Edited version of your written advice

Authorisation Number: 1012737992306

Advice

Subject: Superannuation: Superannuation Guarantee: status of the worker

Question 1

Was the worker considered your common law employee 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

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

Advice

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

This advice applies for the following period:

Year ended 30 June 2014

The arrangement commences on:

1 July 2013

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.

You own and operate a clinic which has two rooms.

One room is used for a number of hours per week by the worker, who pays a proportion of their earnings for use of the clinic including payment facilities.

There is no formal written agreement in place between you and the worker.

The worker's earnings are therefore received initially by your clinic and then forwarded at the end of each month to the worker less the clinic fees which are invoiced to the worker by the clinic.

You do not pay the worker annual leave or sick leave.

The worker has their own ABN and provides treatment to their own clients.

The worker is free to subcontract their clients to another worker if they choose.

The worker is free to provide services to their clients at another clinic if they choose.

The worker has their own indemnity insurance and is personally responsible for harm caused to clients.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 section 12

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the worker was not and is 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 did not and 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? (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

Was the worker considered 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.

The question of whether medical practitioners are employees of a clinic practice - or self-employed, with management services being leased from the practice - was discussed in obiter dicta in the Supreme Court of NSW case of Health Services for Men & Ors v. D'Souza & Ors [1999] NSWSC 969 (Health Services case). The arrangement between the parties was similar to your arrangement with the worker.

In the decision, Bryson J stated at [16] and [17]:

There is in my finding nothing in the nature of an employment relationship or employment discipline between the plaintiffs and the medical practitioners. Support given by the plaintiffs to the doctors in their work is very full indeed, even extending to paying their travelling and other expenses of attending at clinics, it may be interstate, to fulfil the rosters. There is no indication in evidence that doctors are ever constrained by the plaintiffs' direction to do anything otherwise than exactly as the doctors choose to act. There is no indication of any source for a right to control them in any such way.

My interpretation of what takes place accords with the view put forward by the defendants. The essence of what is taking place is that patients who need medical treatment are consulting medical practitioners and obtaining the opinion and advice of the medical practitioners; the patients are not interested in consulting persons who are not medical practitioners but conduct clinics through the agency of medical practitioners who form part of their organisation. It would be unlawful for persons who are not medical practitioners to give medical advice and prescribe treatment. The medical practitioners do not receive and prescribe to a standardised chain of patients with standardised conditions; patients and medical practice are just not like that, and the need for individual personal judgment on the medical practitioner's professional responsibility presents itself anew for each patient. It would not be possible for consultations to be bulk-billed to Medicare unless they were consultations with medical practitioners for which medical practitioners were entitled to charge the patients. In my interpretation it is the plaintiffs' business to provide services to medical practitioners to support their practising medicine and in so doing to enhance, I would think greatly, the medical practitioners' opportunity to receive and treat patients in numbers.

In your arrangement, you have no right of control over the manner in which the worker performs their services for their clients. The worker may if they wish delegate treatment of their clients to another worker, and may perform the services at another location. They have their own ABN, and indemnity insurance and bares the risk of any harm they may do to their clients. Yours is an arrangement regarding the use of a room in your clinic and any other facilities, including payment facilities to process client fees. The worker's earnings from clients seen at your clinic are therefore received initially by your clinic and then forwarded at the end of each month to the worker less the clinic fees. You provided copies of monthly invoices you sent to the worker for clinic fees.

When considering the totality of the relationship within this case in a contractual and practical sense, and following the principles in Health Services case where the clinic also collected the fees from clients before forwarding them to the service providers less the applicable clinic fee, it is not the view of the Commissioner that such a relationship is characteristic of an employer/employee relationship under common law.

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 is not your common law employee.

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

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, 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.

Then 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.

As it is considered that the worker is performing services for their clients, and paying you for the facilities that you provide at your clinic, subsection 12(3) has no application in this matter.

Even if it were to be suggested that the worker is providing a service to you, it would still need to be established that they are being paid wholly or principally for their labour in order for subsection 12(3) to apply.

A payment for labour is usually an hourly rate taking the form of salary or wages. You are not paying either one to the worker under your agreement. Instead, the worker is receiving a percentage of their clients' billings, and the distributions received are in respect of, and conditional to, the completion of each of their client consultations, making the agreement results based.

Our conclusion regarding the expanded definition of employee

Accordingly, as your arrangement with the worker does not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, your agreement does not meet the expanded definition of an employee relationship 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 the arrangement between you and the worker, the worker is not an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly you do not have an obligation to pay superannuation contributions for the benefit of the worker under the SGAA.