Edited version of your written advice

Authorisation Number: 1051192866168

Date of advice: 26 April 2017

Ruling

Subject: Status of the Worker - Superannuation Guarantee Charge

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)?

Advice

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

Question 2

Are the Workers employees 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 periods:

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The arrangement commences on:

1 July 2016

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.

● On DDMMYY the Commissioner of Taxation received a private ruling application from the Principal for advice regarding their superannuation guarantee (SG) obligations in relation to Workers who identify themselves as Hobbyists.

● The application provided the following information:

● The Principal oversees courses which are held at a College after normal school hours.

● The College allows the Principal free access to classroom space to hold the courses.

● The Principal sources the Workers from various recreational fields to conduct the courses.

● The Workers generally teach only one class per week. The classes may range from one to three hours per week.

● The majority of the Workers generally receive remuneration of less than $750 gross per month.

● The Workers are paid on an hourly basis if and when they attend and teach a class.

● The Workers are paid twice per term, every four weeks.

● The Workers generally don't do any advertising however there may be some word of mouth.

● The Workers use their own names as the teacher.

● The work is performed outside the Worker's normal full time work arrangements.

● We received a completed Superannuation Guarantee: Status of the worker questionnaire- Principal/Payer (PQ). And a copy of the contract.

● The PQ and the Contracts provided the following information:

● The duration of each of the Contracts is for the relevant term only.

● Classes never run for longer than three hours per night, and for a College term.

● The College provides classrooms, photocopying electricity and car parking free of charge where the Workers deliver the course.

● Where required, Workers and students provide their own safety equipment.

● If a Worker does not wish to run a course, there is no need to refuse to do the task, as it would not be offered to the public.

● Each party has the right to terminate the engagement if there is a breach of the contract by the other party.

● Notice of termination during the term must be given in writing.

● Where a Worker agrees to accept a reduced hourly rate a course may continue with a reduced number of students.

● If the Worker does not accept a reduced rate, the course does not progress and the students are refunded any fees paid.

● Mistakes and breakages have not occurred and you are unsure who would be responsible. However, the college maintains the college assets which are provided free of charge.

● Workers are generally not required to use protective gear.

● The Principal:

● offers evening courses and short workshops covering many topics.

● does not restrict the Workers from providing their services to other individuals or businesses.

● pays workers compensation insurance and public liability insurance for all Workers.

● directs where the jobs and tasks are to be performed.

● has control over the administration, advertising and enrolments for the nominated course.

● pays an hourly rate.

● assesses the Worker performance based on student feedback.

● promotes and administers the program.

● does not advertise the business on assets, tools or equipment used by the Workers.

● organises for a classroom to be available free of charge and free photocopying of course materials, stationery, white board markers, car parking and electricity.

● does not reimburse Workers for any assets, equipment or tools required to complete their work.

● The Workers

● are able to accept a reduced rate if the number of students would not be ordinarily sufficient to operate a class for that term.

● are responsible for the course content and schedule.

● are free to negotiate how long a course will run each week, which can range from 30 minutes to three hours.

● have discretion to schedule the jobs/tasks to be carried out in delivering the classes.

● negotiate with the students to determine the course content.

● ring the Principal's administration team if they are unable to teach a class and the team contacts the students to cancel the class. To compensate the students, either a catch up class will be conducted or the hours of the remaining classes for the term may be extended. The arrangement is negotiated between the Worker and students.

● are only paid for the hours they actually work.

● could arrange to have another person conduct a class or course; however this would have to be agreed to by the Principal.

● are not required to attend meetings of the Principal.

● are not entitled to paid breaks as the duration of the class is never longer than three hours.

● have the discretion to schedule tasks to be carried out.

● must seek permission and provide prior notice to the Principal if they wish to take time off.

● must complete an attendance record for each class taught.

● are not to smoke or consume or encourage consumption of alcohol on the College premises.

● are to ensure that students do not use equipment without a teacher present.

● provide an outline suitable for promoting the course and identifying the related material requirements and costs to the Co-ordinator.

● ensure the facilities are maintained so as to minimise the inconvenience to other College users.

● make adjustments designed to achieve the objectives of the Disability Discrimination Act 1992 in relation to the provision of the program at the Principal; including as necessary consultation with the student; consideration of whether an adjustment is necessary; if an adjustment is necessary, identification of a reasonable adjustment; and making a reasonable adjustment.

● work alone when teaching a class.

● do not train, supervise or assess the work of other employees/workers of the business.

● are not required to wear or use a name badge, clothing, business cards, stationery or other item promoting the business.

● do not have their own name badge, clothing, business cards, stationery or other items promoting their business or services.

● do not advertise their business on any of the assets, equipment or tools they use.

● may arrange for another teacher to take a class with the approval of the Principal.

● are not required to guarantee their work, however it is expected if the students are not happy they will not enrol the following term.

The contract does not address the issue of delegation.

The contentions

It is contended that when a Worker's income is not assessable under tax legislation the Worker cannot be deemed an employee of the Principal and that it therefore follows that there is no requirement to pay SG for these Workers.

We formed our view on the facts by relying on this information

● The application received on DDMMYY.

● A completed Superannuation Guarantee: Status of the worker questionnaire Principal/Payer.

● Our record of conversation dated DDMMYY.

● An email received on DDMMYY.

● An Agreement for Supply of Services between the Principal and the Workers.

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

Summary

The Commissioner considers that given the facts and evidence provided the Workers are not employees of the Principal 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.

Detailed Reasoning

The SGAA states that an employer must provide the prescribed 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.

Question 1

Are the Workers, engaged by the Principal, common law employees of the Principal as defined in subsection 12(1) of the SGAA for the 2016-17 to 2019-20 financial years?

Common law employee

The relationship between an employer and employee is a contractual one. Such a relationship is typically contrasted with the independent contractor relationship. 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.

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. 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.

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. As per the observation made by Isaacs J in Curtis v The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17 which stated:

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.

Some conditions of engagement are closely associated with employment and may be persuasive factors. For example:

● provision of benefits such as annual or sick leave

● provision of benefits prescribed under an award

● payer prescribed times and locations for the performance of the work

● remuneration in the form of salary and wages

● the worker uses assets and materials provided by the payer or is reimbursed for expenses incurred in respect of use of their own assets and materials

● payer discretion in respect of task allocation and termination of engagement.

However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor.

Application of the common law in this case

In the application it was advised that:

● The Workers are engaged on a term by term basis.

● The Workers are paid an hourly rate determined by their hours of class attendance.

● The Workers generally don't do any formal class advertising, apart from possibly word of mouth.

In the PQ it was advised that:

● Workers are engaged by a variety of methods, but mainly via an expression of interest, and then the Principal's administration team determine which Worker's topics the Principal will offer as a course.

● One of three types of written agreements were entered into. The Workers self-assess which of the three Contracts, based on their personal circumstances, to enter into with the Principal.

● Workers, who self-assess as hobbyists, are paid the hourly rate, tax is not withheld and SG is not paid.

● Where a Worker agrees to accept a reduced hourly rate a course may continue with a reduced number of students.

● If the Worker does not accept a reduced rate, the course does not progress and the students are refunded any fees paid.

● The contract stated that the Workers are to:

● Be responsible to manage the course content and schedule.

● Provide an outline suitable for promoting the course and identifying the related material requirements and costs to the Co-ordinator.

● The Principal agrees to:

● Promote and administer the program

● Reimburse course materials on presentation of appropriate invoices.

● Arrange public liability and workers compensation insurances.

● Each party has the right to terminate the engagement if there is a breach of the contract by the other party.

● Notice of termination during the term must be given in writing.

The circumstances surrounding the formation of the contract may assist in determining the true character of the contract. In determining the intention of the workers, the Commissioner must decide what could reasonably be concluded from their actions. Typically, an individual will only register for an Australian Business Number (ABN) if it is their intention to establish a business enterprise, but this of itself will not establish that this was the intention. Observing business related deductions and the declaration of Personal services income (PSI), among other things, may be viewed by the Commissioner as confirmation of an individual's intention. However, having a worker acknowledge that their status is one of independent contractor cannot alter the true substance of the relationship if the underlying reality is one of employment.

In this case, the Principal has advised the Workers self-assess the type of agreement they wish to enter into with the Principal. However, this of itself does not determine the nature of the relationship between the parties.

That the Workers approach the Principal with an expression of interest is considered to be indicative of the expertise of the Worker and not of itself a determining indication of the relationship between the parties. Similarly, the length of time that the workers are engaged for does not determine the character of the arrangement.

Generally, where a principal sets the amount that a worker should charge a customer, in this case the course fee; is generally indicative of employer/employee arrangement. However, the ability of the Worker to negotiate a reduced rate is more indicative of a principal/contractor relationship. Nevertheless, in this instance, the Principal retains the right to refuse to promote and administer the course if there are insufficient enrolments.

Overall, with respect to the terms of engagement test in isolation, we are satisfied that the facts and evidence are more in favour of the notion that the relationship between the Principal and the workers is one of employer and employee.

However paragraph 32 of SGR 2005/1 recommends consideration of other key indicators as to whether an individual is an employee or independent contractor at common law as regarded by the Courts. These features are discussed below.

Control

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of the master-servant relationship. The degree of control varies with the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it.

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.

As stated by Dixon J in v. Northern Timber Mills (1949) 79 CLR 389:

The question is not whether in practice the work was in fact subject to direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he is subject to the latter's orders and directions.

Likewise, in the High Court in Zuijis v. Wirth Bothers Propriety Ltd (1955) 93 CLR 561 described the significance of control in the following way in the context of skilled employment where the nature of the work permitted little scope for detailed control:

What matters is lawful authority to command as far as there is scope for it. And there must always be some room for it, if only incidental or collateral matters.

The right to control versus actual control is particularly relevant where the nature of the employment requires a considerable degree of experience, knowledge or skill. In these circumstances, it is to be expected that the employer will leave the performance of the activity up to the employee.

In consideration of the type of work performed by the workers and the skills they possessed, the Commissioner believes that telling the workers what was required to be done is a basic minimum of information required for them to determine whether they could/would accept the job, and did not amount to an exercise of control over how they were to perform the work.

Due to 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 question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over an individual in the performance of their work resided in the employer so that they were subject to your orders and directions.

A payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract. However, the mere fact that a contract may specify in detail where the contracted services are to be performed does not necessarily imply an employment relationship, and a high degree of direction and control is not uncommon in contracts for services.

While it is traditionally more indicative of an employer/employee relationship, the issue of seeking permission or providing prior notice for taking time off, is not especially conclusive in determining the true nature of the relationship. In an ongoing relationship between an independent contractor and principal, it is reasonable to conclude that a worker would need to provide adequate notice to the payer to organise a replacement if the work needed to continue.

Application of the common law to this case

In the PQ we found:

● The Workers are not required to attend meetings of the Principal, or have paid breaks as the duration of the class is never longer than three hours.

● The Workers have the discretion to schedule tasks to be carried out.

● The Principal directs where the jobs and tasks are to be performed.

● The Workers are not supervised; performance is based on student feedback.

● The Workers and the students negotiate the content of the course.

● If a Worker does not wish to run a course, there is no need to refuse to do the task, as it would not be offered to the public.

● The Worker must seek permission and provide prior notice to the Principal if they wish to take time off.

● The Principal has control over the administration, advertising and enrolments for the nominated course.

In the Contracts we found the following information:

● The Worker must complete an attendance record for each class taught.

● Be responsible to manage the course content and schedule.

● Not smoke or consume or encourage consumption of alcohol on the College premises.

● Ensure that students do not use equipment without a teacher present.

● Provide an outline suitable for promoting the course and identifying the related material requirements and costs to the Co-ordinator.

● Ensure the facilities are maintained so as to minimise the inconvenience to other College users.

● Make adjustments designed to achieve the objectives of the Disability Discrimination Act 1992 in relation to the provision of the program at the Principal; including as necessary consultation with the student; consideration of whether an adjustment is necessary; if an adjustment is necessary, identification of a reasonable adjustment; and making a reasonable adjustment.

● The Principal is required to promote and administer the program.

It is accepted from the evidence provided that the Workers exerted control by virtue of their ability to advise the days and times they were available to work and the Principal arranged lessons accordingly.

The Principal advised that the Workers provided an expression of interest to teach a topic, and then the Principal advertises the course; whilst the contracts stated that the Workers are responsible to manage the course content and schedule. If sufficient students enrol the course goes ahead. This indicates that the teachers retained final control over what they taught. Moreover, the Workers are not supervised; performance is based on student feedback.

It is also acknowledged that the Worker does not have control over where and when the work will be done; they must conduct the nominated course on the College premises in the evening. Moreover, the PQ revealed indicates that the Workers communicate with the Principal when sick.

However, the Workers are not required to attend meetings of the Principal and are not entitled to paid breaks as the duration of the class is never longer than three hours.

Moreover, it is also accepted that the Workers were not subject to direction or control with respect to their lesson plans or the methods in which they chose to complete their lessons and that the Workers and the students negotiate the content of the course.

However the contract between the parties stipulates the conditions under which the Worker can run the course, including, not smoking or consuming or encouraging the consumption of alcohol on the premises. Additionally, the Principal has control over the administration, advertising and enrolments for the nominated course, including requiring the Worker to provide an outline suitable for promoting the course and identifying the related material requirements and costs to the Co-ordinator and minimising the inconvenience to the College. Moreover, the Principal also retains the ability to require the Workers to make adjustments to their course in accordance with the Disability Discrimination Act 1992.

Finally, the Contracts and the PQ also indicate that the Worker must seek permission and provide prior notice to the Principal if they wish to take time off.

Therefore, on balance, we consider this test neutral because the facts and evidence do not conclusively point either way as to whether there was a principal and independent contractor relationship or an employer and employee relationship.

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.

Indicators to be considered are:

● professional skills

● the benefits from the creation of goodwill, and

● whether the worker's services are an integral part of the employer's business.

It is necessary to keep in mind the distinction between a worker operating on their own 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 Hollis v. Vabu (2001) 207 CLR 21, the majority of the High Court quoted the following statement by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210.

The distinction between the 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.

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 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 skill 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.

With the introduction of ABNs and Goods and services tax (GST), there were no amendments to the definition of employee in the SGAA. The fact that an individual has an ABN and is registered for GST will not alter the essence of the relationship between the payer and the worker. In other words, quoting an ABN does not automatically mean the person is not an employee for purposes of the SGAA.

Moreover, the mere fact that an individual possesses an ABN does not automatically make them an independent contractor as the ABN and GST registration does not alter the substance of the relationship between the payer and the worker.

Application of the common law to this case

● The application provided the following information:

● The Principal oversees adult recreational courses which are held after normal school hours.

● The College allows the Principal free access to classroom space to hold the courses.

● The Principal sources the Workers from various recreational fields to teach the courses.

● The Workers generally teach only one class per week. The classes may range from one to three hours per week.

● All the Workers are paid an hourly rate of $XX which is agreed to before commencement and can be negotiated according to enrolment numbers.

● The Workers were able to accept a reduced rate if the number of students would not be ordinarily sufficient to operate a class for that term.

● The Workers generally don't do any advertising however there may be some word of mouth

● The PQ and the Contracts reveal that:

● The College provides classrooms, photocopying electricity and car parking free of charge where the Workers deliver the course.

● The Principal does not restrict the Workers from providing their services to other individuals or businesses.

● If a Worker is unable to teach a class they ring the Principal's administration team and the team contacts the students to cancel the class. To compensate the students, either a catch up class will be conducted or the hours of the remaining classes for the term may be extended. The arrangement is negotiated between the Worker and students.

● The Workers are only paid for the hours they actually work.

● Where required, Workers and students provide their own safety equipment.

● The Workers work alone when teaching a class.

● The Workers do not train, supervise or assess the work of other employees/workers of the business.

● The Workers are not required to wear or use a name badge, clothing, business cards, stationery or other item promoting the business.

● The Worker does not have their own name badge, clothing, business cards, stationery or other items promoting their business or services.

● The Principal does not advertise your business on assets, tools or equipment used by the Workers.

● The Workers do not advertise their business on any of the assets, equipment or tools they use.

The information provided indicates that the Workers utilised the premises provided by the Principal. They were also able to influence the number of lessons a taught over the period of the term and their remuneration by virtue of the fact that they were able to accept a reduced rate if the number of students would not be ordinarily sufficient to operate a class for that term.

The Commissioner considers it likely that the Principal's clients would have seen the Workers as being integrated into the business of the Principal rather than operating as a business in their own right.

The fact that a reasonable person could view the workers as being integrated within the Principal business bears considerable weight when making a decision with respect to the integration test.

The Principal assumes the Workers can offer their services to other parties. The fact that they may also offer their services to others is not of itself indicative of integration in the Principal's business.

It is not unexpected that a teacher works alone in a class room and does not supervise other teachers or promote either their own or the Principal's business. We consider this would be expected of a teacher engaged for their specialist skills.

What is clear is that the Principal would not be able to supply their core business without the Workers as their work is an integral part of the business.

In this case, with respect to the integration test in isolation, we are satisfied that the facts and evidence are more in favour of the notion that the relationship between the principal and the workers is one of employer and employee.

Results

Where the substance of a contract is to achieve a result, there is a strong (but not conclusive) indication that the contract is one for services. In World Book Australia v. FC of T 92 ATC 4327, Sheeller JA said:

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor.

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.

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 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.

Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties and what the worker was hired to do.

Generally where a worker is paid a set amount per task, this is a clear indicator of a contract for result, typical of a principal and independent contractor relationship. However, it should be also noted at this point that payment for result it is not necessarily inconsistent with a contract of service.

However 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.

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 true nature of the relationship. Additionally, a contract to achieve a specified result would generally be formulated on an individual basis. In his original decision, the Commissioner found that the workers were paid to achieve a result.

ABN holders

Section 8 of the Australian Business Number Act 1999 (ABNA) provides that an entity is entitled to an ABN if they carry on an enterprise in Australia. Section 38 of the ABNA provides that an enterprise includes activities done in the form of a business but does not include activities done by a person as an employee.

The fact that an individual has an ABN does not prevent that individual form also being engaged as an employee in another role or position. Someone who carries on a business or trade in their own right other than as an employee might also at certain times perform work for another as an employee. While the distinction may be more obvious where the individual' business activities and employee activities differ as to make them easy to demark, this is not a requirement for the individual to be an employee.

Moreover, an individual with an ABN may undertake a contractual engagement which is a contract for services and still be an employee for SGAA purposes. This is because, as discussed, the scope of the SGAA is extended beyond common law employees. For example, an individual who has an ABN may be an employee under section 12(3) of the SGAA if they have been contracted wholly and principally for their labour.

Application of the common law to this case

The initial application, contracts and the responses to the PQ indicate that

● The Principal sources the Workers from various recreational fields to teach the courses.

● The Workers generally teach only one class per week. The classes may range from one to three hours per week.

● All the Workers are paid an hourly rate which is agreed to before commencement and can be negotiated according to enrolment numbers.

● The Workers generally don't do any advertising however there may be some word of mouth.

● Workers are not paid dependent on the completion of a task or job.

● All Workers (are paid according to the hours they teach.

● No Worker is paid or reimbursed for anything other than the work they complete.

● The Worker agrees to provide an outline suitable for promoting the course and identifying related material requirements and costs to the Co-ordinator.

The evidence provided indicates that the condition of remuneration refers both to a result (the completion of a lesson) and a time (per hour). Consequently this does not make it easy to make a clear decision as to whether or not the payment is reflective of any employer/employee or principal/independent contractor relationship.

Where it is not clear whether workers are remunerated for a result or otherwise, the Commissioner believes it relevant to consider whether the Workers were engaged to work for the Principal or were they engaged to complete lessons for the Principal's clients.

In this instance, the Workers receive payment for work they have completed, which may indicate a principal/contractor relationship, although there is mention of reimbursement for expenses in the Contracts. What is more important is that in practice, the Workers are able to influence their remuneration. The evidence indicated that the Workers are paid an hourly rate of $XX which is agreed to before commencement and can be negotiated according to enrolment numbers; however, the Principal states that the Workers were able to accept a reduced rate if the number of students would not be ordinarily sufficient to operate a class for that term.

However, a worker who is independent of the principal would be expected to have greater influence over the rate they receive for their skills and services - to the extent that they would not only be able to accept a reduced rate, but would ordinarily be able to negotiate a higher rate as well.

The pivotal question here is; 'Are the Workers labouring to achieve a result for the Principal or are they free to employ their own means to achieve a contractually specified outcome?' In this case we consider the Workers are not paid for a result and they have limited control over their hourly rate of pay which on balance is indicative of an employer/ employee relationship.

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.

Delegation is generally implied in a contract for services where the emphasis is on result rather than person. However, delegation clauses are considered in the context of the contract as a whole to determine if they are consistent with the apparent essence of the contract or if they are merely self-serving statements.

Delegation is not simply the delegation of tasks from one employee to another or the ability to swap shifts or request a fellow employee to perform some duties; it is the ability to freely subcontract or employ others to perform the work.

Generally the right to delegate is assumed to exist unless it is expressly forbidden in a contract.

If the contract does not expressly require the worker to personally perform the services, an independent contractor has the capacity to delegate or subcontract all (or some) of the work to others. Where the worker delegates, they are responsible for remunerating that worker.

In the case of Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at 425; 6 AITR 201 at 202, the High Court interpreted the words 'a contract which is wholly or substantially for the labour of the person to whom the payments are made' to decide that if a contract leaves a person completely free, if he or she chooses, to engage others to perform the work on his or her behalf means that the payments are not payments under a contract for labour. That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise.

If the contract leaves the contractor free to do the work himself or employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a result...

When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker; rather the employee has merely substituted or shared the workload.

However, a clause in the contract may permit the worker to delegate the task to another worker subject to approval of the principal, as the principal may not want an unknown worker to be working on their site or who may not be suitably qualified.

In the case of Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21, Bishop J said:

The fact that any substitute driver had to be approved by the company does not give the respondent [the ] control over that delegation… the company surely had the right to be confident that any substitute driver was competent to do the job and maintain the "integrity" of the company as Mr Coomb put it.

Therefore, under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). A person who has a right to delegate work (whether or not that right is exercised in practice) does not work under a contract wholly or principally for their labour. Unless the contract expressly requires the service provider to personally perform the contracted services, the contractor is free to arrange for his or her employees to perform all or some of the work or may subcontract all or some of the work to another service provider.

Application to your circumstances

In your PQ response you have advised that:

● You assume the Worker is required to perform their work personally. If the Worker was sick or went on holidays the Principal is responsible for arranging the students to be contacted and either a catch up lesson or an extension of class times is arranged.

● The Worker is not able to directly arrange for Worker to take a class. They may arrange for another teacher to take a class with the approval of the Principal.

Based on information supplied by the Principal, the Workers had the right to subcontract or delegate work to others.

We consider it is not surprising students would expect the advertised teacher to conduct a class. However, if the arrangement was only between the teacher and student, we would not expect a principal to have influence over the engagement of substitute teachers.

Generally a true right to delegate would require the individual contractor to source and pay the replacement worker, as well as take responsibility for any defective work completed by the replacement worker.

In the Hobbyist contract for service we found the contract is a contract to conduct classes or supply a service and therefore we consider all the contracts to be for service which implies delegation.

Accordingly, we are satisfied that the delegation test in isolation is more in favour of the notion that the relationship is one of principal and contractor for all workers.

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.

Application to your circumstances

In your PQ response you have advised that:

● The Principal provides workers compensation insurance and public liability insurance for Workers

● The Workers are not required to guarantee their work

● Mistakes and breakages have not occurred and you are unsure who would be responsible

● The Principal organises for a class room to be available free of charge.

● The Principal does not reimburse Workers for any assets, equipment or tools required to complete their work.

● The Principal organises for Workers to be provided with free photocopying of course materials, stationery, white board markers, car parking and electricity.

● Workers are generally not required to use protective gear, but if necessary they will supply their own.

With respect to the issue of negligence and the rectification of faulty work, the Commissioner acknowledges that the Principal has stated that the Workers are not required to guarantee their work.

Carrying their own insurance and indemnity policies is usually an indicator that a worker is engaged as an independent contractor. However in this case the Principal states they provide insurances to avoid risk. We have considered the Principal's position that insurances are paid to reduce risk and not necessarily because they have assessed they are responsible for the risk.

Some risk of commercial loss or profit, for the Principal and Workers is found to be:

● In the Workers' performance in their role, and

● the Principal's performance as a supplier and administrator,

as such, this is not of itself an indicator of who bears the risk in the relationship.

Generally, the nature of the undertaking by the Principal and the Worker requires no substantial outlays or payment for materials. Essentially, the Workers carries little risk of the costs associated with injury or defects with the training delivery and the work is conducted in an environment where performance risk is of no particular significance.

Both the Principal and the Worker are exposed to reputational and commercial risk if the course delivery was judged inadequate by students. The commercial risk of the Workers is lessened in that they are paid a set hourly rate under the Contract.

However, overall we consider that with respect to the risk test, the Commissioner is satisfied that the facts are inconclusive of a principal/independent contractor relationship or an employee/employer relationship.

7. Capital

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 their 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 (1986) 160 CLR 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…

The provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. As highlighted in Hollis v. Vabu (2001) 207 CLR 21, 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.

Application to your circumstances

In your PQ response you have advised that:

● The Principal provides workers compensation insurance and public liability insurance for Workers. The Workers are not required to guarantee their work

● Mistakes and breakages have not occurred and you are unsure who would be responsible.

● The Principal organises for a class room to be available free of charge.

● The Principal does not reimburse Workers for any assets, equipment or tools required to complete their work.

● The Principal organises for Workers to be provided with free photocopying of course materials, stationery, white board markers, car parking and electricity.

● Workers are generally not required to use protective gear, but if necessary they will supply their own.

In this case, we will not consider access to the assets on the site as it could be argued that a third party, the College bears most of this risk.

Responsibility for supplying equipment and resources seems to be minimal and is expected to differ between courses. The Workers do have some control over their capital risk in regard to use of their personal resources.

It is not surprising the Principal does not supply equipment specific to the course, due to the specialised nature of each course; not do they reimburse the Worker for any items purchased or used during the provision of the class. Additionally, the requirement for the Workers to supply their own protective gear is generally indicative of a principal/contractor arrangement.

However, overall we consider that with respect to the risk test, the Commissioner is satisfied that the facts are inconclusive of a principal/independent contractor relationship or an employee/employer relationship.

Our conclusion regarding the common law definition of employee

You have contended in your application that as the payments are not considered to be taxable income of the workers, you should not be liable for SG obligations. However, we have determined that the Contracts are not of themselves a final indictor of the relationships; rather it is the underlying nature of the relationship which is the determinant.

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

On this basis and on balance we found the relationships to be inconclusive with regards to the character of the relationship between the principal and the workers.

Consequently, the extended definition has been considered and is discussed below.

Extended definition of employee under subsection 12(3) of the SGAA

The extended definition of employee under 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.

Subsection 12(3) of the SGAA states that it requires the individual to be working wholly or principally for the labour of the person. Superannuation Guarantee Ruling SGR 2005/1 provides further guidance on this issue and states at paragraph 11:

Where the terms of the contract 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 of delegation); and

● the individual is not paid to achieve a result,

the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection.

The Commissioner considers that the facts and evidence suggest your Workers are paid primarily for their own labour and skills. This is also confirmed by the responses provided in your PQ, as you have specifically stated that your Workers are not paid dependent on completion of a task or job.

The second requirement of subsection 12(3) of the SGAA is that it requires the labour of the individual personally. That is, the worker does not have the right to delegate or subcontract the work to another party. Even if the worker has no intention to delegate or subcontract the work and actually performs the work personally, the contract itself is still not for the labour of the person if there is a possibility of delegating the work to another person.

Paragraph 49 of SGR 2005/1 states that where a worker is engaged under contract:

If an individual has power to delegate the work to others (with or without the approval or consent of the principal), there is a strong indication that the person is being engaged as an independent contractor. Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the result).Unless the contract expressly requires the service provider to personally perform the contracted services, the contractor is free to arrange for his or her employees to perform all or some of the work or may subcontract all or some of the work to another service provider.

The Commissioner considers the facts and evidence, in particular the fact that the contract is silent on the issue of delegation to indicate that the worker is able to delegate

The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the production of a given result, but instead should be for their labour.

The Commissioner considers that the facts and evidence indicate the Workers are not paid for a result, but rather are paid for their labour and skills.

Our conclusion regarding the expanded definition of employee

Accordingly, the facts and evidence while the facts and evidence indicate that your workers satisfy only two of the three tests contained in the extended definition and therefore are not considered to be employees under subsection 12(3) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationships between you and the Workers, the Commissioner concludes that the paid Workers do not meet the definition of employees for the purposes of the SGAA under both the common law definition and expanded definition as set out in subsection 12(3) of the SGAA.

Therefore you do not have an obligation to provide superannuation support to the paid Workers in accordance with the SGAA for the period under review.