Edited version of your written advice

Authorisation Number: 1012672233004

Advice

Subject: Status of the worker

Question 1

Are the workers engaged by you to provide entertainment considered to be 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 engaged by you to provide children's entertainment at parties, considered to be your employees by virtue of subsection 12(8) of the SGAA?

Advice

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

Your contentions have been taken into consideration. Please see 'Why we have made this decision'.

This advice applies for the following period:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

1. You applied for a ruling with regard to your obligations for superannuation guarantee for the workers

2. On X June 2014 we received the completed Superannuation Guarantee: Status of the worker questionnaire which contained the following assertions made by you:

• The workers attends entertainment events

• The work is offered on an ad-hoc basis.

Terms and the circumstances of the formation of the contract

• The relationship with the workers was primarily established through word of mouth.

• Workers have their own ABN.

• You did not enter into a written contract with the workers

• You had a verbal agreement with the workers.

• You advise that the workers are able to negotiate their rate of pay.

• You do not guarantee work for the workers and it is on an ad-hoc as needed basis that you procure their services.

Control test

• You do not provide these workers with any training.

• The hours of work is determined by reference to the needs of the end clients.

• You do not require the workers to attend meetings within your business or with your clients.

• The workers are not entitled to paid breaks.

• The workers have autonomy in choosing how their work is scheduled.

• You direct where the performances are to be held depending on the needs of the customers.

• The workers are not directly supervised.

• The workers have the right to refuse any particular job.

Integration test

• The workers are able to provide their services to others and do this in practice regularly.

• The workers work alone. They would occasionally work with other workers engaged by you but mostly they would work by themselves.

• The workers are not involved in training or supervising any staff of the principal.

• The workers are not required to wear or use any branded items form the principal. They provide their own costumes.

• You do not advertise your business on any of the assets, equipment or tools used by the workers.

Results Test

• The workers submit you with an invoice upon completion of each event. They have also provided you with copies of their public liability insurance.

• The rate of pay change in practice depending on the nature of the job.

• You do not generally check to see if the work the workers did was completed.

• You pay the workers into their bank accounts.

• You do not generally give the workers any reimbursements.

• You do not make any deductions for income tax, superannuation or for anything else out of the payments made to the worker.

Delegation

• You have informed the workers they are allowed to delegate.

• You usually arrange for a replacement should a worker be unable to turn up to work.

• In practice a worker found another to work in the worker's stead but payment was made directly to the second worker.

Risk test

• You do not provide the workers with workers compensation insurance, private accident insurance or any other type of insurance. The workers provide their own public liability insurance.

• No claim has been made against this policy.

• The workers are not required to guarantee their work.

• The workers are responsible for managing their own time and takes the risk with their own equipment.

Provision of tools and equipment and payment of business expenses test

• You do not supply the workers with assets, equipment or tools for them to complete their work.

• You do not reimburse the workers for their assets, equipment or tools.

• The workers supply their own materials for their performances.

• The workers are not required wear protective gear for their performances.

1. You advised by telephone conversation that:

a. You wish for the advice to cover all employees who are engaged under the conditions outlined in your application;

b. These workers are not trained by the you, as these workers already have sufficient training and they are different.

c. For casual gigs, it is the norm for workers to receive a part payment from the clients. You normally receive a deposit from the client, and you then instruct the client to pay the difference to the performers;

d. For corporate gigs, the workers invoice you in full for payment.

Relevant legislative provisions and ATO view documents

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(8)

Superannuation Guarantee Ruling 2005/1

Why we have made this decision

Summary

The facts and evidence suggest that while the workers are not your employees under the common law definition, the workers are your employees under the expanded definition as set out in subsection 12(8) of the SGAA. You therefore have an obligation to pay superannuation contributions on behalf of the workers for the period under review.

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 as performing artists.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also whether the expanded definition of 'employee' in subsection 12(8) of the SGAA applies. If a worker is not an employee under subsections 12(1), and 12(8) of the SGAA, there cannot be an obligation to make superannuation contributions on behalf of the worker by the principal.

Question 1

Is the worker your common law employee as defined in subsection 12(1) of the SGAA ?

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:

In your case the workers are engaged by word of mouth. There is no written contract and you agreed to the terms via a verbal contract. The workers are engaged on an ad-hoc case by case basis to entertain. The workers have their own ABN and the terms of the verbal agreement allows the worker to accept or reject work as they like. There are no paid breaks, paid leave or any other conditions other than just a payment per event. It is evident that the workers contracted with the principal not as employees but as an independent contractor.

Therefore this test is in favour of a principal and independent contractor relationship.

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 principal directs where a performance is to be held. However this is at the premises required by the client and is considered neutral.

The clients request the length and style of performance from the principal. Within these requirements the workers have autonomy in how they do their performances. Similarly, taking into consideration the needs of the client, the workers decide how they dress and what items they use in any performance. The control over the theme of the event lies with the client, but the workers exercise their own control in the delivery of the entertainment.

The workers have the right to refuse work and there is not a strict binding agreement between the principal and the workers tying the worker to the principal. These facts support the notion that the workers had control over the work they performed.

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

The workers have a specialised skill which they offer to the principal. The workers have their own ABN and offer their services to others in practice. You have indicated that they regularly do this type of performances for others.

The workers are not required to train any other staff employed by the principal and does not attend any meetings in your business.

The workers are not required to present in any of the principal's clothing and the principal does not advertise on any of the clothing or equipment of the workers.

These facts indicate that the workers are not integrated with your business. There is nothing to indicate that the workers are integrated with you.

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:

You pay the workers per performance that they undertake. There is usually no payment if an event is cancelled. The workers invoice you for the completion of an event

The rate of pay for events is normally set but has changed in the past where a worker undertook larger events with more children. This indicates that the payment made to the workers is based on the type of event they run and not solely for the hours they work.

The workers have the ability to negotiate a higher rate of pay.

The workers are not normally reimbursed for expenses such as travel or meals.

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:

You claim that the workers have the right to delegate and have in the past used this right to delegate the completion of a particular event to another person. In practice, what happened was substitution not delegation.

As there is no example provided of actual delegation it is unclear whether this is allowed in practice at the complete discretion of the worker. Furthermore, you state that you normally find replacements for the workers should they be unable to attend an event.

Therefore, we have found that the delegation test in isolation is inconclusive.

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 your case the workers paid their own public liability insurance. The workers use their own equipment and they are not supervised by the principal or anyone working for the principal.

The workers structure their own performances, within the specifications required by the clients, and they take risks with their own equipment.

These facts all indicate that the workers bear the majority of risks associated with the work they performs.

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 contractor.

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 principal does not provide the workers with any equipment, tools or materials.

Overall, we are satisfied that the capital 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.

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 principal.

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(8) of the SGAA.

Question 2

Is the workers your employees by virtue of subsection 12(8) of the SGAA?

Expanded definition of Employee under Subsection 12 (8) of the SGAA

Subsection 11(1) of the SGAA provides an inclusive definition of the term 'salary or wages'. Under paragraph 11(1)(d) payments to a person for work referred to in subsection 12(8) are specifically included in salary or wages.

Paragraph 12(8)(a) of the SGAA states:

a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.

Paragraph 12(8)(b) of the SGAA states

a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment.

At paragraph 61, SGR 2005/1 states:

61. Although the term 'employee' has its ordinary meaning in the SGAA, subsections 12(2) to 12(11) list a number of further persons who are also treated as employees. These subsections deem persons who come within these subsections to be employees for the purposes of the SGAA, even if they are not common law employees and are clearly distinguishable from common law employees.

Paragraphs 83 to 85 of SGR 2005/1 explain what types of activities are included under subsection 12(8):

83. Subsection 12(8) of the SGAA defines 'employee' to include:

(a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment.

84. One clear limitation on these words is that the active participation of the artist or sportsperson is required. If not, it could not be said that the person is 'paid to perform or present' the activity. A painter, for instance, does not perform or present a painting exhibition. They merely produce the works used in the exhibition. Therefore, even though the products of their work can form part of, for example, a display, individuals who produce paintings or photographic displays do not usually come within the scope of paragraph 12(8)(a).

85. That the word 'similar' is used also shows clearly that 'activity' is limited to things of a like kind. We consider that the activities covered by paragraph 12(8)(a) are those which derive their artistic or sporting content from the performance or presentation because that is the common thread running through the listed activities.

Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons (SGR 2009/1), although specifically dealing with sportspersons and prize money, still provides the ATO view on the general operation of subsection 12(8) of the SGAA. There is no distinction made in subsection 12(8) between sportspersons, dancers and musicians.

SGR 2009/1 confirms at paragraph 9 that an examination of the character of the payments to the performer is required.

9. Subsection 12(8) applies on a payment by payment basis. The character of the payments received by a sportsperson are determinative of whether that person will be treated as an employee of the payer under subsection 12(8) for the purposes of the SGAA. In determining the character of the relevant payment, reference must be made to the substance of the arrangement, and not merely by reference to what the parties have agreed to label the payment. Each case must be examined on all the facts and circumstances.

Application of the extended definition under subsection 12(8) of the SGAA to your case

In your case the worker is actively engaged in entertaining.

You yourself call the workers entertainers and it is clear that you pay the worker for providing entertainment involving the exercise of the worker's own artistic and other personal skills in the activities they undertake.

You pay the worker for providing entertainment involving the exercise of the worker's own artistic and other personal skills in the activities they undertake. Following receipt of an invoice from the worker, you generally pay the workers direct. In other situations, you arrange the client to pay the workers on your behalf at the event itself, and the worker invoices you, and you pay, the difference for their normal fee. You are liable for payment of the workers, whether you make payment in full following the event, or whether you make a partial payment, in addition to cash received from the client, following the event.

Therefore the extended definition under subsection 12(8) of the SGAA applies to the all payments you make to the workers, and they are your employees for superannuation guarantee purposes.

Conclusion - overall

Upon considering of all the available facts and evidence, the Commissioner finds that with respect to work performed for the principal, the worker does not meet the definition of an employee for the purposes of the SGAA under the common law definition. However the worker does meet the extended definition of employee as found in subsection 12(8) of the SGAA. Therefore you do have an obligation to provide superannuation support to the worker in accordance with the SGAA.