Edited version of your written advice

Authorisation Number: 1012686241385

Advice

Subject: Superannuation guarantee - status of the worker

Question 1

Is the worker/payee (WP) considered your common law employee as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the quarters ended 31 March  2014 to 30 June 2015 inclusive?

Answer

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

Question 2

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

Answer

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

This advice applies for the following period:

1 January 2014 to 30 June 2015 inclusive

The arrangement commences on:

1 January 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.

We considered these to be the relevant facts and evidence

You requested advice as to whether one of your workers was a contractor or an employee for the purposes of the SGAA.

You provided the following documentation:

• a completed principal questionnaire (the PQ)

• a copy of an executed contract agreement, and

• copies of payment advices issued to the WP

The more relevant information provided in the PQ is as follows:

• a working relationship was established by word of mouth

• a written agreement was formed

• the WP was able to negotiate a specific rates

• the Principal had the right to dismiss the WP

• other workers were engaged on a similar basis

• no training was provided to the WP

• the WP was able to choose times to work

• the WP's refusal to work on a particular premises was accepted

• the WP was not required to wear clothing or use materials promoting the Principal's business

• the WP did not wear clothing or have other items promoting their business

• the rate of pay was changed when WP started their own business

• completion of work checks were conducted before payment

• the WP received no allowances or reimbursements

• the WP was not given specific instructions to complete the work personally

• the WP was not required to guarantee their work for any period of time

• some equipment was provided by the Principal

• the WP was not reimbursed for any assets or equipment

• materials were supplied by the WP

The WP provided a completed worker questionnaire (WQ). The more relevant information provided in the WQ is as follows:

• the WP worked previously for the Principal

• the Principal provided the premises for performance of the work

• as a representative of the Principal, the WP was required to dress professionally

• the WP was not expected to carry out the work personally

• the WP could engage other workers but did not

• the WP used the some of the Principal's assets

• the WP could not carry out the work without using the Principal's premises

• the WP used some of their own equipment and was not reimbursed by the Principal for the associated expenses

• the WP used public transport to get to and from the workplace

• payment for contractors was made twice monthly

• the WP was not working in the business of the Principal

• the WP did not work for other principals

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

We considered the following case law

Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21

Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd (2004) SASC 288

Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17

Hollis v. Vabu Pty Ltd (2001) 207 CLR 21

Montreal v. Montreal Locomotive Works [1947] 1 DLR 161

Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419

Ready Mixed Concrete (South East) Limited v. Minister Pensions and National

Insurance [1968] 2 QB 497

Stevens v. Brodribb ((1986) 160 CLR 16

Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans [1952] 1 TLR 101

World Book (Australia) Pty Ltd v. FC of T 92 ATC 4327

We followed these ATO view documents:

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the Worker/Payee (WP) is an 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.

Therefore you have an obligation to pay superannuation contributions on behalf of the WP.

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? (SGR 2005/1) 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

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:

You have provided a copy of the Contract under which you engaged the WP.

The Principal advised that a working relationship was established by word of mouth.

The Principal advised that the WP negotiated a specific rate of pay, was able to be terminated and needed an Australian Business Number (ABN) in contrast to their casual PAYG workers.

Both contractors and employees may be engaged by word of mouth, however the engagement was conducted on the basis of a written Contract, identifying the WP as the party engaged to provide their unique skills in the provision of their services.

The WP advised that work was previously conducted for the Principal under an employer/employee relationship.

It is acknowledged that the Contract formation shows an intention that the WP be engaged as a contractor rather than an employee. However, simply defining someone as a contractor does not necessarily lead to the conclusion that they are providing services as part of an operation of their own independent business.

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 WP was one of principal and independent contractor.

However, to determine the true nature of the relationship, it is necessary to apply the following common law tests.

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? (SGR 2005/1) 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.

Paragraph 35 of SGR 2005/1 states:

35. 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. In fact, a high degree of direction and control is not uncommon in contracts for services. The payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract; otherwise the contractor is free to exercise their discretion (subject to any terms implied by law). This is because the contractor is working for themselves.

Application of the common law to your case:

The Principal advised that the Contractor is only provided with an introduction, brings personal unique skills, design, IP and copyright to the Principals business, and has flexibility and choice in terms of when the service is delivered.

In a telephone conversation on dd/mm/yyyy, the Principal advised that the content of the service delivered by the WP is not controlled by the Principal or accredited by the any authority. Accordingly there is fundamental expectation that a WP working in this environment would require an ability to develop their own content for service delivery.

The WP advised that the Principal supplies the premises and so access to the premises is dependent on availability, and the WP is only paid if the service is delivered.

It is apparent that the WP brings personal unique skills to the job is not restricted by an accreditation framework or the Principal in terms content and delivery. However, the WP is subject to the control of the Principal in respect of where the work is performed, adherence to the Principal's policies and procedures, provision of future service delivery to the Principal's clients, and provision of records.

The need for the WP to observe the Principal's policies and procedures and be aware of any changes clearly represents a vehicle for the Principal's right to exercise some form of control.

Additionally, there is a degree of control over advertising and registration. Although the content is developed by the WP, the operational circumstances diminish the WP's ability to complete the services fully without being subject to some form of control by the Principal.

Control in the form of how the services are to be performed is not specifically written into the Contract and as such the WP appears to be free to exercise their discretion as referred to under paragraph 35 of SGR 2005/1. However, the WP's discretion is curtailed as detailed above.

Overall, we are satisfied that the control test in isolation is more in favour of the notion that the relationship between you and the WP was one of employer and employee.

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 an 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 Abu:

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 Principal advised that there is no requirement for the WP to maintain dress standards or display signage promoting the Principal's business and the WP did not wear clothing or use items promoting their own business.

The Contract implies that the WP is able to subcontract. The Principal confirmed the ability of the WP to subcontract but clarified that this had not yet happened.

The WP advised that there was an expectation to dress professionally in accordance with Contract conditions. The WP advised that the service was unable to be delivered without using the Principal's assets. The WP claimed that WP was a contractor of the Principal on the basis that the WP was a sole trader.

The WP did not work for other principals. The right to work for other parties extends to both employees and contractors. The fact that the WP was able to provide their services to other parties, whether in the same capacity or otherwise, is not determinative of their status as contractors.

What is more relevant is the nature of the relationship between you and the WP during those times when the WP was engaged by you, and whether the WP was integral to your business during these times. Workers engaged to deliver services play a fundamental role in business delivery regardless of whether they are engaged on a full- time part-time or casual basis.

In these circumstances there is little indication that the WP was operating in their own business when engaged by 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 WP was one of employer and employee.

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.

Paragraph 43 of SGR 2005/1 states:

43. The phrase 'the production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained.

Application of the common law to your case:

The Principal advised:

• that the WP was paid to provide a service but then started a business with an ABN and set an increased rate of pay

• that the WP did not receive any payment/reimbursement for anything other than the work they completed.

It was agreed that the WP could invoice the Principal 4 weeks work at a time. The WP provided invoices confirming this arrangement.

The Contract does not include any specified outcomes but rather represents an agreement to provide unquantified service delivery. The services are provided on the basis of the WP using some assets of the Principal inclusive of the premises for which the Principal would need to meet any outgoings. It is acknowledged that the WP had an ABN but no evidence was provided to show that the working relationship between the Principal and the WP was either 'results based' or changed markedly from the commencement of the Contract. The WP is not currently using third parties to achieve the specified outcomes nor are they exclusively using their own assets and equipment. In effect, the WP is being paid twice monthly in arrears for their services. This does not represent a situation where the WP is using their own means to achieve the result as detailed in paragraph 43 of SGR 2005/1.

Overall, we are satisfied that the results test in isolation is more in favour of the notion that the relationship between you and the WP was one of 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 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.

Paragraphs 48-50 of SGR 2005/1 discuss the delegation of work as follows:

48. 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.

49. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor. Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). 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. In these circumstances, the contractor is the party responsible for remunerating the replacement worker.

50. A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. 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 workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor.

Application of the common law to your case:

Although there are no express clauses in respect of delegation, certain subclauses of the Contract imply that the WP is able to delegate their work.

The Principal confirmed that although delegation is allowable under the Contract, it had not yet occurred. The Principal added that in the event of the WP becoming ill, the service delivery may be cancelled.

The Principal advised that it is expected that the WP will complete the work personally, notwithstanding the ability to delegate under the Contract.

The WP advised that there was an entitlement to have a duly trained subcontractor provide their services but had not exercised this right.

Under the 'terms of engagement' section we have already established that the party contracted to perform the work was the WP in the WP's capacity as a sole trader. This and other factors are supportive of an expectation on the part of the Contractor that the WP would complete the work personally. It is also reasonable to consider, that a potential client would have an expectation that the service would be delivered by the WP.

Although delegation is implied in the Contract, the right has yet to be exercised, and there does not appear to be any true contemplation to delegate.

Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between you and the WP was one of 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.

Paragraph 51 of SGR 2005/1 states:

51. Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. On the other hand, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries their own insurance and indemnity policies

Application of the common law to your case:

The Principal advised that worker's compensation, private accident, and public liability insurances were not paid in relation to the work performed by the WP, and that the WP was not required to guarantee their work for any period of time. The Principal has not provided details of any generic insurance cover held.

The nature of the work requires no substantial outlays or payment for materials by the WP. Essentially, the WP carries little risk of the costs associated with injury or defects with the work and the work is conducted in an environment where performance risk is of no particular significance.

Both the Principal and the WP are exposed to reputational and commercial risk if the work was inadequate. The commercial risk of the WP is lessened in that the WP was paid a set hourly rate under the Contract.

We consider 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:

The Principal advised:

• that they supplied the WP with equipment if required.

• that the WP was not reimbursed for any assets, equipment or tools, and

• that the WP supplied all materials for the service delivery

The WP advised:

• that the WP used some of the WP's own equipment and was not reimbursed by the Principal for the associated expenses.

• that the WP used public transport to get to and from the Principals premises.

Drawing on the observation in the Stevens v Brodribb case, the WP did not provide the WP's own place of work and was only required to pay marginal business expenses from the WP's remuneration. On the other hand, the Principal bore the expense associated with the delivery of the service in the form of freehold or leasehold ownership of the venues and required outgoings.

Overall, we are satisfied that the capital test in isolation is more in favour of the notion that the relationship between you and the WP was one of employer and employee.

Summary - common law

The Principal engaged the WP under a written contract for the purpose of providing a service and the WP's delivery formed an integral part of the Principal's business.

Although the work content is developed by the WP, the operational circumstances diminish the WP's ability to complete the services fully without being subject to some form of control by the Principal.

The Contract does not include any specified outcomes but rather represents an agreement to provide an unquantified amount of work at an agreed hourly rate.

Although delegation is implied in the Contract, the right has yet to be exercised, and there does not appear to be any true contemplation to delegate.

No conclusions were made in respect of the risk element. The WP was not found to have been subject to any substantial capital or expense outlays.

In summary and under subsection 12(1) of the SGAA, when looking at the relationship as a whole, the facts and evidence provided indicate that the relationship between the Principal and the WP was one of employer and employee.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the WP, the facts and evidence provided point to the conclusion that the Worker is a common law employee of the Principal.

It is acknowledged that the WP had an ABN and charged a higher rate than that paid to the WP when the WP was previously engaged by the Principal as a casual. However, this in itself does not deem the WP an independent contractor and the evidence provided did not indicate that the working relationship between the Principal and the WP had changed markedly from the commencement of the Contract.

Of the 7 factors considered, one was considered to be more in favour of the relationship between the Principal and the WP being one of principal and independent contractor, five favoured an employer and employee relationship and one was inconclusive.

As the facts and evidence indicate that the WP 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

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, 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 WP was paid primarily for the WP's own labour and skills. Payments were made by the Principal on the basis of tax invoices issued by the WP. The tax invoices were based exclusively on a fixed hourly rate.

The individual must perform the duties themselves

Although delegation is implied in the Contract, the right has yet to be exercised, and there does not appear to be any true contemplation to delegate.

Not paid to achieve a result

As discussed earlier, we consider that the facts and evidence show that the WP is not paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, as the WP satisfies all three components of the expanded definition under subsection 12(3) of the SGAA, they 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 Principal, the WP does meet the definition of an employee for the purposes of the SGAA under both the common law definition and the expanded definition provided under subsection 12(3) of the SGAA. Accordingly the Principal did have an obligation to pay superannuation contributions for the benefit of the Worker under the SGAA.