Edited version of private advice

Authorisation Number: 1051631852253

Date of advice: 7 February 2020

Ruling

Subject: Status of worker

Question 1

Is the Worker considered your common law employee under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer

Yes

Question 2

Is the Worker your employee under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour?

Answer

Yes

This ruling applies for the following period

End of year 30 June 2019

End of year 30 June 2020

End of year 30 June 2021

This scheme commenced on

1 November 2018

Relevant facts and circumstances

The Employer is a club.

The Worker is a sole trader.

The Worker works full time for the organisation.

The Worker is required to have qualifications to undertake the job.

The Worker was engaged on the basis of his past experience in similar roles in addition to his qualifications.

The Worker has signed a three year contract.

There is a written contract in place.

Annual payment converts into a daily payment. Worker is paid based on how many days they work per month.

The Worker issues a monthly invoice.

If there is a problem with how the Worker has performed a task they still get paid. Likewise, if they are unable to work due to bad weather.

The contract specifies that the worker would be responsible for the payment of their own superannuation, Workcover obligations and all insurances.

The Worker has an ABN.

The club has not paid any superannuation guarantee for the Worker. The contract makes no provision for superannuation guarantee.

The Worker has not provided any superannuation fund account details to the club. The Worker maintains they are making their own superannuation contributions.

The worker carries out their role working between 35 and 45 hours per week exclusively for the club.

The club does not closely monitor or determine these hours. They are managed by the Worker.

The Worker can come and go as they please but is generally required by the club to supervise volunteers.

All plant and equipment required and used by the worker is provided for by the club.

You are unaware of the Worker having any other clients. The club would not object to this if they did have other clients.

The Worker is not permitted to delegate tasks. If the Worker requested delegation authority the club would consider it.

No paid employees of the club assist the Worker with any tasks. Volunteers of the club assist the Worker and it is the workers responsibility to supervise their work.

Whilst the Worker is on holiday the club volunteers carry out the necessary work.

The Worker can refuse to undertake tasks.

The Worker reports to the club committees who also check the quality of work.

The Worker is not entitled to any paid sick leave or paid holiday leave.

The club provides the Worker with shirts with the club logo for their use. The Worker wears these issued shirts on occasion but also wears their own personal clothing some featuring the Workers company name.

The Workers vehicle does not have his business branding on it.

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 Worker will be your employee for the purposes of the SGAA under both the common law test and the extended definition as set out in subsection 12(3) of the SGAA. You therefore will have an obligation to pay superannuation contributions on behalf of the Worker.

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' 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.

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) 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 extended definition of employee under subsection 12(3) of the SGAA.

Question 1

Is the Worker considered your common law employee under subsection 12(1) of the SGAA?

Common law employee

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

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, 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

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.

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.

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'). 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

In this arrangement it is necessary to determine what the relationship is between the Worker and the Principal.

The Worker is engaged by the club

There is a written contract.

The contract is very basic and does not contain many terms and conditions.

The role requires qualifications and experience in the field. The club does not provide training for the job apart from statutory training.

The quality of Work is checked by the committees of the club.

The Worker determines the hours to be worked.

The Worker can refuse to undertake jobs and tasks.

The Worker is not entitled to any paid holiday leave, sick leave or workers compensation.as stipulated in the contract. The contract does not mention or make provision for superannuation guarantee.

An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour so as to enable their employer to achieve a result. The Worker is paid a per annum sum. This is converted into a daily payment. The fee was negotiated at the time of the contract being agreed upon. The Worker invoices the club on a monthly basis and is paid on a monthly basis. Independent contractors are able to negotiate rates of pay or set a fee for a job they are about to undertake. This fee is set with a view to making a profit as they are running their own business. This does not appear to be the case in this situation.

The Worker applies their knowledge, skills and experience to perform the job. In this case, the Worker is paid even if the club is not completely satisfied with the completion of a task or progress of a job. Usually an independent contractor would not receive payment for unsatisfactory work. As the Worker is paid on a daily basis regardless of the outcome this would indicate that the agreement is to do work and not results based. There is no associated risk for the Worker; it appears that all the risk lies with the club.

The club is unsure if the Worker has other clients for whom they perform work. As the Worker is engaged between 35 and 45 hours per week at the club, it is unlikely that they would have the time or capacity to work independently from the club. This fact indicates an employer/employee relationship.

The Worker does not delegate their work to other Workers. The club would be open to negotiating this if the Worker requested it. Delegation a significant factor in deciding whether a worker is an employee or independent contractor. It does not appear that the true right of delegation test has been put into practice. Our view on this is neutral as there are not enough facts to argue either way.

If a Worker cannot honour their commitment to do the job due to illness or a holiday then tasks are carried out by volunteers of the club until the Worker returns. The club organises these volunteers and not the Worker. Therefore, it can be said, that the Worker bears none of the responsibilities that you would expect an independent contractor to have. This indicates and employer/employee relationship.

The Worker is responsible for their workers compensation cover. The contract is silent on superannuation and currently the club makes no provision for superannuation guarantee. The Worker states he is taking care of his own superannuation guarantee. The Worker is not provided with sick leave or any other sort of paid leave. These types of arrangements usually represent one of principal/independent contractor.

The Worker is provided with logo branded shirts but it is not mandatory for them to be worn. At time the Worker wears clothes branded with his own business logo. All equipment is provided for by the club and any materials are paid for by the club. These facts are in-line with an employer/employee relationship.

It can be determined that the Worker is an employee and not a contractor.

Our conclusion regarding the common law definition of employee

Upon consideration of the fact of this case we have applied them against the six tests in SGR 2005/1. The amount of hours per week that the Worker spends at the club gives them little opportunity to build their own business. The factors that indicate an employee/employer relationship outweigh those of a principal/independent contractor; therefore, the Worker is considered to be an employee of the club and is eligible for superannuation support from the club.

Question 2

Is the worker your employee under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour?

Extended definition of employee for SGAA purposes

The extended definition of employee within subsection 12(3) of the SGAA 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 worker is paid primarily for their own labour and skills. There is no evidence that their remuneration was intended to cover anything more than this.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the right of delegation is unclear.

Not paid to achieve a result

As discussed earlier, we consider that the facts and evidence indicate that the worker was not paid for a result.

Our conclusion regarding the extended definition of employee

Accordingly, the facts and evidence indicate that the worker meets the extended definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between you and the Worker, the Commissioner concludes that the worker meets the definition of an employee for the purposes of the SGAA under both the common law test and extended definition as set out in subsection 12(3) of the SGAA. Therefore you have an obligation to provide superannuation support to the Worker in accordance with the SGAA for the period under review.

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