written advice

Authorisation Number: 1051506084789

Date of advice: 18 April 2019

Ruling

Subject: Status of the worker

Question

Are the workers considered your common law employees under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes

Refer to ‘Reasons for decision’

This ruling applies for the following period

1 July 2017 to 30 June 2018

This scheme commenced on

1 June 2017

Relevant facts and circumstances

We considered these to be the relevant facts

We received an application for administrative binding advice regarding the superannuation guarantee obligations for the Payer. The application for administrative binding advice advised the following:

We were provided with a Superannuation Guarantee Status of the worker questionnaire Principal/Payer completed by the Payer for one of the workers. We were advised that the completed Superannuation Guarantee Status of the worker questionnaire Principal/Payer represented the circumstances for both workers engaged by the Payer and that permission would need to be obtained from the Payer before either of them could be contacted. The completed Superannuation Guarantee Status of the worker questionnaire Principal/Payer advised the following:

General Information:

The worker is a processing plant operator for the Payer and is responsible for:

Terms and circumstances - formation of the contract:

Control Test – the lawful right to command:

Integration Test – did the worker/payee work for themselves or in the business of the principal/payer:

Results Test – was the worker/payee paid to achieve a specified result:

Delegation/Substitution Test – was the worker/payee expected to complete the work personally:

Risk Test – did the worker/payee bear any commercial or personal risk:

Provision of tools and equipment - payment of business expenses:

We were provided with copies of grading dockets and summaries completed by the workers which showed multiple loads and the remuneration for grading those loads. We were also advised the following:

We were advised the following:

We confirmed that a completed Superannuation Guarantee Status of the worker questionnaire Worker/Payee from the workers would not be provided and that interpretative guidance should be provided instead.

We issued interpretative guidance on the definition of an employee for the purposes of the SGAA.

We were advised that the Payer was now considering reapplying for administrative binding advice. A Superannuation Guarantee Status of the worker questionnaire Worker/Payee was requested as well as confirmation of the other relevant documentation required.

We provided interpretative guidance on how to apply for administrative binding advice as well as the other relevant documentation required. We also provided a Superannuation Guarantee Status of the worker questionnaire Worker/Payee and a Private ruling application form.

We received a completed Private ruling application form. We also received a further copy of the Superannuation Guarantee Status of the worker questionnaire Principal/Payer completed by the Payer, a Superannuation Guarantee Status of the worker questionnaire Worker/Payee completed by each of the workers as well as a payslip and bank statement from the workers. The completed Superannuation Guarantee Status of the worker questionnaire Worker/Payee from the workers advised the following:

General information:

Terms and circumstances - formation of the contract:

Control test – the lawful right to command:

Integration Test – did the worker/payee work for themselves or in the business of the principal/payer:

Results Test – was the worker/payee paid to achieve a specified result:

Delegation/Substitution Test – was the worker/payee expected to complete the work personally:

Risk Test – did the worker/payee bear any commercial risk:

Provision of tools and equipment - payment of business expenses:

Other information:

General information:

Terms and circumstances - formation of the contract:

Control Test – the lawful right to command:

Integration Test – did the worker/payee work for themselves or in the business of the principal/payer:

Results Test – was the worker/payee paid to achieve a specified result:

Delegation/Substitution Test – was the worker/payee expected to complete the work personally:

Risk Test – did the worker/payee bear any commercial or personal risk:

Provision of tools and equipment - payment of business expenses:

Other information:

We received evidence from the Payer confirming all pay rises that have occurred since 19XX (with the exception of 20XY) and were also advised that:

We received evidence from one of the workers confirming the pay rises she/he had received. The information from the worker also advised that she/he has never delegated her/his assigned responsibilities to another person, would need consent from the Payer before delegating her/his assigned responsibilities to another person and would have to contact the Payer to send a replacement worker if she/he was unwell or injured.

We received payslips as well as further information from one of the workers which advised that:

Relevant legislative provisions

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

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

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the workers are common law employees of the Payer for the purposes of the SGAA. Therefore, there is an obligation to pay superannuation guarantee contributions on behalf of them.

Detailed reasoning

The SGAA requires 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’ is defined in section 12 of the SGAA to include common law employees, it also extends to 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 services’ which is typically a principal/independent contractor relationship that does not attract superannuation guarantee obligations.

It is necessary to consider whether a common law relationship of employer/employee exists between the parties. If the common law tests are not met or are inconclusive, then the extended definition of an ‘employee’ in subsection 12(3) of the SGAA must be considered. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, then their status is an independent contractor and no superannuation guarantee obligation arises.

The task of defining the characteristics of a 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 actual contractual relationship between the parties can be difficult and depends on the facts of each case.

Accordingly, it is necessary to determine the true nature of the whole relationship between the Payer and the workers as to whether a common law employer/employee relationship exists or whether the extended definition of an employee under subsection 12(3) of the SGAA must also be considered.

Common law employee

In deciding whether a worker is a common law employee, there are a number of common law factors to consider. These factors are discussed below.

Terms and circumstances of the formation of the contract

The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. We must consider whether the contract is written or verbal and whether the terms and conditions of the contract 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, it must be determined what each party could reasonably conclude from the actions of the other. Simply defining someone as an independent contractor does not necessarily lead to the conclusion that the worker is providing the services as part of operating 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 the consequential reduction in supervisory functions, the importance of control lies 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, where they state:

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 worker is carrying on their own business or not. The provision of professional skills or skilled labour may imply that the worker 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.

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

‘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. However, payment to achieve a result is not necessarily inconsistent with a contract of service where it is the natural means to renumerate an employee given the situation.

Whether the work can be delegated or subcontracted

The right 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 an independent contractor. If a worker is contractually required to personally perform the work, this is an indication that the worker 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'). 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 worker 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 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 by the Payer through word of mouth. There is no written agreement between them and the Payer.

They were engaged to operate the processing plants owned by the Payer. Their assigned responsibilities include setting up, using and supervising the grading and pickling of seed to ensure no mistakes or faults are made, cleaning the processing plants to ensure no cross-contamination in-between loads, maintaining the processing plants by repairing any minor faults, reporting major faults to the Payer, taking bookings, completing paperwork, maintaining good storage of grain seconds and organising their transport offsite in a timely manner. They are prevented from accruing any form of leave and are unable to renegotiate their rate of pay with the Payer.

The fact that they were engaged through word of mouth and that there is no written agreement between them and the Payer does not confirm if either an employer/employee relationship or a principal/independent contractor relationship exists between the parties. The fact that the workers are unable to renegotiate their rate of pay is indicative of an employer/employee relationship existing between the parties whereas their inability to accrue any form of leave may be indicative of a principal/independent contractor relationship existing between the parties.

The workers are required to complete their assigned responsibilities at the fixed location of the processing plants owned by the Payer. They were initially provided with training to complete their assigned responsibilities which included demonstrations, verbal training and supervision of work. They are now able to choose their own hours of work based on the bookings made as the Payer does not schedule their assigned responsibilities for them. They regularly work six days a week with their finishing times dependent upon demand. They are not entitled to paid breaks, cannot refuse to complete an assigned responsibility, are not required to attend meetings on behalf of the Payer but must provide prior notice before taking any time off.

Although the quality of their work is not continuously supervised by the Payer, their performance is monitored through the completion of docket books and regular telephone conversations. The Payer also resolves any disputes if either of the workers cannot directly remedy them.

The fact that they are required to complete their assigned responsibilities at the fixed location of the Payer, must provide prior notice to the Payer before taking any time off and cannot refuse to complete an assigned responsibility indicates that an employer/employee relationship exists between the parties. Moreover, the fact that they were initially provided with training from the Payer, any disputes are referred to the Payer if they cannot be directly remedied by them and their performance is monitored through the completion of docket books and regular telephone conversations further indicates that an employer/employee relationship exists between the parties. Although the workers have flexible working conditions and are able to schedule their own hours of work based on the bookings made, this fact does not negate the existence of an employer/employee relationship existing between the parties. Furthermore, the fact that they are not entitled to paid breaks and do not attend meetings on behalf of the Payer is of little consequence in confirming the actual relationship between the parties.

Although the workers do have Australian Business Numbers, little evidence was supplied regarding the services they provide. However, their Australian Business Numbers have not been provided to the Payer. The workers also do not submit invoices to the Payer but rather are given payslips which confirm that they are paid on a piecemeal basis per tonne graded, have PAYG amounts withheld from their pay and receive superannuation guarantee contributions.

The fact that the workers have Australian Business Numbers does not confirm the actual relationship between the parties. Moreover, the fact that they are paid on a piecemeal basis per tonne graded is a natural way to renumerate them given their assigned responsibilities and indicates that an employer/employee relationship exists between the parties. Furthermore, the fact that they are not required to submit invoices to the Payer but are given payslips with PAYG amounts withheld from their pay and receive superannuation guarantee contributions also indicates that an employer/employee relationship exists between the parties.

As there is no written contract between the Payer and the workers, their right to delegate their assigned responsibilities to another person has remained unclear. The Payer has not provided the workers with any specific instructions advising them that their assigned responsibilities must be completed personally and is not opposed to either of them delegating their assigned responsibilities to another person provided they are suitably qualified. The Payer will provide a replacement worker if either of the workers have an extended period of leave. Although the Payer has claimed that delegation has occurred in practice, this has remained unsubstantiated.

The workers both have understood from various telephone conversations with the Payer that they are required to obtain approval before delegating their assigned responsibilities to another person and that a replacement worker will be provided if they are unwell, injured or in the case of an emergency. Their payslips also do not refer to work completed by another person.

The fact that a replacement worker will be provided if either of the workers have an extended period of leave or are unwell, injured or there is an emergency indicates that an employer/employee relationship exists between the parties. Although the workers may have a qualified right to delegate or even an unlimited right to delegate (as the Payer is not opposed to either of them delegating their assigned responsibilities to another person provided they are suitably qualified), the mere right to delegate in the absence of the likelihood or actuality of delegation occurring is of little consequence.

The processing plants owned by the Payer are valued at approximately $X each. The Payer is also responsible for paying for public liability insurance, plant and building insurance as well as workers compensation for the workers. However, to date no claims have been made against the Payer’s workers compensation policy.

The Payer does not reimburse the workers for any holiday pay, sick pay, training or other similar expenses (such as petrol, tools, materials, stationary or telephone costs) and they also do not receive car, tool, travel or away from home allowance. The workers are also not required to pay for any materials used to correct their work, pay for any breakages or guarantee the quality of the work produced. They do not need to provide their own assets, equipment or tools to complete their assigned responsibilities but have supplied their own protective gear on occasion to supplement that provided by the Payer.

The fact that the Payer owns the processing plants and pays for public liability insurance, plant and building insurance as well as workers compensation for the workers indicates that an employer/employee relationship exists between the parties. Moreover, the fact that the workers are not required to pay for any materials used to correct their work, pay for any breakages and predominately are not required to provide their own assets, equipment or tools to complete their assigned responsibilities also indicates that an employer/employee relationship exists between the parties. The fact that they are not required to guarantee the quality of their work, are not reimbursed for any holiday pay, sick pay, training or other similar expenses and do not receive car, tool, travel or away from home allowance is simply due to their seasonal arrangement, flexible working conditions and the nature of their assigned responsibilities.

Given the totality of the relationship between the Payer and the workers, it is evident that an employer/employee relationship exists between the parties.

Our conclusion regarding the common law definition of an employee

With respect to the relationship between the parties, the facts and evidence provided point to the conclusion that the workers are common law employees of the Payer.

Extended definition of an employee for SGAA purposes

The extended definition of an employee within subsection 12(3) of the SGAA states:

SGR 2005/1 explains when a worker is considered to be an 'employee' under section 12 of the 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 contract is considered to be wholly and principally for the labour of the person engaged, and he or she will be an employee under subsection 12(3) of the SGAA.

As the workers are considered common law employees of the Payer it is not necessary to consider the extended definition of an employee contained within subsection 12(3) of the SGAA.

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