Edited version of your written advice

Authorisation Number: 1013102231980

Date of advice: 29 November 2016

Subject: Status of the worker under the Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

Question 1

Are the Workers common law employees of the Principal as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the 2015-16 to 2018-19 financial years?

Advice

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

Question 2

Are the Workers the Principal's employees by virtue of subsection 12(3) of the SGAA, for the 2015-16 to 2018-19 financial years?

Advice

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

Question 3

Are the Workers common law employees of the Principal as defined in subsection 12(1) of the SGAA for the 2015-16 to 2018-19 financial years?

Advice

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

Question 4

Are the Workers the Principal's employees by virtue of subsection 12(3) of the SGAA for the 2015-16 to 2018-19 financial years?

Advice

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

This advice applies for the following period

1 July 2015 to 30 June 2019

The arrangement commences on

1 July 2015

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

We received your application (the Application) lodged by your agent.

The Principal had a mix of full-time and part-time workers.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Subsection 12(1)

Superannuation Guarantee (Administration) Act 1992 Subsection 12(3)

Reasons for decision

Summary

The Commissioner considers that the Workers do not meet the definition of employees for the purposes of the SGAA under either the common law definition or under the expanded definition as set out in subsection 12(3) of the SGAA.

Detailed reasoning

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

While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract an SGC liability.

Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the expanded definition of 'employee' in subsection 12(3) of the SGAA applies. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation.

The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be difficult and will depend on the facts of each case.

Accordingly it is necessary to determine the true nature of the whole relationship between the principal and the workers, as to whether there was a common law employer and employee relationship, or whether the workers meet the expanded definition of employee under subsection 12(3) of the SGAA.

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:

Question 1

Relevant facts and circumstances

In the Principal Questionnaire (PQ) you advised that the Workers are engaged on an engagement-by-engagement basis. The Workers secured work via both word of mouth and being approached by the Principal.

Responses provided by the Workers indicate that they did not consider themselves to be in an employer/employee relationship

Application of the common law to your case

Paragraph 29 of Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? states:

29. As Gray J stated in Re Porter : re Transport Workers Union of Australia

Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it…

In this case it appears both the Principal and the Workers considered a principal and independent contractor relationship existed.

Overall, we are satisfied that the terms of engagement test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of principal and independent contractor.

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

Question 3 - Are the Workers common law employees of the Principal?

Relevant facts and circumstances

In your PQ response you advised that the service providers are engaged on an engagement-by-engagement basis. There is no 'daily' work routine or even a routine as such. One of the Workers worked in a consultancy capacity

Application of the common law to your case

Responses provided by the Workers indicate that they did not consider themselves to be in an employer/employee relationship.

Paragraph 29 of Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? states:

29. As Gray J stated in Re Porter : re Transport Workers Union of Australia

Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it…

Overall, we are satisfied that the terms of engagement test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of principal and independent contractor.

However, to determine the true nature of the relationship, it is necessary to consider other 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 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.

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.

Question 1 -

Relevant facts and circumstances

In the PQ you advised that there were no set hours, the Workers were not entitled to paid breaks, and the Workers could refuse work.

In response to the WQs issued the Workers have advised that they:

● did not complete any training

● were not required to attend meetings

● were not entitled to paid breaks

● were not subject to the Principal scheduling jobs/tasks

● were required to give notice for time off to enable the Principal to find another Worker.

● were not supervised

● could refuse to do particular jobs

● could take time off without the Principal's permission

Application of the common law to your case

The Principal did not provide any training and there were no set hours or paid breaks. The Workers were required to meet industry standards.

Paragraph 33 of SGR 2005/1 highlights that where skilled labour is used, the importance of control lies not so much in its actual exercise, although relevant, as in the right of the employer to exercise it. The Principal exercised some control over the Workers.

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

Question 3

Relevant facts and circumstances

In your PQ response you advised that the Workers were not entitled to paid breaks, did not attend meetings, and could accept or reject work.

The Principal had controls in place to manage and control the quality of the services provided to its clients.

A respondent to the Worker Questionnaire advised that hours worked are in accordance with professional guidelines.

Application of the common law to your case:

Overall, with the exception of the services provided by one of the Workers, we are satisfied that the control test in isolation is more in favour of the notion that the relationship between the Principal and the Workers 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 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).

Paragraph 39 SGR 2005/1 states:

39. In Hollis v. Vabu , the majority of the High Court quoted the following statement by Windeyer J in Marshall v. Whittaker's Building Supply Co

... the distinction between an employee and independent contractor is 'rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.'

Paragraph 13 of SGR 2005/1 states:

13.Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee

Question 1

Relevant facts and circumstances

In the PQ you advised that there was no expectation that the Workers work solely for you.

The Workers were not required to wear the clothing or name badges promoting the Principal's business.

In response to the WQs issued the Workers advised that they:

● advertised their services during periods of working for the Principal

● could provide services to other clients

● worked alone

● were not required to wear a name badge clothing

● did not have assets/equipment on which the Principal advertised their business

● did not advertise their business on any of their assets/equipment

Application of the common law to your case

The Principal advised in the PQ that the Workers provided their services to other individuals or businesses.

The responses provided in the WQs confirmed the detail provided in the PQ. Additionally, the Workers advised that they were not required to wear a name badge or clothing identifying the Principal.

The benefits from the creation of goodwill flowed to the Principal which suggests an employer and employee relationship.

The Workers formed a critical part of the Principal's business.

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 was one of employer and employee.

Question 3

Relevant facts and circumstances

In the PQ you advised that the Workers were providing services to businesses other than your business, and they were not required to wear any items promoting your business.

Application of the common law to your case

The Principal advised in the PQ that the Workers provided their services to other individuals or businesses.

The responses provided in the WQs confirmed the detail provided in the PQ. Additionally, the Workers advised that they were not required to wear a name badge or clothing identifying the Principal.

The Workers formed a critical part of the Principal's business.

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 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.

Question 1

Relevant facts and circumstances

In the PQ you advised that the Workers are paid on presentation of an invoice for completed work. Standard rates apply, however the Workers are able to negotiate other rates in certain circumstances.

The Workers advised that:

● invoices were submitted for jobs

● fees are sometimes negotiated

● repetitive work was charged at a fixed rate for the sake of convenience

● payment was dependent on completion of the job

● payments were made into the Worker's bank account

● no payment or reimbursement was received for anything other than the work completed

Application of the common law to your case

The Principal advised that the Workers were paid on presentation of an invoice. Examples were provided which show that invoices were based on job completions.

The Workers did not receive any payments or reimbursements for anything other than the work they completed.

The Workers issued invoices for each job which is consistent with operating their own business. Although the invoiced amounts may have been based on the estimated time and labour cost necessary to complete the job, no evidence was presented that Workers were able to negotiate extra invoiced amounts based on their actual completion times.

Overall, we are satisfied that the results test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of principal and independent contractor.

Question

Relevant facts and circumstances

In the PQ you advised that the Workers are paid upon presentation of an invoice and only when the Principal can confirm that the work for which they were engaged was completed.

There was no provision for core working hours or overtime.

Application of the common law to your case

The Commissioner considers that the results test is more in favour of the notion that the relationship between the Principal and the Workers was 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.

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.

Question 1

Relevant facts and circumstances

In the PQ you advised that the Workers were able to engage employees or sub-contractors to complete work for the Principal.

The Principal explained that the Workers had the ability to delegate.

Application of the common law to your case

Although some Workers may have always completed the work personally, they had a right to delegate under the terms of the contract.

Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of principal and independent contractor.

Question 3

Relevant facts and circumstances

In the PQ you advised that the Workers did not have to complete the work personally.

Application of the common law to your case

The Principal explained that the Workers engaged had the ability to delegate.

Overall, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of principal and independent contractor.

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.

Question 1

Relevant facts and circumstances

The Principal does not pay workers compensation insurance, private accident insurance, public liability insurance, or any other insurance in relation to the Workers.

In response to the WQs issued the Workers have advised that:

● they, rather than the Principal, paid for any insurances required

● they had to correct their work in their own time.

Application of the common law to your case

The Principal did not pay for any insurance associated with the Workers. There was an expectation that the Workers would have to correct any work in their own time.

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

Question 3

Relevant facts and circumstances

The Principal did not pay for any insurance associated with the Workers.

There was an expectation that the Workers would have to correct any work in their own time.

Application of the common law to your case

Overall, we are satisfied that the risk test in isolation is more in favour of the notion that the relationship between the Principal and the Workers was one of employer and employee.

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…

Question 1

Relevant facts and circumstances

The Principal advised that the Workers were not supplied with any equipment and were not reimbursed for any costs. Materials were to be provided by the Workers.

In response to the WQs issued the Workers have advised that they:

● supply their own tools and equipment

● were not reimbursed by the Principal for any asset or equipment purchases

● supplied their own materials

Application of the common law to your case

The Commissioner considers the capital/expenses test inconclusive as to whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

Question 3 -

Relevant facts and circumstances

The principal advised that the Workers were not supplied with any equipment and were not reimbursed for any costs. Materials were to be provided by the Workers..

Application of the common law to your case

The Commissioner considers the capital/expenses test inconclusive as to whether the facts and evidence support a principal and independent contractor relationship or an employer and employee relationship.

Our conclusion regarding the common law definition of employee

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 Workers are not common law employees of the Principal.

Workers - question 1

The terms of engagement indicated that the Workers and the Principal intended to operate under a principal and independent contractor arrangement.

The Commissioner found the Workers formed an integral part of the Principal's business and the Principal had the right and the means to exercise some control over them. However, in contrast, the Workers had a right of delegation and were paid to produce a result, which were important elements in the context of the relationship between the parties.

Other common law elements relating to capital and risk were considered to be of marginal importance in considering the status of the Workers.

Accordingly, with respect to the totality of the relationship between the Principal and the Workers, the facts and evidence provided point to the conclusion that the Workers were independent contractors.

As the facts and evidence indicate that the Workers were not the Principal's employees under common law, we will consider the expanded definition of employee under subsection 12(3) of the SGAA.

Workers - question 3

The terms of engagement indicated that the Workers and the Principal intended to operate under a principal and independent contractor arrangement.

The Commissioner has found the Workers formed an integral part of the Principal's business. The Principal was found to have the right and the means to exercise some control over the Workers. However, in contrast, the Workers had a right of delegation and were paid to produce a result, which were important elements in the context of the relationship between the parties.

Other common law elements relating to capital and risk were considered to be of marginal importance in considering the status of the workers.

Accordingly, with respect to the totality of the relationship between the Principal and the Workers, the facts and evidence provided point to the conclusion that the Workers were independent contractors.

As the facts and evidence indicate that the Workers were not the Principal's employees under common law, we will consider the expanded definition of employee under subsection 12(3) of the SGAA

Questions 2 and 4

Employee under subsection 12(3) of the SGAA

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 facts and evidence provided, the Workers provide their knowledge and skills for the Principal and are remunerated principally for their labour.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that Workers did have the right to delegate work to others.

Not paid to achieve a result

As previously discussed, the facts and evidence indicate that Workers were paid for a result.

Our conclusion regarding the expanded definition of employee

Accordingly, as the Workers do not meet all three components of the expanded definition, they do not meet the expanded definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

The Commissioner is satisfied that with respect to work performed for the Principal, that the Workers 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.

Other relevant comments

Generally, if you pay an employee $450 or more (before tax) in a calendar month, you have to pay super guarantee (SG) on top of their wages.

Partnerships and trusts are not employees for the purposes of the SGAA.

We took these laws into account

Superannuation Guarantee (Administration) Act 1992 subsection 12(1)

Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

We considered the following case law

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?