| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of administratively binding advice
Authorisation Number: 1012585446984
Advice
Question 1
Is the worker considered your employee as defined in section 12 of the Superannuation Guarantee Administration Act 1992 (SGAA)?
Advice
No. Refer to 'Reasons for decision'
Question 2
Are you liable to pay superannuation guarantee for the worker?
Advice
No. Refer to 'Reasons for decision'
Relevant facts and circumstances
The worker is paid by you through the worker's company on the basis of a timesheet and invoice.
The agreement was negotiated verbally and via email.
You make payments on the invoices to an account in the name of the worker's company.
Relevant legislative provisions
Superannuation Guarantee Assessment Act 1992 subsection 12(1)
Superannuation Guarantee Assessment Act 1992 subsection 12(3).
Reasons for decision
Summary
The facts and evidence lead to the conclusion that the worker was not your employee 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 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.
Work for another party through an entity
Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. However, the individual may be the employee of the intermediary company or trust, depending on the terms of the arrangement.
A person who holds an ABN may still be an employee for the purposes of the SGAA.
Application to your circumstances
On the basis of the information and documents provided, the worker is operating through their own company and the agreement to provide their services to you is between you and their company. Workers operating through companies are not your employees for the purposes of the SGAA, either at common law or under the extended definition of employee, because you have entered into an agreement with the interposed entity rather than the individual. You therefore do not have an obligation to pay superannuation contributions on behalf of the worker.