Edited version of your written advice

Authorisation Number: 1012870638396

Date of advice: 2 September 2015

Advice

Subject: Status of Worker

Question

Will thesis examiners receiving honorarium payments be employees in accordance with section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

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

This ruling applies for the following period

1 July 2015 - 30 June 2016

This scheme commenced on

1 July 2015

Relevant facts and circumstances

1. As part of the entity's operations it invites academics to act as thesis examiners.

2. The examiners receive payments in respect of marking the following theses:

• Masters theses

• Doctor of Philosophy theses, higher

• Doctorates and Professional doctorates

3. Each year a large number of persons mark theses for the entity.

4. All persons who perform the tasks are residents of Australia for tax purposes.

5. Persons performing the tasks must be independent of the entity to ensure they are free from bias and the persons all have expertise in the area of the specific task.

6. None of the examiners sign employment contracts with the entity. The entity is under no legal obligation to pay the persons and the persons may elect to not receive payment for performing a task.

7. Examiners do not need to travel to the entity to perform the tasks and they incur no expenses.

8. Typically, examiners will spend three to four days performing a task.

9. The majority of examiners will only mark 5 to 10 theses in their entire careers.

Reasons for decision

Summary

The facts and evidence suggest that the thesis examiners are not your employees 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 workers.

Detailed reasoning

Honorarium payments

An honorarium is as an ex-gratia payment (a payment made without the giver recognizing themselves as having any liability or legal obligation) given to a professional person for services for which fees are not legally or traditionally required.

A true honorarium is typified by the following:

• a one off payment made to the service provider who had no expectation of receiving the payment

• the payment is a token amount compared to the value of the services provided and/or the expenses incurred by the recipient

• there is no obligation on the part of the payer to make the payment; and

• the duties performed by the recipient are purely intended for their own benefit rather than for gain.

Merely referring to a payment as an honorarium does not mean that the payment is a true honorarium payment.

A payment which represents remuneration for services performed cannot be considered to be an honorarium. This is because the individual is being engaged to provide a particular service and has the expectation that they will be remunerated for providing that service

The issue is whether 'honorarium payments' made to the entity's thesis examiners will result in them being employees in accordance with section 12 of the SGAA?

Superannuation guarantee

The SGAA states that an employer must provide the required minimum level of superannuation support for its employees or pay the Superannuation Guarantee Charge (SGC).

The definition of employee under section 12 of the SGAA includes a common law employee and 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'. Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? distinguishes this relationship from a 'contract for service' which is typically a contractor and principal type of relationship which does not attract an SGC liability.

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.

Common law employee

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.

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.

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. The importance of control lays not so much in its actual exercise 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 SGR 2005/1 provide 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.

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.

Results test

Where the substance of a contract is for the production of a given result, there is a strong indication that the contract is one for services.

'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.

The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result.

Delegation

The power to delegate or subcontract 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.

Whereas if an individual has unfettered power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is engaged as an independent contractor. The contractor is free to arrange for their 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.

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.

Risk

An employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. An independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor is usually expected to take out their own insurance and indemnity policies.

Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for the rectification of faulty or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor.

Commonly, an independent contractor or entity would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense.

An employee on the other hand, would bear no such responsibility and the liability for any defective work of the employee, either to a third party or otherwise, would fall to the employer in terms of the burden of cost or time for rectification.

Provision of tools and equipment and payment of business expenses

The provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. The provision and maintenance of tools and equipment and payment of business expenses should be significant for the individual to be considered an independent contractor.

There are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work.

Furthermore, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment, including for the use of their own assets such as a car.

Conclusion - common law definition of employee

With respect to the relationship between the entity and its thesis examiners, the facts and evidence provided points to the conclusion that the examiners are not common law employees of the entity. This is based on the following:

• None of the examiners enter into employment contracts with the entity and the entity is under no legal obligation to pay the examiners.

• The entity invites examiner to mark a thesis, however, does not dictate how it is to be done.

• Examiners are independent of the entity to ensure they are free from bias. Examiners are either academics or professionals and have a high degree of independence, discretion and flexibility in how a thesis is marked.

• Examiners are paid per thesis, not on a time basis.

• Examiners are used for their knowledge of the subject matter of the particular thesis.

• No specific assets, tools or equipment are required to mark a thesis.

• Examiners are not reimbursed for any expenses incurred, they are only paid a set fee for each thesis marked.

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

Expanded definition of employee for SGAA purposes

The expanded definition of employee within subsection 12(3) of the SGAA, which states:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA.

Paragraph 78 of SGR 2005/1 states that where the terms of the contract, in light of the subsequent conduct of the parties, indicate that:

• the individual is remunerated (either wholly or principally) for their personal labour and skills;

• the individual must perform the contractual work personally (there is no right to delegate); and

• the individual is not paid to achieve a result.

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

Wholly or principally for labour

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

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

Based on the available facts and evidence, we consider that the thesis examiners are not paid primarily for their own labour and skills.

Thesis examiners do not sign employment contracts with the entity and the entity is under no legal obligation to provide them with a payment for marking papers. Payments are made to the examiners out of gratitude. Examiners can also elect not to receive payment for marking a paper. Thesis examiners receive a token payment compared to the value of the services they provide and there is no obligation on the part of the entity to make the payment for the service provided.

The duties performed by the examiner are not intended for their own personal gain as there is no expectation of receiving payment.

There is no right to delegate duties

We consider that the facts and evidence indicate that thesis examiners cannot delegate their duties to others. Although the service is conducted on a voluntary basis the arrangement requires the examiner to perform the task.

Payment to achieve a result

We consider that the facts and evidence indicate that thesis examiners are paid for a result.

Examiners are paid per thesis marked and not on a time basis. However, as stated above examiners receive a token payment compared to the value of the services they provide and there is no obligation on the part of the entity to make the payment for the service provided.

Conclusion - expanded definition of employee

Accordingly, as thesis examiners do not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, they do not 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 entity, the thesis examiners do not meet the definition of 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, the entity does not have an obligation to pay superannuation contributions for the benefit of thesis examiners under the SGAA.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

We followed these ATO view documents

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