Edited version of administratively binding advice

Authorisation Number: 1011788318468

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Advice

Subject: Administratively Binding Advice - Status of the worker

Question

During the period 1 July 2006 to 30 September 2007, did the worker satisfy the definition of employee contained in section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) with respect to work performed for you?

Advice

During the period 1 July 2006 to 30 September 2007 the worker did not satisfy the definition of employee contained in section 12 of the SGAA with respect to work performed for you.

This ruling applies for the following period:

1 July 2006 to 30 September 2007

Relevant facts and circumstances

Your advice is based on the following facts.

You wrote to us requesting advice as to whether your working relationship with the worker was one of principal and independent contractor or one of employer and employee.

In response to the questionnaire we sent, you also returned a large number of invoices issued by the worker to you, and purchase orders issued by you to the worker for the relevant period. Relevant statements made in the questionnaire include:

The worker was engaged to provide certain maintenance and repair services

The daily work routine was based on a purchase order being raised to completed complete works required and the worker invoiced for works completed

The worker was engaged by word of mouth. No written agreement was entered into

The worker was able to change prices for certain items.

The principal had the right to dismiss or terminate the services of the worker. They were able to no longer issue purchase orders or use the worker as a supplier

The principal engages XX subcontractors on the same or similar basis to the worker

The worker worked their own hours and was required to complete the work based on the purchase order

The principal did not schedule the job/tasks to be carried out by the worker. The worker received a purchase order and would accept or reject the work

The worker performed the services at job sites

The worker was supervised by a site supervisory and works manager to ensure that work is compliant with particular standards.

The worker could refuse to do a particular job or task

The worker could work for anyone

The worker was independent of the principal's business

The worker supplied invoices for the worker performed, including any materials

The worker charged the principal for materials on some invoices

The worker's payment was not dependent on the completion of a job or task

The site supervisor would check that work was up to quality and code

The principal did not pay the worker any monies for anything other than the work they completed

The principal did not give any specific instructions with respect to whether the worker was expected to complete the work personally

If the worker was sick or went on holidays, no one did their work while they were absent

The worker could engage anyone to do the work providing in doing so the workmanship, standards and building code were met

The worker was responsible for paying workers compensation, private accident and public liability insurances

The worker was required to guarantee the work against defect for a certain number of years

If the worker made a mistake or broke something when doing the work, the worker was required to correct the work in their own time, pay for materials and/or pay for the breakage

The principal did not supply the worker with any assets, equipment or tools to complete their work and did not reimburse the worker for the provision of own tools

Both parties supplied materials for jobs at times. Sometimes materials were already on site, other times the worker supplied and charged the principal for materials that were supplied

Both parties arranged delivery of materials to jobs

The worker was required to provide their own protective work gear

The worker was engaged as a subcontractor during the relevant period. Their own tools and equipment and motor vehicle were provided by the worker. The worker accepted the role of building supervisor with the company on a particular start date. In this salary role the worker was entitled to all normal conditions, for a person in that role. You pay superannuation guarantee to (the relevant industry fund) as required. The worker retired on a certain date.The worker claims that super is owed for the time the worker was a subcontractor.

On a particular date we received a completed questionnaire from the worker. The worker made the following relevant statements in the questionnaire:

The worker :

· provides maintenance services

· reported to the site daily as directed by the supervisor to perform duties either on piece rates or hourly rates

· secured the work through word of mouth

· did not enter into a written agreement

· was not able to negotiate rate of pay or terms and conditions

· principal had the right to dismiss or terminate services if there was no more work or the worker's performance was unsatisfactory

· was expected to work full time hours, and worked a minimum of 40 hours per week, Monday to Friday. If time was lost during the week, it was made up on a Saturday

All work performed was allocated and directed by the principal

All work was supervised by the supervisor in regard to schedule and quality of workmanship

The worker

· could refuse a job or task but this never occurred

· wanted to take time off, no formal permission was required, however they negotiated this with the principal as projects could not sit idle

· did not advertise their services

· could provide services to other individuals or businesses, but this never occurred

· did not work alone. On a regular basis they worked with various employees of the principal

· submitted invoices to the principal

· rate of pay was set by the principal

The rates and hourly rates changed with any industry increases but these were determined by the principal

Payment was not dependent on completion of the job. An example was provided whereby the worker was paid when sent to a job and the owner was not home

The worker was paid travel allowance and payment for expenses such as petrol

No specific instructions were given by the principal with respect to whether the work was to be completed personally

If the worker was sick or went on holidays, the principal would appoint someone else

The worker was unable to organise work or tasks to be completed by others

The principal was responsible for paying workers compensation and public liability insurance

The worker was not required to guarantee the work for any period of time

If the worker made a mistake it would have to be rectified in their own time, but would not be responsible for paying for the materials necessary to rectify

The worker supplied all tools and vehicle and did not receive reimbursement for the use of these

All materials and fixings were supplied by the principal without exception

Relevant legislative provisions

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

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

Reasons for decision

Summary

Upon considering all the available facts and evidence the Commissioner is satisfied that with respect to work the worker performed for you during the period under review, the worker did not meet the definition of an employee for the purposes of the SGAA under either common law or the extended definition provided under subsection 12(3) of the SGAA. Accordingly you did not have an obligation to pay superannuation contributions for his benefit under the SGAA.

Detailed reasoning

Employees under the SGAA

All employers are required to provide a minimum level of superannuation support for their eligible employees by the due date or pay the superannuation guarantee charge (SGC).

The term 'employee' is defined in section 12 of the SGAA and includes not only common law employees, but also extends to include workers who are engaged under a contract wholly or principally for their labour.

Common law employee

In deciding whether the worker is a common law employee of the principal there are a number of factors which require consideration. Some of these factors are considered below.

Terms of engagement

The terms and conditions of a contract 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 be persuasive factors. For example:

· provision of benefits such as annual or sick leave

· provision of benefits prescribed under an award

· payer prescribed times and locations for the performance of the work

· remuneration in the form of salary and wages

· the worker uses assets and materials provided by the payer or is reimbursed for expenses incurred in respect of use of their own assets and materials

· payer discretion 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.

Application to your case

Both you and the worker agree that the worker came to work for you through word of mouth. You both agree that no written contract was entered into.

Neither party has provided details of the terms of engagement agreed to upon commencement.

We obtained information from the Australian Business Register with respect to the worker, and found that the worker was registered for an Australian Business Number (ABN) in 200X and registered the trading name XXXX.

This suggests that the worker appeared to be aware that the worker was required to operate under an ABN had the worker the capacity to operate in a business like manner. This supports the notion of a principal and independent contractor relationship upon commencement.

The worker invoiced you and charged Goods and Services tax.

There is no record that with respect to the period under review, that you lodged a Tax File Number (TFN) declaration, withheld tax or issued payment summaries with respect to the worker; a further point consistent with a principal and independent contractor relationship.

It is noted that you did lodge a TFN declaration, withhold tax and issue payment summaries with respect to the worker from the time you contend the worker commenced employment relationship with you in 200X.

Both parties agree that the worker was not entitled to any paid leave or paid breaks; facts which are consistent with both casual employment and a principal and independent contractor relationship.

You generally had an ongoing, long term relationship with the worker, which is often associated with employer and employee relationship, though it is acknowledged it could also be seen in a principal and independent contractor relationship. However it is also noted the worker's weekly hours varied considerably, which is more consistent with a principal and independent contractor relationship.

Your relationship with the worker can be distinguished by the change that occurred in his status and subsequently became eligible for all employee entitlements.

On balance, this would suggest that the terms of engagement were deliberately changed and is therefore more indicative your relationship with the worker during the period in question was more likely to be one of principal and independent contractor.

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.

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 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.

Application to your case

You and the worker disagree as to who exercised day to day control.

The worker claims you had the right to control the worker while you contend that you exerted no control.

You contend that the worker was able to negotiate remuneration, work their own hours, and had the right to accept or decline jobs.

The worker contends that you set the rate of remuneration and worker was expected to work 'full time hours'. The worker agrees that the worker had the right to accept or decline jobs.

The only evidence provided in terms of control over what work was to be done were purchase orders issued by you to the worker or 'fixing tradesman'.. We view these not as directions or the exertion of control, but the offer of a job and the terms of the works to be completed.

A review of the invoices submitted by the worker reveals that the worker did not appear to work regular hours, and at times did not work full weeks. The purchase orders do not stipulate hours to be worked, or a time frame for completion. This suggests that you did not control when the worker worked.

No evidence has been provided to suggest that you exerted control over how the work was to be done. The worker appeared to be an experienced tradesman, and therefore it would be unlikely to expect control to be exerted whether the worker was engaged as an employee or independent contractor.

The issue of control over where the work was to be done is irrelevant. The jobs were completed at your client's premises, and could not be completed elsewhere.

While control and direction are not unusual in contracts for service, such control must be expressed in the terms of the contract otherwise the contractor is free to exercise their own discretion in the completion of the work.

With respect to ultimate authority to control, we were provided with no evidence that you exerted significant control over the worker.

In considering all the available facts and evidence, with respect to the control test, the Commissioner considers that the relationship was one of principal and independent contractor.

Integration Test

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

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.

Application to your case

We were not provided with any evidence that the worker was integrated into your business during the period under review.

You both agree that the worker was not required to wear a uniform or display any signage promoting your business.

You both agree that the worker provided all their own tools and vehicle.

However it should also be noted that we were provided with no evidence that the worker was operating theirown business independent of your own. The worker did not have an established business upon commencement and there is no evidence that work was completed for any other parties during the period under review, in either a personal or business capacity.

In considering all the available facts and evidence, with respect to the integration test, the Commissioner considers that the relationship was one of principal and independent contractor.

Results test

'Results' contracts describe traditional principal and independent contractor arrangements where a specific identifiable task is performed, for example the sale of encyclopaedias. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to the hours worked.

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 v. Vabu (2001) 207 CLR 21 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.

Accordingly, the true 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 to your case

You and the worker disagree as to the basis on which the worker was paid. You contend you paid the worker based on results as set out in the purchase orders. The worker contends payment was based on both an hourly rate and at piece rates.

A review of the invoices the worker submitted confirms that the worker was paid with reference to both the number of hours worked and at piece rates as set out in the purchase orders.

It appears based on the evidence provided, that the worker was only paid upon completion of works set out in the purchase orders.

Payment with reference to hours worked is more commonly likened with an employer and employee relationship, however it is noted that this method of payment may also be associated with a principal and independent contractor relationship, where the result is incorporated into an hourly rate as a natural means of remuneration.

However, if remuneration is ultimately paid when, and only when, the contractual conditions have been fulfilled, then the remuneration is usually made for producing a given result.

In considering all the available facts and evidence, with respect to the results test, the Commissioner considers that the relationship was one of principal and independent contractor.

Delegation test

The power to delegate or subcontract work is an important factor in deciding whether a worker is an employee or 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 not simply the delegation of a 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 freely subcontract or employ others to perform the work.

Application to your case

Both parties disagree as to whether the right to delegate existed or not, however both agree that no specific directions were given with respect to this matter.

As neither party agrees about whether or not the right to delegate existed, and in the absence of any evidence that the matter was ever raised in practice, the Commissioner considers the test inconclusive as to whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

Risk test

Under the risk test, the Commissioner considers three main types of risk:

· the risk of liability for negligence and injury cased by a worker

· the risk of liability for the cost of rectifying faulty work

· the risk of commercial loss (or chance of commercial profit)

Application to your case

Both parties disagree as to who was responsible for insurances. You contend that the worker was responsible for their own insurances, while the worker contends that you were responsible.

Both parties agree that the worker was responsible for rectifying any errors in their own time. However the worker disagrees with your contention that the worker was required to guarantee their workmanship for any period of time.

Both parties agree that the worker was not required to bear the cost of paying for materials, and was reimbursed on the occasions the worker was required to purchase materials for a job.

On balance, with respect to the risk test, the Commissioner is satisfied that the facts and evidence support the notion that the relationship between you and the principal was one of independent contractor and principal.

Conclusion - Common Law

Overall, with respect to work completed for you by the worker for the period under review, the Commissioner is satisfied that the facts and evidence are indicative that the worker was not a common law employee and that you did not have an obligation to provide superannuation in accordance with the SGAA.

As it has been determined that the worker was not an employee under common law, the Commissioner is required to consider whether the worker would be an employee under the extended definition in subsection 12(3) of the SGAA. This aspect has been considered and is discussed below.

Extended definition of employee under subsection 12(3) of the SGAA

Where the common law test is not conclusive, the Commissioner must consider whether the worker meets the definition of employee under the extended definition under subsection 12(3) of the SGAA, which states:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

Subsection 12(3) of the SGAA provides that 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. Subsection 12(3) was intended to extend the scope of the SGAA beyond traditional employment relationships to take into account some independent contractors who principally provide their own labour to meet obligations under a contract.

Superannuation Guarantee Ruling SGR 2005/1 provides further guidance on this issue and at paragraph 11 states where the terms of the contract 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 of delegation); 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 that subsection.

Each of these conditions must be met before subsection 12(3) of the SGAA can be satisfied.

Was the worker remunerated (either wholly or principally) for the labour? 

In assessing whether a person has been remunerated wholly or principally for their labour and skills, the Commissioner's view is that in the context of subsection 12(3) of the SGAA, the word principally assumes its commonly understood meaning, that is, chiefly or mainly. Labour includes mental and artistic effort as well as physical toll.

In your case, there is no evidence that the worker was paid for anything other than the labour. We consider that the worker's costs with respect to provision of tools and a vehicle would not have been a significant part of remuneration.

Was the worker required to perform the work personally?

The second requirement of subsection 12(3) of the SGAA is that it requires the individual to carry out the work 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 work to another person.

As previously discussed, the Commissioner was unable to conclusively determine whether or not the worker had the right to delegate his work to others.

Was the workers paid to achieve 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 previously discussed, the Commissioner considers that the worker was paid for a result.

Conclusion - extended definition of employee

As stated above, each of the three conditions in paragraph 11 of SGR 2005/1 must be met before subsection 12(3) of the SGAA can be satisfied. In this case none of the conditions have been satisfied. Accordingly the worker does not meet the extended definition of employee as set out in subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering all the available facts and evidence the Commissioner is satisfied that with respect to work the worker performed for you during the period under review, the worker did not meet the definition of an employee for the purposes of the SGAA under either common law or the extended definition provided under subsection 12(3) of the SGAA. Accordingly you did not have an obligation to pay superannuation contributions for his benefit under the SGAA.