Edited version of administratively binding advice

Authorisation Number: 1012515064314

Advice:

Subject: Is the worker a common law employee

Question 1

Was the worker considered your common law employees as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the financial years ended 30 June 20XX to 30 June 20YY inclusively?

Advice

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

Question 2

Was the worker your employee by virtue of subsection 12(3) of the SGAA?

Advice

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

This advice applies for the following period:

Financial year ended 30 June 2011

Financial year ended 30 June 2012

Financial year ended 30 June 2013

The arrangement commences on:

1 July 2010

Relevant facts and circumstances

You made a number of statements in regards to the worker. Your statements are sourced from the original correspondence, answers to the 'Status of the worker questionnaire' we received from you and a phone conversation we had with you.

1. A working arrangement was first entered into via word of mouth. No formal written contract was written up. You maintain that the agreement was for the worker not to be engaged as an employee but as a contractor.

2. As a part of the oral contract you claim that the worker was not entitled to annual leave or personal leave.

3. The worker was required to provide an ABN to the company on engagement. You have provided evidence that the worker obtained an ABN before the engagement.

4. You maintain the worker was not engaged exclusively by the Company. In practice the worker worked as a subcontractor for other employers and also advertised services to the public at large. You have provided evidence that the worker advertised services.

5. You maintain that the worker was free in regards to accepting and refusing work.

6. You maintain that you had the right to terminate the services of the worker. You state that work offered to the worker was based on consumer demand.

7. In the original correspondence you sent in to us you maintain that the worker had the right to delegate. However, you also maintain that the worker was unable to delegate work to other employees in your business or to organise for work tasks to be completed by any other person, with or without your permission. You maintain that you arranged for work to be completed should the worker be unable to attend work. On the invoices you supplied from the worker there was not any amounts in reference to subcontractors to the worker.

8. You maintain that the worker was free in regards to choosing hours and days of work. You claim that the worker determined hours in order to complete the work.

9. You maintain that you directed where the work was to be performed. This was often at a client's premises. However you claim that this is due to the nature of your business.

10. You maintain that the worker was not required to attend work meetings of any nature.

11. You maintain that the worker was not entitled to paid breaks during the day.

12. You maintain that you did not schedule jobs and tasks to be carried out by the worker. You claim that the worker determined the priority and sequence of jobs and tasks. You would direct what work was to be done but you did not need to direct how it should be done.

13. You maintain that in most cases you were working with the worker at the same premises.

14. You claim that the worker was not supervised. However, you did perform quality checks and communicated with clients to establish satisfaction.

15. You claim that the worker did not require to give you notice of when the worker wanted to take time off. However, as a courtesy the worker would let you know when the worker was going to be unavailable.

16. You claim that the worker was largely responsible for the worker's own work and therefore worked independently. You also claim that due to the nature of your work at times the worker was working with other workers and employees of the Company as part of a team. You claim that the worker was not required to supervise your employees though the worker did provide some guidance to other workers and employees.

17. You claim that the worker was provided with printed T-shirts though the worker was not required to wear the shirt.

18. You maintain that the worker had T-shirts and letterheads promoting the worker's own business.

19. The worker invoiced you for work performed. You maintain that initially monthly payments were made. This changed to where you would pay the worker within 14 days of the date of the invoice. You have sent in some of the invoices used.

20. You maintain that it was the worker who set the payment rate. You claim that the payment rate was increased by mutual agreement when the worker informed you that the cost of the services increased.

21. You claim that the worker was paid upon the completion of a specific task. You maintain that the worker would not be paid if, for example, the job was not ready for completion or if delayed.

22. You claim that you would check the worker's work before payment. You would inspect the work at the work site as you would be working on the same site as the worker. You also assert that you would communicate with clients to ensure their satisfaction.

23. You maintain that the worker was paid directly into a bank account.

24. No allowances were paid to the worker by the Company.

25. No superannuation expenses were claimed for the worker.

26. You maintain that the worker was responsible for the worker's own workers compensation, private accident and public liability insurance. You claim that this was agreed to upon engagement. In practice the worker made claims against these policies.

27. You claim that the worker did not guarantee work at any time.

28. You claim that the worker had the responsibility of fixing mistakes made in the worker's time and cost. In practice you claim that in the rare circumstance that the worker made a mistake the worker would fix it in the worker's own time.

29. You claim that you provided the worker with a car at some stage. You contend that this was due to the friendship with the worker and that the worker was responsible for the running expenses of the car.

30. You claim that the worker provided tools and equipment.

31. You maintain that the worker was not reimbursed for when the worker used the worker's own tools.

32. You claim that you provided the materials for the job you were doing. You also arranged for the materials to be delivered at the job sites. You maintain that the worker was not involved in deciding the materials needed for any particular job because this was decided by the end consumer before the job commenced.

33. The worker was required to wear protective gear but the worker supplied this.

The worker has made a number of assertions. We have sourced these from a 'Status of the worker questionnaire' completed by the worker and a phone conversation we had with the worker.

1. The worker asserts that a working arrangement was arranged via word of mouth. No formal written contract was written up. The worker was approached by the director for the Company and offered work.

2. The worker was required to provide an ABN to the Company on engagement.

3. The worker maintains that the worker did not have the right to work for other entities. However the worker conceded that the worker did work for another because you had run out of work for a short period.

4. The worker maintains that the worker did not have the right to refuse work offered from you.

5. The worker maintains that neither party was entitled to claim damages if the engagement was terminated by either party.

6. The worker claim that the worker did not have the right to delegate the work the worker was doing. The worker claims that the worker could not subcontract anyone either to substitute or assist the worker in work. The worker claims that the principal was in full control of who worked on your work sites and was responsible for paying them and rectifying any mistakes made by them.

7. The worker maintains that the worker was engaged by you for a large number of hours per week. The worker claims that the worker had set hours.

8. The worker maintains that you directed where the work was to be performed. The worker claims that the worker did not have the right to perform the work elsewhere.

9. The worker maintains that you had all the right over the quality, timing and scheduling of work.

10. The worker claims that you provided details of work to be performed and the work was overseen by you.

11. The worker maintains that the worker was not provided with any form of leave by you.

12. The worker stated that they were not making superannuation contributions towards any fund whilst working for you. The worker did concede that they thought they were making superannuation payments at the start of the relationship but found out later that they weren't.

13. The worker claims that they were integrated into the work done by employees of the Company. The worker claims that a part of their duty was to supervise other employees and assist other workers. The worker claims they were the main supervisor and trainer of employees and other workers.

14. The worker maintains that they were provided with shirts, jumpers and jackets all with company logos printed on them. Furthermore the worker maintains that they were required to wear this uniform.

15. The worker invoiced you for work performed. The worker provided copies of these invoices. The worker claims that the worker received payments on a weekly basis.

16. The worker maintains that the worker was paid on a regular basis, rather than on the completion of a specific job.

17. The worker claims that the worker was paid by cheque.

18. No allowances were paid to the worker. This is consistent with the information contained on the invoices sent to the worker.

19. The worker maintains that you bore the risk of making a profit or loss.

20. The worker maintains that you were ultimately responsible for work done by the worker. The worker maintains that some mistakes the worker made the worker was able to fix up in paid time. The worker also explained that under certain circumstances the worker would fix the mistake in the worker's own time.

21. The worker claims that the worker used some of your equipment. This included a vehicle and other equipment. The worker also maintains that the worker used some of the worker's own tools for the job. The worker maintains that the worker could complete the work without your tools and equipment if required.

22. The worker claims that the worker was reimbursed only on limited occasions for when the worker made use of the worker's own tools.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Summary

The facts and evidence suggest that the worker was your employee for the purposes of the SGAA under both the common law definition and the expanded definition as set out in subsection 12(3) of the SGAA. You therefore have an obligation to pay superannuation contributions on behalf of the worker.

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

Was the worker your common law employee as defined in subsection 12(1) of the SGAA for the financial years ended 30 June 20XX to 30 June 20YY inclusively?

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. 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:

In your case there was only a verbal agreement when the worker was engaged by you. The worker already had an Australian Business Number (ABN) before the worker was engaged by you. You claim that at engagement you agreed with the worker that the worker would not be entitled to any sort of leave payments. Furthermore, the worker would need to contribute towards the worker's own superannuation and insurance.

The worker agrees that they did not receive any leave payments and that they paid for their own insurance. The worker states that they initially thought that they were making payments towards their own superannuation but later found out that this was not the case.

The worker claims that they were approached by you in your capacity as director of the Company. No evidence was provided that the approach was based on the worker advertising their services, or on you advertising a job vacancy. Due to the lack of evidence we are unable to make a conclusion in regards to this fact.

The facts that the worker gave their ABN and that the worker agreed to pay for their own insurance and superannuation and that the worker did not receive any paid leave supports a conclusion that at engagement the parties intended a principal and contractor relationship.

Overall, we are satisfied that the terms of engagement test in isolation is more in favour of the notion that the relationship between you and the worker was one of principal and independent contractor. However, as mentioned above the totality of the relationship between you and the worker needs to be looked at in order to come to a conclusion about the worker's status.

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:

You and the worker disagree as to what level of control was exerted over the work the worker was conducting.

You maintain that the worker had a high degree of flexibility in regards to the hours the worker was working and whether the worker could accept or reject work. You claim that the worker was largely unsupervised and that the worker needed only minimal direction. You claim that you would inspect the worker's work for quality. You also claim that you were working on the same premises as the worker on a regular basis.

The worker maintains that the worker had little flexibility in regards to the hours the worker should work. The worker states that generally the worker was required at the premises at a specific time along with your other employees. The worker claims that the worker did not have a lot of discretion in refusing work from you. Furthermore the worker maintains that the worker was directly supervised by you. The worker stated that you would inspect the worker's work multiple times a day and that the worker would revert to you for instructions regularly.

With the lack of evidence we are unable to establish the actual level of control exerted over the worker in the above matters.

However, from information you gave us, the worker was to perform work at locations nominated by you. At times the worker needed to work as part of a team, the worker sometimes provided guidance to other employees, and on a regular basis worked with you on site. You have confirmed that you would provide direction as to what task to complete and inspect the worker's work to ensure quality.

Paragraph 33 of (SGR 2005/1) states:

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.

Paragraph 34 of SGR 2005/1 states:

34. Likewise, the High Court in Zuijs v. Wirth Brothers Proprietary Ltd (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.

These aspects of operation indicate a need and a right for you to exercise some form of control and to have lawful authority to command. As the worker was working with you and with your other employees it appears likely that you had the right to direct the worker. At a minimum the worker would be directed in regards to who the worker would be working with.

On the invoices supplied by you and the worker it is evident that the worker worked on a myriad of small tasks during any given week. Though the worker might have had a significant level of skill in completing each of the tasks, the worker would clearly have needed to revert to you for instructions regularly.

Therefore we have found that the control test in isolation is indicative towards an employee and employer relationship.

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:

The worker had an ABN and was registered for GST. The worker charged GST on invoices to you and had a contractor licence. Furthermore the worker had a trading name and advertised services on an internet directory. You have supplied evidence to support this. You have provided copies of the invoices which the worker supplied to you. This contained the worker's own letterhead. You claim that the worker worked for others during the time period in question. The worker concedes that the worker did work for another person for a three month period. The worker explains that this was a short period where you were unable to provide the worker with work but no evidence was supplied of this. These facts support a conclusion that the worker worked independently of you.

You supplied the worker with printed shirts which contained your company logo. However, you and the worker disagree as to whether the worker was required to wear it. As neither party supplied any evidence this fact is considered to be neutral.

You have explained that the worker at times worked as part of a team and guided others. This demonstrates an integral involvement in your business in contrast to the worker operating an independent business. This fact supports a conclusion that the worker was integral to your business.

Though both parties disagree as to the extent with which the worker was integrated in your business, the majority of facts and evidence support a conclusion that the worker was not integrated into your business.

Overall, we are satisfied that the integration test in isolation is more in favour of the notion that the relationship between you and the worker was 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:

In your case you paid the worker an hourly rate as apposed to an amount for the completion of a specific job. The worker sent you an invoice upon the completion of a job and would list the jobs the worker completed on that invoice and the time spent on each of these tasks. The tasks suggest that the worker was working on multiple items in any given week, and would not necessarily start and finish each of the jobs the worker was given personally. You have also stated that the worker was sometimes helped by others and this would be paid for by the company.

The nature of the tasks contained on the invoices suggests that the worker was not paid for the completion of a specified result. Rather the worker was engaged to work on what needed doing on any given day, and then paid for the time the worker spent on these tasks.

You have stated that the worker would sometimes be helped by other workers and these would also be paid by you. This suggests that whatever task the worker was working on would not necessarily be completed by the worker as a finished result. Rather, the finished result would sometimes be the result of the worker's work and the work of your other workers. This also suggests that the worker was not paid for the completion of a specific task.

Overall, we have found that the results test in isolation is more in favour of the notion that the relationship between you and the worker was one of an employer and employee.

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 the worker 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:

In your case you claim that the oral contract between you and the worker was one where the worker had the right to delegate. The worker claims that the worker did not have this right. There are no written instructions in regards to this factor so we must consider what occurred in practice as a guide in determining the issue.

Both parties agree that the worker did not delegate work to anyone in practice. This is also evident on the invoices supplied by you as it does not contain any subcontractor expenses. When the worker was unable to attend work you would find a worker to complete the work that needed doing. Anyone who was working on your worksite would be paid by you. In correspondence sent to us you also state that you didn't allow the worker to engage anyone else to perform the worker's work. This implies that in practice the worker was not allowed to delegate.

Though you claim that the worker was able to delegate, it appears that in practice the worker was incapable of delegating tasks to anyone.

Overall, we have found that the delegation test in isolation is more in favour of the notion that the relationship between you and the worker was one of an employer and employee.

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:

In this case the worker paid for their own indemnity and accident insurance.

You and the worker disagree over the extent to which the worker was liable for fixing mistakes the worker made. The worker maintains that some mistakes they made they were able to fix up in paid time and others they would fix in their own time. You maintain that the worker was a good worker and there were only rare occasions where a mistake was made, but in these circumstances the worker would fix the mistakes in their own time.

You supplied the worker with all the materials needed to complete the work and paid the worker by the hour.

The fact that the worker paid for insurance and, at least in some circumstances, rectified mistakes in practice suggests that the worker bore the risk of a proportion of the worker's actions.

However, the fact that the worker was paid by the hour and all materials were supplied by you suggested that the worker did not bear the commercial risk of actions. The worker would be paid for the hours worked regardless of whether you made a profit on a particular job.

The Commissioner has found that you and the worker bore a proportion of the risks. However, we have not conclusively established which of the two bore the majority of the risk.

Overall, we have found the risk test in isolation to be inconclusive.

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:

In this case you provided all the materials for the tasks and organised delivery. The worker supplied some tools and equipment.

The worker states that they would use some of your tools and larger equipment. The worker was able to perform the work without using your tools.

You both agree that the worker also made use of one of your vehicles for a period. You have stated that this was because of your personal relationship with the worker.

You have stated that you did not reimburse the worker for expenses the worker incurred. The worker stated that reimbursement happened very rarely.

The facts in this case does not allow for a clear conclusion in regards to the capital test. Therefore we have found the capital test in isolation to be inconclusive.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the worker, the facts and evidence provided points to the conclusion that the worker was your common law employee.

As the facts and evidence indicate that the worker was your employee under common law, we are not required to consider the extended definition in subsection 12(3) of the SGAA. However, in order to leave no doubt as to the Commissioner's view of this matter, the extended definition has been considered and is discussed below.

Question 2

Was the worker your employee 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.

The contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA.

Wholly or principally for labour

In this context, the word "principally" assumes its commonly understood meaning, that is chiefly or mainly, and labour includes mental and artistic effort as well as physical toil.

A contract may be partly for labour and partly for something else, such as the supply of goods, materials or hire of plant or machinery. Subsection 12(3) of the SGAA only applies if the contract is wholly or principally for labour.

Based on the available facts and evidence, we consider that the worker was paid primarily for their own labour and skills.

The worker was paid primarily for labour. The worker was paid an hourly rate and though the worker provided some tools you have stated that the worker was not reimbursed for this. The worker did not supply any materials as this was supplied by you.

The individual must perform the duties themselves

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

Our conclusion regarding the expanded definition of employee

Accordingly, the facts and evidence indicate that the worker also meets the extended 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 confirms that he is satisfied that with respect to work performed for you, the worker does meet the definition of an employee for the purposes of the SGAA under both common law and the expanded definition provided under subsection 12(3) of the SGAA. Accordingly you did have an obligation to pay superannuation contributions for the benefit of the worker under the SGAA.