Edited version of administratively binding advice

Authorisation Number: 1011599115239

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Advice

Subject: Status of the Worker

Question

Was the worker an employee of the principal for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes, the worker was an employee of the principal for the purposes of the SGAA.

This ruling applies for the following period

1 July 2008 to 30 June 2010

The scheme commences on:

1 July 2008

Relevant facts and circumstances

Your advice is based on the following facts:

You engaged the worker to work as a contractor.

Some time ago the worker signed a voluntary agreement permitting you to withhold pay as you go at a rate of 30%.

You made employer contributions to a superannuation fund for the worker.

We subsequently received your application for a private ruling on the character of the relationship between the principal and the worker.

You were advised that a private ruling could not be provided, however we could issue administratively binding advice.

We provided you with a copy of the Superannuation Guarantee: Status of the worker questionnaire - Principal/Payer and requested that you complete the questionnaire and return it to us.

Your tax agent granted authorisation for us to contact the worker and supply them with a copy of Superannuation Guarantee: Status of the worker questionnaire - Worker/Payee.

You were advised to include any additional relevant information in addition to the completed questionnaire.

We provided the worker with a copy of the Superannuation Guarantee: Status of the worker questionnaire -Worker/Payee and requested that they complete the questionnaire and return it to us.

We received the completed copy of the Superannuation Guarantee: Status of the worker questionnaire - Principal/Payer.

We received copies of the voluntary agreement permitting you to withhold pay as you go at a rate of 30%.

We received copies of the invoices you received from the worker

We received extracts from your accounting systems detailing the weeks ending, the appropriate rate of pay, the tax invoice number and any relevant notes.

We received a completed Superannuation Guarantee: Status of the worker questionnaire - Worker/Payee. This questionnaire contained information that you provided.

The worker confirmed relevant details with us.

We later received copies of the handwritten invoices addressed to you from the worker. These invoices the dates and the number of hours worked.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Subsection 12(1).

Superannuation Guarantee (Administration) Act 1992 Subsection 12(3).

Reasons for decision

The SGAA states that an employer must provide the prescribed 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. The 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 any 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.

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 a difficult task 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 worker to determine whether there was a common law employer/employee relationship, or whether the worker meets the extended definition of employee under subsection 12(3) of the SGAA.

Common law employee

The courts have developed a method for applying the ordinary, or 'common law' meaning of an 'employee'. Their approach is to look at a wide range of factors, which indicate whether a person is an employee. The courts' decisions tend to be taken on balance, after considering the relevant factors.

The common law meaning of the term 'employee' was stated by the High Court in Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. It is clear from that case that there is no single objective test rather:

'... it is the totality of the relationship between the parties which must be considered ...', and

'... the question is one of degree for which there is no exclusive measure ...'.

While various factors have been identified by the Courts as indicators of the true nature of the relationship, those features are only a guide to answering that question. It is necessary in each case to examine all the terms of the contract and to determine whether, on balance, the person is working in the service of another (as an employee) or is working on their or her own behalf (as an independent contractor).

The parties involved cannot alter the true substance of the relationship by simply giving it a different label. Instead, the subsequent conduct of the parties may demonstrate the relationship has a character contrary to the terms of the contract.

Whether a person is an employee in common law is determined by the circumstances in each case. The characterisation of the relationship is made by assessing and putting in balance the relevant indicators as per SGR 2005/1.

In deciding whether the worker was a common law employee of the principal there are a number of factors to consider. Some of these factors are considered below.

1. Terms of engagement

The terms and conditions of the contract whether express or implied, in the light of the circumstances surrounding the making of the contract, whether verbal or written, will always be of considerable importance to the proper characterisation of the relationship between the parties.

Some conditions of engagement are closely associated with employment and may, therefore, be persuasive indicators. For example:

· provision of benefits such as annual, sick, and long service leave;

· provision of other benefits prescribed under an award for employees;

· payer prescribed times and location for the performance of work;

· remuneration in the form of a salary or wage

· the worker uses assets and materials provided by the payer or is reimbursed, or paid a compensatory allowance, for expenses incurred in respect of use of own assets and materials; and

· payer discretion (within the constraints of industrial relations laws) in respect of task allocation and termination of engagement.

However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor. However, entitlement to leave and other such benefits, this is not particularly determinative when considering if there was an employer/employee relationship. In Hollis v. Vabu (2001) 207 CLR 21 (Hollis), it was noted by the High Court that although no payments of annual leave or sick leave were given, the relationship between the parties is to be found not merely from these contractual terms but form establishing the 'totality of the relationship'

It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. Isaacs J in Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17:

Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.

Moreover, as stated by Sweidan A in Griffiths & Ors v Commissioner of Taxation (2009) AATA 0482 at paragraph 24:

"If, as found by the Tribunal, Mr Gronow was in fact an "employee" for the purposes of the SGAA then the fact that he might have reached an agreement with the applicant that the applicant need not make any superannuation contributions on his behalf is irrelevant. The SGAA simply imposes an obligation to pay SG charge if certain conditions are met - in particular if salary or wages are paid to an employee in a relevant period and if no, or insufficient, superannuation contributions are made on the employee's behalf in relation to that period. The parties cannot "contract out" of this obligation."

Therefore, 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.

Application of the facts to your circumstances

The circumstances surrounding the formation of the contract may assist in determining the true character of the contract. However, the questionnaire responses to the question regarding the terms and circumstances of the formation of the contract merely indicate that both parties agree that the worker was engaged under a verbal contract.

Based on this information, the Commissioner considers that it may have been your original intention to engage the worker as a contractor.

In determining the worker's intention, the Commissioner must decide what could reasonably be concluded from their actions. Typically, an individual will only register for an ABN if it is their intention to establish a business enterprise, but this of itself will not establish that this was the intention. Observing business related deductions and the declaration of Personal services income (PSI), among other things, may be viewed by the Commissioner as confirmation of an individual's intention. Consequently, it is concluded that it was the worker's intention to operate as an independent contractor.

However, having a worker acknowledge that their status is one of independent contractor cannot alter the true substance of the relationship if the underlying reality is one of employment.

There is also no doubt that the worker possesses particular skills which enable them to run an independent business should they choose, without the need for them to possess any capital assets. It is therefore reasonable to consider that the worker can be engaged as an independent contractor for results-based work.

In conclusion, the Commissioner considers the intention of the parties as at 1 July year Y was to establish a principal/independent contractor relationship.

2. Control test

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of the master-servant relationship. The degree of control varies with the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it.

Traditionally, a common law employee is told what work needs to be done, how it is to be done, and where it is to be done. However the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship and a high degree of direction and control is not uncommon in contracts for services.

It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. In Zuijs v.Wirth Brothers Pty Ltd (1955) 93 CLR 561 the High Court articulated the significance of control in an employment relationship in the following way:

'What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.'

With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it. As Dixon J stated in Humberstone v Northern Timber Mills (1949) 79 CLR 389 that:

'The question is not whether in practice the work was in fact done

subject to direction and control exercised by an actual supervision

or whether an actual supervision was possible but whether ultimate

authority over the man in the performance of their work resided in the

employer so that they was subject to the latter's orders and directions.'

The right to control versus actual control is particularly relevant where the nature of the employment requires a considerable degree of experience, knowledge or skill. In these circumstances, it is to be expected that the employer will leave the performance of the activity up to the employee.

Hence the question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of their work resided in the employer so that they was subject to the latter's orders and directions

In Hollis, where the decision was that bicycle couriers were considered to be employees, Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ observed that:

Vabu's whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries…Their work was allocated by Vabu's fleet controller. They were to deliver goods in the manner in which Vabu directed. In this way, Vabu's business involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of Vabu's business.

The High Court in Zuijs described the significance of control in the following way in the context of skilled employment where the nature of the work performed left little scope for detailed control:

What matters is lawful authority to command as far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.

Application of the law to your circumstances

In consideration of the type of work performed by the worker and the skills they possessed, the Commissioner believes that telling The worker what was required to be done is a basic minimum of information required for them to determine whether they could/would accept the job, and did not amount to an exercise of control over how they was to perform the work.

While it is traditionally more indicative of an employer/employee relationship, the issue of seeking permission or providing prior notice for taking time off, is not especially conclusive in determining the true nature of the relationship. In an ongoing relationship between an independent contractor and principal, it is reasonable to conclude that a worker would need to provide adequate notice to the payer to organise a replacement if the work needed to continue.

The evidence provided reveals that you retained the right to dismiss or terminate the services of The worker for non-performance of work and/or safety breaches on construction projects; and that you had to be notified on occasions when The worker wish to take leave.

Therefore, the Commissioner considers that you had the authority to command the worker in relation to the type of work, when, how and where to perform a task. Your business involves steelfixing (i.e. laying steel reinforcing prior to pouring of the cement.) and as such there are time constraints involved as to when the work must be completed (i.e. prior to pouring of cement), therefore, as the payer it is considered that you direct the manner of performance of each worker.

Moreover, as a result of the responses provided in the questionnaire, the Commissioner can effectively conclude that to enable you to meet your contractual obligations with the main contractor, you had ultimate right of control over when and where the work was required to be done, even if not strictly exercised, which would favour an employer/employee relationship.

3. Integration test

Another significant factor in establishing the nature of the contractual relationship at common law is to determine whether the worker's services are an integral part of the employer's business (under a contract of service as an employee) or providing services as an individual carrying on their or her own business (under a contract for services as an independent contractor). This is otherwise known as the 'business' or 'integration' test.

The integration test is primarily concerned with establishing whether the individual providing services does so as an individual carrying on a business of their own or as an integral part of another's business organisation.

Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their own enterprises as independent contractors or operators and whether they could be expected to generate goodwill in their own right.

There are situations where, having regard to the custom and practice of the work, or the practical circumstances and nature of the work, 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 an employee. However, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment, including for the use of their own assets.

In Montreal v. Montreal Locomotive Works [1947] 1 DLR 161, Lord Wright said:

'... it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.'

Similarly, in Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans [1952] 1 TLR 101 Denning LJ said:

'...under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.'

The Full Bench of the High Court in Hollis endorsed the proposition stated by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210 that the distinction between an employee and independent contractor is:

'rooted fundamentally in the difference between a person who

serves his employer in his, the employer's, business, and a person

who carries on a trade or business of his own.'

This factor was given significant prominence by the High Court as an aid to determining the common law contractual relationship between the parties to the dispute in the context of vicarious liability. In arriving at the conclusion that the bicycle courier was a common law employee of the courier company (which then became vicariously liable for the bicycle courier's negligence), Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ stated that:

'Viewed as a practical matter, the bicycle couriers were not

running their own business or enterprise, nor did they have

independence in the conduct of their operations,'

The 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 skill 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.

This was highlighted in Hollis at paragraph 48, where the court said in relation to bicycle couriers hired by Vabu:

The 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…

Activities or requirements of the worker which may indicate his/her integration into the business include:

· wearing a company uniform;

· an ongoing relationship between the principal and worker; and

· the worker is effectively restricted to providing services for the one principal.

SGR 2005/1 highlights the importance of wearing a uniform and states that the requirement that a worker wear a company uniform is an indicator of an employment relationship existing between the contracting parties and that the wearing of a uniform by the couriers in Hollis was an important factor supporting the majority's decision that the bicycle couriers were employees of the principal.

Application of the law to your circumstances

As mentioned above, the integration test is primarily concerned with establishing whether a third party would view the individual providing services does so as an individual carrying on a business of their own or as an integral part of another's business organisation.

The questionnaire responses from yourself and the worker confirmed that whilst you did not supply the materials or the equipment for the job, the worker formed an integral part in ensuring that you met your contractual obligations. However, the responses also indicate that from 1 July year Y, the worker profited commercially from the relationship as they were paid an higher rate than the other workers within your business.

The responses also indicate that the worker restricted their services to one principal for the entire period, and was considered to be a full-time employee of the principal and was required to comply with the guidelines, policies and directions.

It is acknowledged that the responses also indicate that you were an interposed entity between the worker and the main contractor and that the guidelines, policies and directions were the requirements of the applicable legislation, awards and policies imposed on building sites within your State.

Moreover it is evident that the worker worked as part of a team and was responsible for supervising other workers in the completion of their duties.

Consequently, the Commissioner has drawn the conclusion that the worker was integrated into your business indicative of an employer/employee relationship.

4. Results test

Under a results based contract, payment is often made for a negotiated contract price, as opposed to an hourly rate. 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 his/her own means (i.e. third party labour, plant and equipment etc) 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. Conversely, under a contract of service, payment is not necessarily dependent on, and referable to, the completion of the specified services.

While the notion of 'payment for result' is expected to be a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in Hollis considered that the payment to the bicycle couriers per delivery, rather than per time period engaged, was a natural means to remunerate employees whose sole purpose is to perform deliveries. Results in this instance refer to the performance of a service by one party for another where the first party is free to employ their own means to achieve the contractually specified outcome.

Further, the Full Court of the Supreme Court of South Australia in the case of Commissioner of State Taxation v. The Roy Morgan Research Centre Pty Ltd found that interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties and what the worker was hired to do. Furthermore, it could be considered that an ongoing relationship that requires the performance of identical services on a repetitive or cyclical basis could be defined as an employer/employee relationship, as opposed to a contract that ends when the particular task finishes.

However, we recognise the modernisation of current day work practices and acknowledge that an ongoing relationship must be considered in its entirety.

Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FC of T 92 ATC 4327 Sheller JA said:

'Undertaking the production of a given result has been considered to be a

mark, if not the mark, of an independent contractor'.

However, 'payment of a result' is also consistent with employees who are paid on a commission only basis.

In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the result for which the parties have bargained. Conversely, under a contract of service, payment is not necessarily dependent on, and referable to, the completion of the specified services.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties and what the worker was hired to do.

Application of the law to your circumstances

Both you and the worker confirmed that there was not a written contract signed; instead there was a verbal agreement that they would be contracted to work for your business. The responses to the questionnaires do not specify whether the verbal agreement addressed the issue of payment however it confirms that the payment was made as a set rate per hour and that the rate was increased over the period of the working relationship.

The responses to the questionnaires and the attached invoices indicate that from 1 July year Y the worker regularly submitted invoices detailing the date worked and the number of hours worked on each day.

However, this evidence of itself is not a predominate factor in determining whether an individual was employed to achieve a specific result as Australian jurisdictions have ruled equally in favour of employer/employee and principal/independent contractor relationships whether payments were made upon completion of a task or paid by hourly rate. Indeed, the regular submitting of the invoices is analogous to the situation in which a worker submits timesheets in order to receive remuneration.

Therefore, whilst the worker may have been required to produce results it cannot be concluded from the information provided that they were engaged and paid for results under a contract for services; rather it appears that payment was based on the number of hours worked on a given day.

Therefore, after an examination of the factors, the Commissioner has drawn the conclusion that the results test is indicative of an employer/employee relationship.

5. Delegation test

An unlimited power to delegate work is an important indication that the worker is an independent contractor. The unlimited power to delegate or subcontract work is a significant factor in deciding whether the worker is an employee or an independent contractor. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor.

Delegation is generally implied in a contract for services where the emphasis is on result rather than person. However, delegation clauses are considered in the context of the contract as a whole to determine if they are consistent with the apparent essence of the contract or if they are merely self-serving statements.

Delegation is not simply the 'delegation' of task from one employee to another or the ability to swap shifts or request a fellow employee to perform some duties - it is the ability to subcontract or employ others to perform the work.

Application of the law to your circumstances

Under an independent contractor relationship, the unlimited power to substitute labour without reference is integral. The imposition of an approval condition would more likely be identified with an employer/employee relationship.

The responses to the questionnaires confirm that the worker was unable to delegate the tasks to another worker and if the worker was absent they could not arrange for the job to be completed by another person. Moreover, the evidence indicates that you were responsible for organising and paying the replacement worker.

Consequently it is considered that the requirement that the work be personally performed, combined with the fact that you were responsible for the work performed are strong indicia of the worker's inability to delegate.

Therefore the Commissioner has drawn the conclusion that the worker did not have a true right of delegation, indicative of an employer/employee relationship.

6. Risk test

Generally speaking, employers are vicariously liable for negligence and injury caused by their employees. However a principal will not be liable for negligence or injury caused by an independent contractor. Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee.

The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance of commercial profit) the more they are likely to be regarded as being independent. Typically, a worker who derives piece rate payments and sustains large outgoings would be so exposed. The higher the proportion of the gross income which the worker is required to expend in deriving that income, and the more substantial the assets which the worker brings to their tasks, the more likely it is that the contract is for services.

In Richard Bowerman v. Sinclair Halvorsen Pty Ltd ⁷, the assumption of risk by the worker was a factor which led the court to decide that the worker was an independent contractor and not an employee.

"If Mr Bowerman could not make the required deliveries for any reason they suffered the loss of non-payment for such whereas the company simply made other arrangements, substantially via the use of couriers, thus not sustaining any significant loss notwithstanding that the courier still had to be paid (just as Mr Bowerman would have to have been)."

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.

The higher the proportion of the gross income of the worker which is required to be expended in deriving that income, and the more substantial the assets which the worker brings to the tasks, the more likely that the contract is for services, or a contract with an independent contractor; similarly, the greater the ability of the individual to generate goodwill as a result of their activities, the higher the probability that they would be considered to be an independent contractor rather than an employee.

Application of the law to your circumstances

The responses to the questionnaire clearly indicate that if there were any problems with the performance of the work, it was required to be rectified. However, the worker was required to fix it within their normal working hours and was not required to pay for the materials used for any breakage. Therefore leading to the conclusion that you carried the commercial risk relating to the completion of the jobs.

After an examination of the factors, the Commissioner has drawn the conclusion that you bore the risk associated with the working relationship, indicative of an employer/employee relationship.

7. Capital - 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 for 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 a business for themselves often pay and provide for their own assets, tools, equipment, maintenance costs and other expenses.

As stated by McKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 at 526:

"...the ownership of assets, the chance of profit and the risk of loss in the business of carriage are his and not the company's"

The investment of capital, the maintenance of capital and the risk of loss of capital in the event of an unsuccessful venture must be of a significant nature to deem a worker to not be an employee.

While the provision of a motor vehicle to be used as part of their work is not necessarily inconsistent with an employment relationship, the use of the vehicle must be an incidental feature of the employment to earn an income and not a fundamental reason why a person is receiving a payment.

Application of the test to your circumstances

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for their work by the employer. The responses to the questionnaire from the worker and yourself indicate that the worker was had the understanding that you supplied all the materials required; whilst you stated that the materials were supplied by the main contractor.

Consequently, the Commissioner has drawn the conclusion that the work was not required to provide any materials, indicative of an employer/employee relationship

Conclusion - Common Law

With respect to work completed by the worker for the principal; the Commissioner is satisfied that the facts and evidence are indicative that the worker was a common law employee in accordance with the SGAA.

In addition and to avoid any doubt in light of an observed intention of the parties to enter into an independent contractor arrangement, we have considered the extended definition in subsection 12(3) of the SGAA below.

Extended Definition of Employee

The extended definition under 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 provides further assistance as to who is considered an employee.

SGR 2005/1 states:

'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 or principally for the labour of the individual engaged and he or she will be an employee under subsection 12(3) [of the SGAA].'

Remuneration for labour and achieving a result

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 is wholly or principally for labour where the labour content exceeds 50% of the value of the contract. The payment for a result is a factor in determining whether a contract is wholly or principally for labour.

Contracts which predominantly provide for payments in respect of the supply of goods, materials, or hire of plant or machinery and any other related costs incurred by the recipient of such payments in the course of performing work under the contract are not principally for labour.

Based on the available facts and evidence, the Commissioner considers that the facts and evidence suggest that the worker was 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 any materials and had no significant ongoing expenses.

Performance of contractual work

The second requirement of subsection 12(3) of the SGAA is that it requires the labour of the individual personally. That is, the worker does not have the right to delegate or subcontract the work to another party. Even if the contractor has no intention to delegate or subcontract the work and actually performs the work personally, the contract itself is still not for the labour of the person if there is a possibility of delegating the work to another person. The contract must require, expressly or inferred that the work is done by the person employed under the contract.

If the worker is free to subcontract or employ another to do the work, then the contract is not one for the labour of the worker and there is no obligation to contribute to a superannuation fund for him/her

Paragraph 49 of SGR 2005/1 states that where a worker is engaged under contract:

If an individual has power to delegate the work to others (with or without the approval or consent of the principal), there is a strong indication that the person is being engaged as an independent contractor. 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.

As discussed previously, the Commissioner considered the facts and evidence indicate that the worker did not have a true right to delegate work to others.

Payment for a result

The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the production of a given result, but instead should be for their labour.

As discussed earlier, the Commissioner considers that based on the facts and evidence it is evident that the worker was not paid for a result.

Conclusion

While various factors have been identified by the Courts as indicators of the true nature of the relationship, those features are only a guide to answering that question. It is necessary in each case to examine all the terms of the contract and to determine whether, on balance, the person is working in the service of another (as an employee) or is working on their own behalf (as an independent contractor).

After an examination of the factors of the arrangement between yourself and the worker it has been determined that the worker would be considered to be an employee under both the Common Law tests and the extended definition contained in subsection12 (3) of the SGAA.