Edited version of your written advice

Authorisation Number: 1013116607529

Date of advice: 1 November 2016

Ruling

Subject: Superannuation guarantee

Question

Was the Worker an employee in accordance with section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

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

The Principal and Worker contentions have been taken into consideration. Please see 'Reasons for decision'.

This advice applies for the following period:

1 July 201X to 30 November 201Y

Relevant facts and circumstances

The Principal is an independent statutory authority.

The Principal provides is legally assisted dispute resolution (DR) services. DR conferences are facilitated by DR practitioners (DRP, chairpersons).

The purpose of the conferences is to help people in law disputes resolve disagreements on significant issues. The Principal is authorised to provide alternative dispute resolution (ADR) programs under state law.

An ADR program offered by you is the DR service. The DR service is provided in accordance with the Family Law Act 1975 (Cth) (FLA). Section XYZ of the FLA requires parties to a dispute to attempt to resolve their differences by DR before seeking the intervention of the Relevant Court.

The Principal is authorised under the state law to engage Workers to provide specific DR services.

The Principal pays Workers a fixed fee for conducting a DR conference with additional fees for travel. Workers are required to provide their own mode of transport to attend regional conferences

There are no written agreements between the Principal and a Worker. However, a position description is provided to the Worker.

Workers are not required to provide their services exclusively to the Principal and may provide services to other entities. A Worker cannot delegate their work to others.

Workers provide the Principal with a schedule of their availability for DR conferences two months in advance. The Principal offer the Workers conferences according to this schedule. They have the right to decline a conference.

Workers are required to maintain their own workers compensation. They are also required to maintain personal professional indemnity insurance, unless the Principal waives this requirement as per the immunity provision under state law.

Workers are not required to wear a uniform or have business cards identifying them as an employee of the Principal.

Upon completing a DR conference, a Worker provides the Principal with a tax invoice for payment of their fees. Workers are registered for GST and have their own ABN.

The Principal provides a documented conference process for Workers to follow, including writing a report in accordance with an in-house report template.

Workers may be observed by another senior Worker during initial conferences (to assess suitability) and on no more than one occasion per year for the purpose of professional development.

The Worker reports to a case management co-ordinator who oversees quality control and ensures that practice complies with the requirements of the conference process model.

Workers are obligated to conduct the conference proceedings in an independent and unbiased manner. They make their own decisions on facilitating discussions on issues in dispute, generating options and overseeing any agreement.

Workers are required to attend professional development and training as required by the DR Practitioner Regulations to maintain accreditation as a DRP, including, but not limited to, regular in person attendance at unpaid (but free) professional development meetings provided by the Principal and attendance at Peer Supervision in person or by telephone/video conference if distance precludes. Costs of external education, training and professional development are met solely by the Workers.

Workers are drawn from a panel of external contractors and in-house staff. In-house Workers do not chair conferences where a professional employed directly by the Principal is representing one of the parties due to a perceived conflict of interest.

Reasons for decision

Summary

Work performed by a Worker will not result in them being an employee under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA. The Principal therefore will 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 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 Worker, as to whether there was a common law employer and employee relationship or whether the Worker met the expanded definition of employee under subsection 12(3) of the SGAA.

The fundamental task with respect to the terms of the engagement test is to 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.

Contractual arrangements often contain a clause that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole - that is, the parties cannot deem the relationship between themselves to be something that is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label. If the underlying reality of a relationship is one of employment, the parties cannot alter that fact by merely having the contract state (or have the worker acknowledge) that the worker's status is that of an independent contractor.

In this case there are no written agreements between the Principal and the Workers. The Principal consider Workers to be independent contractors.

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.

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.

It is evident that the FLA and regulations have a significant impact in terms of who can be a Worker and how they must conduct their conferences, issue certificates and general obligations to the parties involved in the dispute.

By legislation alone a Worker is to be seen as an independent party from the Principal.

Workers provide the Principal with a schedule of their availability for DR conferences two months in advance. The Principal offers Workers conferences according to this schedule and there is no guarantee of regular work. They have the right to decline a conference.

Workers are also required to assist with complaints submitted to the Principal and provide detailed written responses to the ADR Manager.

As part of the accreditation requirements regulation 6 of the Family Law (Family Dispute Resolution Practitioners) Regulations 2008 states that a DRP must have access to a suitable complaints mechanism. The Relevant Department's fact sheet titled 'Accreditation as a Dispute Resolution Practitioner' describes a suitable complaints mechanism as:

● a recognised process established by an organisation of which the practitioner is an affiliate or employee or on whose behalf the practitioner provides services;

● a process established by a professional association of which the practitioner is a member; or

● complaints procedures of statutory bodies established by the Commonwealth, a State or Territory; and

● a process providing sufficient independence of process.

The fact that every accredited DRP must have access to an independent complaints process and considering that a Worker responds to complaints through meetings and in writing but receives no additional payment for doing so, is not typical of control as seen in a contract of service.

The Principal provides a documented conference process for Workers to follow, including writing a report in accordance with an in-house report template. A Worker may be observed by another senior Worker during initial conferences (to assess suitability) and on no more than one occasion per year for the purpose of professional development. The Worker reports to a case management co-ordinator who oversees quality control and ensures that practice complies with the requirements of the conference process model.

The Principal advises that this process is necessary so that the Principal has assurance of appropriate conduct of conferences and for the ongoing development of the program.

The Relevant Department is responsible for granting and maintaining accreditation for all DRPs nationally. The Commissioner notes that the fact sheet titled Family Dispute Resolution Screening and Assessment issued by the Relevant Department states:

All staff conducting screening and assessment should receive regular professional supervision to ensure they are working in a way which accords with good practice, and to address other practice issues. This supervision should be:

● provided by a suitably qualified and experienced supervisor

● conducted individually or, where appropriate, in a supervisor-facilitated group, or, where specialists or professionals are suitably experienced, in a peer group, and

● based on individual needs for supervision

The fact that the Principal prefers new Workers to undertake professional supervision to ensure they are following good practice, accords with the Relevant Department's guideline that 'all staff conducting screening and assessment should receive regular professional supervision to ensure that they are working in a way which accords with good practice…'. Therefore, this aspect of control is not a strong indicator of control in terms of what is usual between an employer and employee.

The Principal has some degree of control over Workers by providing a guide for the correct order and length of each process for the conference Worker. However, the mere fact that each engagement may describe how the contracted services are to be performed does not necessarily imply an employment relationship. A degree of direction is common in contracts for services because the payer has the right to specify how services are to be performed.

We acknowledge that by virtue of the nature of the work performed all parties have a number of statutory obligations that, in other circumstances, might be mistaken for control. In this case however, we do not consider procedures surrounding issues such as, but not limited to, the Principal's operating checklist, professional supervision of new Workers and to some extent the structure of the conference process are strong indicators of control. Workers are engaged by the Principal to provide independent and objective advice to parties taking part in a DR conference and the Principal is not able to exert any control, or influence that advice or the outcome of each conference. This process relies purely on the Worker's significant expertise and qualifications in both family law and dispute resolution.

The above factors indicate that the Workers have the level of control of an independent contractor

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.

There are both arguments for and against the integration test being met.

Conferences are arranged and overseen by the Principal and Workers are required to work at premises provided by the Principal. Workers are encouraged to work as a team with a view to progressive improvement and the service provided by the Workers forms an important part of the Principal's mediation process.

However, you contend that a Worker conducts conferences as an independent and qualified person under the FLA and not as part of the integrated operations of the Principal. The Principal asserts that Workers are identified as an independent mediator to all persons attending the alternative dispute resolution, as required by law. These are indicators usually found in a contract for service.

The Principal is authorised to provide ADR programs under state law. It is evident that the state law provides those individuals who meet the eligibility criteria the option for the Principal to organise a DR conference as part of the legal process in law disputes. From this perspective it is reasonable to conclude that chairpersons are providing a service that is one of the Principal's functions, which indicates a contract of service.

Workers are not required to wear a uniform or have business cards identifying them as an employee of the Principal.

The Principal has stated that Workers are not required to provide their services exclusively to you and may provide services to other entities. The Principal website provides a profile of Workers that outlines their accreditation, membership links and external practices. This supports your claim that they are available to the public for other work.

A further consideration under this test is whether the worker can generate goodwill for their own business when working for the principal. In this case, we would consider that a Worker who performs their work to a high standard may be recommended by the Principal to other agencies requiring chairpersons.

Upon completing a DR conference, the Worker provides the Principal with a tax invoice for payment of their fees. Workers are registered for GST and have their own ABN.

Overall, the above factors indicate that the Workers do not meet the integration test.

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.

Workers issue section XYZ Certificates in accordance with the FLA advising the court on the outcome from a DR service. Workers submit invoices upon completion of each conference report. Payments are made on a predetermined amount per conference without reference to the actual time spent in the conference and the writing up of the report.

It is arguable that payment made by reference to conducting conferences could be viewed to be piece rate, however we do not agree in this instance because the payment incorporates more than the estimated time for the actual conference and also incorporates the issuing of certificates, Worker reports and responding to complaints.

A Worker is paid a cancellation fee if the conference is cancelled less than 24 hours before it was scheduled to take place. If the conference is cancelled with at least 24 hour's notice no cancellation fee is paid. If a chairperson has travelled to a regional conference a travel fee is paid.

Participation in a DR conference can lead to the following outcomes:

● full settlement/agreement on all issues

● partial settlement - agreement on some issues

● no agreement on any issues.

Based on the requirements under the FLA, it is evident that whether a conference results in partial, full or no settlement, this outcome does not prevent the completion of a conference and the subsequent issuing of certificates under XYZ being seen as achieving a result.

The Worker's invoice can only be processed once the matter is finalised and a Conference Report is submitted by the Worker prior to payment. Therefore satisfactory completion of the specified services is the result for which the parties have bargained and a payment becomes payable when, and only when, the contractual conditions have been fulfilled. Furthermore, a Worker is obligated under the law to respond to complaints received as a result of the conferences they chair, for which they receive no further payment beyond the scheduled fee.

In this case we consider that a defined outcome could exist by nature of Worker's work as a DRP, as payment was made on an irregular basis upon completion of conducting a conference, issuing XYZ certificates, and submitting a report and invoice to the Principal. We do not agree that a result was not possible because the outcome of each conference did not result in settlement of the dispute. Conferencing forms an essential and integral role in law disputes under the FLA.

Furthermore, a Worker is contracted for their experience and expertise as a qualified DRP who conducts the conference, makes independent recommendations utilising their professional expertise and judgment and issued XYZ Certificates without input or influence from the Principal.

The conditions outlined above are consistent with a result based contract.

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.

A Worker is not given the right to delegate their work to any other person. Where a Worker has accepted an offer of mediating a conference, the Principal expects that the conference will be conducted by them.

The Principal maintains a DR Panel of Workers who meet the prescribed education and statutory accreditation requirements. All Workers have a registration number issued by the Relevant Department. The Principal uses the DR panel to select a Worker with matching availability; location and skill set as required for a particular conference or to organise a substitute Worker if required.

However, the lack of delegation does not preclude a Worker from being engaged under a contract for result based on their particular skills and qualifications; we consider this factor neutral when considering the relationship as a whole.

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.

Workers are required to maintain their own workers compensation. They are also required to maintain personal professional indemnity insurance, unless the Principal waives this requirement due to the immunity provision under state law.

State law provides immunity for conference Workers for anything done or omitted to be done in good faith, with any risk of liability reverting to the Principal.

In this case, the occurrence of a dissatisfied client or poor workmanship may result in a complaint being made. Workers are required to take extra time to address complaints as part of the set conference fee, subsequently the risk of a complaint is worn by the Worker.

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.

Workers are not required to provide any equipment or tools and their work is conducted at the Principal's sites using their facilities and equipment. However, having regard to the practical circumstances and the nature of the work, it would be reasonably expected that the Principal would provide these resources.

Workers are required to provide their own mode of transport to attend regional conferences. Travel expenses are not provided, however, the set conference fee is increased.

There are situations where, having regard to the custom and practice of the work, or the practical circumstances and nature of the work, 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 is engaged as an employee. The weight or emphasis given to the indicator (as with all other indicators) depends on the particular circumstances and the context and nature of the contractual work. All the other facts must be considered to determine the nature of the contractual relationship.

The provision of tools and equipment is not considered to be a significant factor in this case given the nature of the work performed.

Conclusion - common law definition of employee

With respect to the relationship between the principal and the Workers, the facts and evidence provided point to the conclusion that they are not common law employees of the Principal.

As the facts and evidence indicate that Workers are not the Principal's 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.

The words 'wholly or principally' are used to limit or restrict the types of contracts that will be covered by subsection 12(3). A contract that is partly for labour and partly for something else (for example, the supply of goods, materials or hire of plant or machinery), will only qualify if it is principally for labour.

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.

Subsection 12(3) was intended to extend the scope of the SGAA beyond traditional employment relationships to take into account some independent contractors who principally provide their own labour to meet obligations under a contract, and was designed to include a person who may not be an employee in the normal sense but who is in fact not very distinguishable from an employee.

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,

In this case, Workers provide and apply their considerable expertise and qualifications as a DRP conducting conferences as required under the FLA and related legislation. As Workers require no tools and equipment other than that provided by the Principal, they will be regarded as being remunerated wholly or principally for their labour and skills. It is also accepted that Workers did not have the right to delegate due to the nature of their work.

However, as discussed above, we consider that Workers are engaged to produce a result. Accordingly, as all three components of the expanded definition under subsection 12(3) of the SGAA have not been met, Workers 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 the working relationship between Workers and the Principal does 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, you do not have an obligation to pay superannuation contributions for the benefit of the Workers.

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?