Edited version of administratively binding advice

Authorisation Number: 1012481702667

Advice

Subject: Superannuation guarantee obligations

Question 1

Are the workers engaged by the entity considered common law employees as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Advice

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

Question 2

Are the workers employees by virtue of subsection 12(3) of the SGAA?

Advice

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

This advice applies for the following period:

1 July 2012 - 30 June 2014

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 Commissioner received an application in respect of the status of the workers engaged by the entity and the entity's obligations for superannuation guarantee payments. The application provided the following information:

The Entity engages several workers under Contractors Agreements (Agreements).

All workers:

· are sole traders

· possess an ABN

· possess their own Public and Professional insurance

· are responsible for defective work

· invoice the entity for a percentage of services rendered; and

· have full control over how they do their work.

All workers are engaged either as contractors or employees at other entities as well and receive less than 80% of their total income from the entity.

The workers are remunerated on a results basis and as part of their contract receive a percentage of the revenue generated.

The remuneration is not based upon time spent at the entity it is based upon the number of services preformed.

Provided with the application was a copy of the agreement used between the entity and the workers. The agreement provides the following information:

The entity will provide almost all equipment and administration support.

Contractor to provide services

The entity authorises the worker to access the entity's premises for the purpose of providing the services.

The worker warrants to the entity that at the commencement of the Agreement, the contractor is duly qualified and holds all licenses, certificates and other approvals necessary to engage in the provision of the services and that the worker will at all times continue to maintain such licenses, certificates and other approvals at the worker's own expense and will, upon request, provide satisfactory proof thereof to the entity.

Remuneration and expenses

Workers remuneration" means a set percentage of the total services rendered. This percentage can be reviewed during the term of the agreement.

Unless otherwise agreed by the parties, the worker shall at all times be responsible for expenses which include, but are not limited to professional licensing fees and memberships, all insurances, motor vehicle expenses, any periodicals, professional literature, text books and reference materials, except those already provided by the entity for use by all employees of the entity.

Termination

The parties acknowledge that during the first three (3) months of the term, this Agreement may be terminated at any time and for any reason by either party provided that written notice of such termination is served on the other party; otherwise either party may terminate this Agreement by giving three months written notice of termination to the other party

If the worker

· wholly or partially suspends the performance of the services during the term without reasonable cause;

· fails to perform the services regularly or diligently;

· fails to perform the services in a manner consistent with an experienced and competent worker

· fails to comply or unreasonably delays in complying with a written direction given by the entity

· commits a substantial breach of this agreement

then the entity may serve on the worker a notice specifying the default and stating the intention of the entity to terminate this agreement.

Termination by either party

If the worker or the entity

· is unable to pay its debts as they fall due;

· commits an act of bankruptcy;

· enters into a composition or arrangement with its creditors or calls a meeting of its creditors with the view of entering into a composition or arrangement;

· has execution levied against it by creditors, debenture holders or trustees under a floating charge;

· is guilty of any wilful neglect or misconduct;

· repudiates this Agreement;

· dies or becomes permanently disabled; or

· the worker commits any serious breach of any provision of this Agreement and the worker has failed to remedy that breach within 7 days of receiving a notice from the entity calling for that breach to be remedied; or

· in the reasonably held opinion of the entity, the worker has committed an act, which if true would, in the opinion of the entity, adversely affect the reputation or business of the entity,

· then the non-defaulting party may at any time, without prejudice to any other rights or remedies, by written notice to the other parties immediately terminate this agreement.

Termination by the worker

If the entity

· fails to pay any monies due to the worker under this Agreement within fourteen (14) days of the date due for payment; or

· repeatedly or continuously fails to provide the facilities set out in the Agreement,

and the entity has failed to remedy that breach within 7 days of receiving a notice from the worker calling for that breach to be remedied then the worker at any time may by 7 days written notice to the entity terminate this agreement.

The ATO contacted you to request you to complete a Status of the worker questionnaire - Principal.

You provided the completed Status of the worker questionnaire. The questionnaire provided the following information:

Terms of engagement:

The workers are engaged to provide chiropractic services to clients of the entity.

The daily routine of the workers includes:

· seeing clients.

· providing advice to clients.

· completing client notes and other documentation required.

The relationship between the entity and the workers was established by advertisement. Several workers were contractors of the previous owner and continued on at the entity.

Written agreements are in place between the entity and the workers.

The workers are able to negotiate their rate of pay or terms and conditions. At different stages there have been discussions and changes to hours on the workers scheduled times and different advice types have been added which have different remuneration amounts.

Either party has the right to terminate the agreement by providing three months notice. If there is a major breach by either party, the agreement may be terminated immediately.

All workers are engaged on this basis.

Control:

The entity does not provide the workers with any training.

The workers are not required to work set hours, rather, the workers negotiate with the entity for the use of the rooms and the times in which they are available. The main restriction around this is the operating hours of the entity and if the rooms are unavailable due to being booked prior by another worker.

The entity conducts entity wide meetings every six months to discuss the general overview of the business. It is not compulsory for the workers to attend the meetings.

The workers are not entitled to paid breaks. They are able to choose when they would like to take breaks through their scheduling of services.

The entity does not schedule the jobs or tasks to be carried out by the workers. Job tasks and other tasks are performed by the workers as their own discretion. The only direction that is given to the workers is that any notes must be written on the day the service occurs as this is a regulation imposed by the relevant professional bodies.

The entity directs that all services must be performed in the entities rooms, as is the practice with any entity in this industry. Any non-hands on tasks, such as writing up reports can be done anywhere at the workers discretion.

The workers are not supervised by the entity. Their performance is assessed from feedback from the clients and service numbers. It is expected that as registered workers they do not require supervision or quality control.

A worker may refuse to take part in an entity based activity or refuse to see a particular client at their own discretion.

If the workers want to take time off they are not required to seek permission of the entity, but are required to provide notice so that no services are booked within the period and if required an alternative service provider can be sourced.

Integration:

The workers are able to provide their services to other individuals or businesses and the workers work for themselves at other locations or at their own homes.

The workers work and provide all services alone. However, the workers utilise the receptionist provided by the entity to process payments and to arrange bookings.

The workers are not required to train or supervise employees of the entity.

The workers are not required to use a name badge or clothing promoting the entity. The entity provides business cards with the workers name and stationery for use while they are at the entity. There is no requirement for the workers to use the entity branding.

It is a courtesy that the workers do not promote their business or services whilst undertaking work at the entity, but there is no requirement that a worker does not actively promote their business if they should choose.

The Entity does not advertise on any of the assets or equipment used by the workers.

The workers do not advertise their business on any of the assets or equipment that they use.

Results:

The workers are required to submit invoices to the entity.

An agreement is reached between the entity and the workers in respect of the fees charged.

The workers payments are dependant upon them completing services. If there are no services for the day, then there will be no fee charged by the workers to the entity.

The entity cross references the worker's invoices with the entity's records in respect of the number and value of services.

The workers are paid directly into their bank accounts.

The workers do not receive payment or reimbursement for anything other than the work they complete.

The entity does not deduct amounts for income tax, superannuation or other deductions, such as social club or insurance.

Delegation

There is a verbal agreement that all workers are to provide the service personally and if they are unable to, they can organise another worker within the group or organise an alternative provider.

If a worker is absent, it is the responsibility of the worker to organise a replacement provider. Due to the number of workers in the entity, often services are performed by another worker who works from the entity. If an unknown provider is needed, then written approval of the entity is required.

The workers are not able to organise for their work to be completed by an employee of the entity.

Risk

The workers are required to provide their own workers compensation insurance and are required to have their own public and private indemnity insurance. If a client was to seek damages, it would be the responsibility of the worker, not the entity.

If a client sought a refund or needed additional advice free of charge to rectify an error, it would be the responsibility of the worker, not the entity.

The workers are required to guarantee their work for an extended period. If a claim was brought against a worker later in life, then it would still be the responsibility of the worker to rectify any defect or to cover any damages.

If a worker were to cause any damage to equipment wilfully, it would be the worker's responsibility to rectify or pay for the repairs. If there was a mistake in relation to a client complaint, it would be the responsibility of the worker to rectify this mistake either with time or money.

Tools

The entity provides appointment room furniture.

The worker provides additional tools needed to provide their services

The entity does not reimburse the workers for any of their tools.

Relevant legislative provisions

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

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

Reasons for decision

Question 1

Summary

The facts and evidence indicate the workers are not your employees for the purposes of the SGAA under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA. You therefore do not have an obligation to pay superannuation contributions on behalf of the workers.

Detailed reasoning

The SGAA states 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 expanded 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 expanded definition of employee under subsection 12(3) of the SGAA.

Question 1

Are the workers your common law employees as defined in subsection 12(1) of the SGAA for the period 1 July 2012 to 30 June 2014?

Common law employee

The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to produce the contracted result in return for an agreed payment, whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result).

The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts. As a result, a substantial and well-established body of case law has developed on the issue. Consideration should be given to the various indicators identified in judicial decisions. No list of factors is to be regarded as exhaustive and the weight to be given to particular facts will vary according to the circumstances. The totality of the relationship between the parties must be considered to determine whether, on balance, the worker is an employee or independent contractor.

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.

1. Terms of engagement

The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. For this test, we must determine the nature of the contract between the parties. We will consider whether the contract is written or verbal and whether the terms and conditions are express or implied. These factors are important in characterising the relationship between the parties.

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. In the observation made by 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.

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. In Hollis v. Vabu Pty Ltd (2001) 207 CLR 21 (Hollis v. Vabu Pty Ltd) it was noted that although no payments of annual leave or sick leave were given, and no superannuation deductions were made by Vabu in respect of the bicycle couriers, the relationship between the parties was found not merely from these contractual terms. The system which was operated under and the work practices imposed by Vabu went to establishing 'the totality of the relationship' between the parties and it is this which is to be considered.

Application of the common law to your case:

The workers were engaged by advertisement and several were previously engaged by the former owner and after discussions between the entity and the workers, some choose to continue at the entity.

The workers are engaged to provide services to clients of the entity. The workers provide advice to clients and are required to complete client notes and any other documentation required. The requirement to complete client notes is a requirement of the entity as there is a legal obligation on the workers to complete these notes.

There is a written agreement between the entity and the workers which sets out the obligations of the entity and the workers. Each agreement differs in that the workers provide different services to clients but the general terms and conditions of each contract are consistent.

The workers all have their own ABN and receive a percentage of the revenue generated. The agreement provides that the entity will allow the worker to access the premises for the purpose of providing services to clients. The agreement sets out the hours that the worker shall provide the services.

The worker must warrant that they are duly qualified and holds and will maintain all licenses, certificates and other approvals necessary to engage in the provision of the services.

The workers are able to renegotiate their rate of pay or terms and conditions and at different stages there have been discussions and changes to hours the workers provide services. At different stages the workers have added new service types with different remuneration rates.

The entity has the right to dismiss or terminate the services of the workers under a clause of the Agreement by providing three months notice if the worker:

The workers can also terminate the contract by providing three months notice if the entity:

The recruitment of the workers by way of advertisement or their continuing engagement after the entity acquired the business from the previous owners does not clearly indicate if the nature of the relationship is one of employer and employee or principal and independent contractor.

Whilst there is a written agreement in place, the terms of the agreement also do not clearly indicate if the nature of the relationship is one of employer and employee or principal and independent contractor.

Overall, we find that the terms of engagement test in respect of the relationship between you and the workers in isolation is inconclusive.

2. Control

The extent to which the employer 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 lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it.

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. A high degree of direction and control is common in contracts for services because the payer has the right to specify in the contract how the services are to be performed. Similarly, the right to supervise how the work is to be performed does not constitute a contract of service where the essence is one of independent contractor.

Paragraphs 36 and 37 of Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? provides that while control is important, it is not the sole indicator of whether or not a relationship is one of employment. The approach of the Courts has been to regard it as one of a number of indicia which must be considered in determination of that question.

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.

Application of the common law to your case:

The Entity does not provide any training to the workers. Under the Agreement, the workers are required to warrant that they are duly qualified and hold and will maintain all licenses, certificates and other approvals necessary to engage in the provision of the services.

The workers negotiate with the entity for the use of the rooms. The entity does not require the workers to work set hours, rather the hours are determined based on the availability of the rooms and the bookings by other workers. The hours are restricted to the entity opening hours.

Whilst the entity holds a workplace wide meeting every six months, the workers are not required to attend these meetings.

The workers are not entitled to paid breaks and they are able to choose when they would like to take their breaks through their scheduling of services.

The workers have full control over what services are provided to the clients. It is the expertise and skill of the worker to perform and advise the client on what services they require.

The entity requires that all services are performed in the entity's rooms. Any tasks that are not face to face with a client can be done anywhere at the workers discretion.

As qualified workers, it is expected that they do not require supervision or quality control. Feedback is provided from clients and the workers are provided with this feedback, along with feedback in relation to client numbers.

A worker may refuse to take part in an entity based activity or refuse to see a particular client at their own discretion.

If a worker wishes to take time off, they are not required to seek permission of the entity, but they are required to provide prior notice so that no clients are booked within the period of absence. Notice is required to enable an alternative service provider to be sourced to provide services.

The information provided indicates that the workers negotiate with the entity in respect of the use of the rooms and the times in which they are available. Whilst the entity has control over the hours of work of the workers, this is due to scheduling of rooms and the operating hours of the entity.

The workers have full control in respect of the services provided to clients and are not provided with any supervision from the entity in respect of these services. The workers control their own schedule and the times at which they take their breaks.

Overall, we are satisfied that the control test in isolation is more in favour of the notion that the relationship between you and the workers is one of principal and independent contractor.

3. Integration

Another significant factor in establishing the nature of a 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 his or her own business (under a contract for services as an independent contractor). This is known as the 'integration' test.

If the worker's services are an integral and essential part of the employer's business that engages them, 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, 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 worker needs to be running their own business or enterprise and have independence in the conduct of their operations.

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 a 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 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.

This was highlighted in Hollis v. Vabu Pty Ltd 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…

Consideration may also be given to whether the worker could be expected to generate goodwill in their own right. If the benefits from the creation of goodwill flow to the worker then this would indicate that they are an independent contractor. Alternatively, if goodwill flows to the principal, this suggests an employer/employee relationship.

It is therefore necessary to consider whether the worker is providing services as part of the principal's business (under a contract of service as an employee) or providing services as part of their own business (under a contract for services as an independent contractor).

Application of the common law to your case:

All workers have their own ABN and provide invoices to the entity.

All workers work for themselves at other locations or at their own home. The workers work and provide all services to clients alone and utilise the receptionist provided by the entity to process payments and to arrange bookings.

The workers do not train, supervise or assess the work of employees of the entity. The workers are not required to wear or use a name badge or uniform of the entity. The entity provides business cards with the worker's name on it and if a worker uses stationery while at the entity, the practice provides a letterhead with the entity logo.

The workers are able to provide their services to other entities and it is a courtesy that a worker does not promote their business/services or other entities whilst undertaking work at the entity but there is no requirement that a worker does not actively promote their business if they should choose. Information in the public domain indicates that some workers advertise the services they provide at other entities.

The information provided indicates that the workers are carrying on a business for themselves, in that they work for themselves at other locations or at their own homes. The workers are not prevented from promoting their business or services while working from the entity, however, it is a courtesy that they do not.

Whilst business cards and stationery are provided by the entity, this appears to be to assist clients with scheduling and detailing advice provided in the appointments, there is no requirement for the workers to use the branding of the entity.

Overall, we are satisfied that the integration test in isolation is more in favour of the notion that the relationship between you and the workers is one of principal and independent contractor.

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 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.

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 (World Book (Australia) Pty Ltd v. FC of T) 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.

While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service. For example, the Full Court of the Supreme Court of South Australia in the decision of Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd (2004) SASC 288 (Commissioner of State Taxation v. 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. It was found that the workers were paid for their time spent and labour, and not to produce a result.

Having regard to the true essence of the contract, the manner in which payment is structured will not of itself exclude genuine result based contracts. For example, there are results based contracts where the contract price is based on an estimate of the time and labour cost that is necessary to complete the task, or may even be calculated on that basis, subject to reasonable completion times. Generally, where a worker submits quotes or issues invoices for each job to the principal, this would be consistent with operating their own business. Nonetheless, the issuing of invoices is not necessarily determinative of the nature of the relationship.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties.

Application of the common law to your case:

The workers provide invoices to the entity. The entity receives the income generated from the services rendered by the workers who invoice the entity at regular intervals for a percentage of the services rendered as remuneration. The fees in respect of the services rendered by the workers and the percentage of remuneration are agreed between both parties.

A worker will only receive payment if they complete services. If there are no appointments for the day, there will be no fee charged by the worker to the entity for that day.

The entity cross references the workers' invoices with their records to ensure the invoices are consistent with the records of the entity.

The workers are paid directly into a bank account either in the name of the worker or their business.

The workers do not receive any payment or reimbursement for allowances or expenses, nor do they receive holiday pay, sick pay, workers compensation or superannuation. The entity does not pay for any training for the workers.

The entity does not deduct any amounts from the workers in respect of income tax, superannuation or any other amounts.

The information provided indicates that the workers are paid a specific percentage of the receipts taken from the appointments. They are not paid an hourly rate and the amount that they are paid will depend on the amount of appointments they conduct whilst at the entity.

This indicates that the workers are paid to achieve a result.

Overall, we are satisfied that the results test in isolation is more in favour of the notion that the relationship between you and the workers is one of principal and independent contractor.

5. Delegation

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.

If the contract does not expressly require the worker to personally perform the services, an independent contractor has the capacity to delegate or subcontract all (or some) of the work to others. Where the worker delegates, they are responsible for remunerating that worker.

In the case of Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at 425; 6 AITR 201 at 202, the High Court interpreted the words 'a contract which is wholly or substantially for the labour of the person to whom the payments are made' to decide that if a contract leaves a person completely free, if he or she chooses, to engage others to perform the work on his or her behalf means that the payments are not payments under a contract for labour. That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise.

If the contract leaves the contractor free to do the work himself or employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a result...

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.

In the case of Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21, Bishop J said:

The fact that any substitute driver had to be approved by the company does not give the respondent [the principal] control over that delegation… the company surely had the right to be confident that any substitute driver was competent to do the job and maintain the "integrity" of the company as Mr Coomb put it.

Therefore, under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). A person who has a right to delegate work (whether or not that right is exercised in practice) does not work under a contract wholly or principally for their labour. 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.

Application of the common law to your case:

There is a verbal agreement in place between the entity and the workers that they are to provide services personally. If they are unable to do so, they can refer a client to another worker within the group or organise a replacement service provider.

If a worker is sick or goes on leave, the worker is required to arrange for the work to be done whilst they are absent.

The workers are required to inform the Entity if they intend to take any time off. It is the responsibility of the worker to organise an alternative provider for the period of their absence. Due to the number of workers operating from the entity, often the work is performed by another worker associated with the entity.

If an alternative provider is needed who has not previously been associated with the entity, then prior written approval from the entity is required.

The workers cannot arrange for their work or tasks to be completed by an employee of the entity, but would be able to organise their work to be completed by another worker engaged by the entity.

The information provided indicates that the workers have the power to delegate or subcontract their work. Whilst they are required to seek approval to engage the services of an alternative who has not previously been associated with the entity, this would be considered usual commercial practice to ensure that the alternative is appropriately qualified and registered.

Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between you and the workers is one of principal and independent contractor.

6. Risk

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.

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 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 service, or a contract with an independent contractor.

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

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

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.

Carrying their own insurance and indemnity policies is an indicator that a worker is engaged as an independent contractor.

Application of the common law to your case:

The entity and the workers are both responsible for providing public liability insurance. The workers are responsible for providing their own workers compensation and public and private indemnity insurance.

If a client were to seek damages it would be the responsibility of the worker, not the Entity. If a client sought a refund or needed additional services free of charge to rectify an error of the worker, the worker would be liable for the damages or rectification.

Should a claim be made against a worker later in life, it would still be the responsibility of the worker to rectify any fault or to cover damages, not the entity.

If a worker was to cause any damage to equipment wilfully then it would be the worker's responsibility to rectify or pay for repairs.

From the information provided, both the entity and the workers carry risk of commercial loss. The risk to the entity is limited to public liability whilst the risk to the workers is greater, in that they carry the risk of providing indemnity insurance along with public liability insurance.

Overall, we are satisfied that the risk test in isolation was more in favour of the notion that the relationship between you and the workers is one of principal and independent contractors.

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 his 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 will seek separate payment for such expenses from the principal.

In Stevens v. Brodribb at 36-37, the High Court observed that working on one's own account (as an independent contractor) often involves:

The provision of him by his own place of work or of his equipment, the creation of him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion…

Application of the common law to your case:

The entity provides the premises and room furniture.

The worker's provide all additional tools required to provide their services.

The entity does not reimburse the workers for the cost of their tools. Furthermore, the workers are responsible to pay their training, registration and insurance costs.

The information provided indicates that both parties have capital expenses; the entity in the provision of premises and furniture and the workers in the provision of the tools required to provide services, training, registration and insurances.

There is no indication if either party provides more significant capital items therefore, we find that the capital test in isolation is inconclusive.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the workers, the facts and evidence provided points to the conclusion that the workers are not common law employees of the entity.

As the facts and evidence indicate that the workers are not your employees under common law, we are required to consider the expanded definition of employee under subsection 12(3) of the SGAA.

Question 2

Were the workers your employees by virtue of subsection 12(3) of the SGAA?

Expanded definition of employee for SGAA purposes

The expanded definition of employee within 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.

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.

If the contract is considered to be wholly and principally for the labour of the individuals engaged, they 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 facts and evidence indicate that the workers are paid primarily for their own labour and skills. Whilst the workers are required to supply the tools required to provide their services, this component is not considered the principal component, rather the labour and skills of the worker would be the principal component.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the workers do have the right to delegate work to others.

Not paid to achieve a result

As discussed earlier, we consider that the facts and evidence indicate that the workers are paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, as the workers do not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, they do not meet the expanded definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the entity, the workers do not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly the entity does not have an obligation to pay superannuation contributions for the benefit of the workers under the SGAA.