Edited version of private advice

Authorisation Number: 1051519495616

Date of advice: 29 May 2019

Ruling

Subject: Superannuation guarantee liability

Question 1

In a tripartite working arrangement between the Intermediary, a Worker and an End User, where the Intermediary has a legal obligation to make payments for work to the Worker, is the Worker considered an employee of the Intermediary under subsection 12(8) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 01 July 2018 to 30 June 2020?

Answer

Yes. Refer to 'why we have made this decision'.

Question 2

In a tripartite working arrangement between the Intermediary, a Worker and an End User, where the End User has a legal obligation to make payment for work directly to the Worker is the Worker considered an employee of the Intermediary under subsection 12(8) of the SGAA for the period 01 July 2018 to 30 June 2020?

Answer

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

This advice applies for the following period:

1 July 2018 to 30 June 2020

The arrangement commences on:

1 July 2018

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.

·        The Intermediary forms a tripartite working arrangement between a Worker, an End User and the Intermediary.

·        The majority of End Users will approach a Worker independently. The Worker will then forward the emails and request the Intermediary to negotiate the best deal for them.

·        An Agreement (A) is formed between the Intermediary and the Worker.

·        The Worker and the End User then form separate agreements. The agreements are signed by the Worker and the End User and vary from not mentioning the Intermediary as a party to expressly referring to the Intermediary.

·        Agreements between the Worker and End User differ in the range and content of clauses inclusive of clauses regarding payment of service fees.

·        The Intermediary issues a tax invoice (GST inclusive) to the End User for the services provided by the Worker. The Intermediary also supply 'purchase orders' in the form of Supplier tax invoices (GST inclusive) to the Intermediary (the Recipient) net of a management fee, expenses and superannuation.

Relevant legislative provisions

·        Superannuation Guarantee Administration Act 1992 subsection 12(1)

·        Superannuation Guarantee Administration Act 1992 subsection 12(3)

·        Superannuation Guarantee Administration Act 1992 subsection 12(8)

All legislative references are to the Superannuation Guarantee Administration Act 1992 unless otherwise stated.

ATO view documents

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

·        Superannuation Guarantee Ruling SGR 2005/2 - Superannuation guarantee: work arranged by intermediaries

·        Superannuation Guarantee Ruling SGR 2009/1 - Superannuation guarantee: payments made to sportspersons

Reasons for decision

Summary

In circumstances where the Intermediary makes payments directly to the Worker, the Worker meets the definition of employee for the purposes of the SGAA under the expanded definition as set out in subsection 12(8).

Detailed reasoning

Question 1

Is there a legal relationship between the Intermediary and the Workers?

To establish whether an employment relationship exists, it is first necessary to determine whether a contract or legal relationship exists between the two parties. Paragraph 32 of Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries (SGR 2005/2) states that only after this has been established can consideration be given to the issue of whether the relationship is one of employment or of some other kind.

Determining whether a contract exists between the parties is a matter of applying the ordinary principles of contract law. In particular, the three elements must be present:

·        intention - the parties must intend to be legally bound by their agreement

·        offer and acceptance - there must be an offer by one party and its acceptance by the other; and

·        consideration - the promises which constitute the agreement must be supported by consideration (unless the agreement is in the form of a deed).

Paragraph 77 of SGR 2005/2 states that the manner in which the relationship between the worker, intermediary and end-user in a tripartite working arrangement is labelled or described is not conclusive of the nature of the legal relationship between the parties. It is necessary to look beyond the form of the contractual relationships and the labels attached to the relationships by the parties to establish the true nature of the relationships of the parties involved.

The Worker and the End User form separate agreements. In some cases there is doubt as to whether the End User makes service payments to the Worker or the Intermediary. In contrast the payment terms of the A are much more specific.

The Intermediary issues a tax invoice to the End User for the services provided by the Worker plus an agency fee (GST inclusive). The Intermediary also supply 'purchase orders' in the form of Worker (Supplier) tax invoices (GST inclusive) to the Intermediary (the Recipient) net of a management fee, expenses and superannuation.

Various cases have considered the question of whether an intermediary has performed an agency role in tripartite working arrangements. In the Full Federal Court case of Building Workers' Industrial Union of Australia and Others v. Odco Pty Ltd 20 (1991) 29 FCR 104 (Odco) at 114, it was held that 'the element of consideration which is essential to a contract of employment is the promise by the presumptive employer to pay for service as and when the service is rendered'.

Paragraph 42 of SGR 2005/2 highlights that the element of consideration, which is essential to the formation of a contract, is a key factor in determining if a contract of employment exists.

A legal relationship exists between the Worker and the Intermediary. The Intermediary is therefore the relevant entity for considering whether there is an employment relationship regarding the Workers.

Does an employment relationship exist between the Intermediary and the Worker for the purposes of the SGAA?

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' which is defined in section 12, 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.

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 extended definition of 'employee' in subsection 12(3) applies. If a worker is not an employee under subsections 12(1) or 12(3), they may be an independent contractor or providing services under a lease or bailment arrangement.

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.

In deciding whether an individual is a common law employee under subsection 12(1), we consider a number of common law factors. Those factors are: the terms and circumstances of the formationof the contract; the degree of control able to be exercised over the worker; whether the worker operates on his or her own account or in the business of the payer; whether the contract is to achieve a result, whether the work can be delegated or subcontracted; the level of risk arising from injury or defect in the work; and provision of tools and equipment and payment of business expenses.

The Worker is not a common law employee of the Intermediary under subsection 12(1).

It is then necessary to determine if the worker is an employee under subsection 12(3). For an individual to meet the extended definition of employee under subsection 12(3): the individual is to be remunerated, either wholly or principally, for their personal labour and skills; the individual must perform the contractual work personally (there is no right of delegation); and, the individual is not to be paid to achieve a result.

The Worker is not an employee of the Intermediary under subsection 12(3).

As the Worker is not an employee under either subsection 12(1) or 12(3) a consideration of subsection 12(8), which makes particular provision to avoid doubt as to the status of certain persons, is necessary.

Employee under 12(8) - payments made to Worker by the Intermediary

Having established that an employment relationship exists between the Intermediary and the Workers, an examination is required to determine if the Workers meet the extended definition of employee under subsection 12(8).

Expanded definition of employee under subsection 12(8) of the SGAA

Subsection 12(8) of the SGAA states:

12(8) [Artists, musicians, sports persons etc] The following are employees for the purposes of this Act:

(a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment;

(b) a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment;

(c) a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment.

(emphasis added)

Paragraph 84 of the SGR 2005/1 states that one limitation of paragraph 12(8)(a) is that the active participation of the artist or sportsperson is required. Therefore in order to meet the requirements of paragraph 12(8)(a) the Worker needs to actively participate in the performance or presentation of an activity. Evidence was provided of active participation.

There is also some basis for the Workers being included as employees under paragraph 12(8)(c).

At paragraphs 86 to 87 of SGR 2005/1 more specific guidance on the interpretation of subsection 12(8) is provided:

86. The requirement of paragraph 12(8)(a) that the employees it covers must be active participants will, in some cases, be of little significance because the persons defined to be employees are extended further in paragraphs 12(8)(b) and 12(8)(c).

87. These paragraphs are not limited in the way that subsection 12(3) is limited to contracts wholly or principally for a person's labour. However, it is necessary that the particular person is actually paid to provide services rather than for some other purpose. For example, a person engaged to write a script is performing services but one who sells existing scripts is not - they are merely selling property..

Superannuation Guarantee Ruling 2009/1 SGR 2009/1 - Superannuation guarantee: payments made to sportspersons also has relevance in considering the status of a Worker.

Paragraph 9 of SGR 2009/1 explains that subsection 12(8) applies on a payment by payment basis and 'the character of the payments received are determinative of whether the person will be treated as an employee'. It goes on to state that 'in determining the character of the relevant payment, reference must be made to the substance of the arrangement, and not merely by reference to what the parties have agreed to label the payment. Each case must be examined on all the facts and circumstances'.

As detailed in paragraph 18 of SGR 2009/1, where subsection 12(8) applies to a person, the employment relationship is taken to exist provided the payments made to that person have a particular character.

In conclusion, an employment relationship exists between the Intermediary and the Worker and the Worker meets the extended definition of employee under subsection 12(8).

Question 2

In a tripartite working arrangement between the Intermediary, a Worker and an End User, where the End User has a legal obligation to make payment for work directly to the Worker, is the Worker considered an employee of the Intermediary under subsection 12(8) of the SGAA for the period 01 July 2018 to 30 June 2020?

Summary

Where there is no express or implied employment contract between the Worker and the Intermediary, the Worker will not be an employee of the Intermediary under 12(8).

Employee under 12(8) - payments made to the Worker by End User

Paragraph 36 of SGR 2005/2 outlines the ordinary principles of contract law, being that a legally enforceable contract between the parties consists of three elements:

·        the parties must intend to be legally bound by their agreement;

·        there must be an offer by one party and its acceptance by the other; and

·        the promises which constitute the agreement must be supported by consideration (unless the agreement is in the form of a deed).

Paragraph 37 of SGR 2005/2 states that another way to ask this question is:

·        whom could the end user sue for breach of contract (as distinct from negligence) if the worker failed to appear or failed to work at an acceptable standard; and

·        equally, whom could the worker sue for breach of contract if they performed their work but their remuneration was not paid to them?

Paragraph 39 of SGR 2005/2 states:

If, after applying the principles of contract law, it is found that there is no contract between the worker and the end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user for the purposes of the SGAA 1992. Similarly, if there is no contract between the worker and intermediary, the worker cannot be an employee of the intermediary under the SGAA 1992.

In circumstances where, as part of a tripartite arrangement, the Intermediary and a Worker form an agreement in which the End User rather than the Intermediary has an obligation to make service payments to the Worker, no contract between the Intermediary and the Worker will exist due to the lack of privity of contract.

Consequently there will be no employment contract and as such the Worker will not be an employee of the Intermediary under subsection 12(8).

Conclusion

After considering all available facts and evidence relating to the working relationship between the Intermediary, the Worker and the End Users, the Commissioner concludes that in circumstances where the Intermediary is contractually bound to make payments directly to the Worker, the Worker meets the definition of employee of the Intermediary for the purposes of the SGAA, under the expanded definition as set out in subsection 12(8).

Therefore, in those circumstances the Intermediary has an obligation to provide superannuation support to the Worker in accordance with the SGAA for the period under review.

In other circumstances where there is no employment contract between the Worker and the Intermediary, the Worker will not be an employee of the Intermediary under subsection 12(8) and no SG obligation arises for the Intermediary.

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