Edited version of private advice

Authorisation Number: 1051574588672

Date of advice: 24 November 2020

Ruling

Subject: Status of worker - employee/contractor

Question 1

Are the workers engaged to provide services employees for the purposes of subsections 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes.

Question 2

Are the workers engaged to provide services employees for the purposes of subsections 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes.

This ruling applies for the following period

1 Dec 20XX to 30 Aug 20XX

This scheme commenced on

1 Dec 20XX

We considered these to be the relevant facts

The Principal appoints a range of Workers under the terms of a contract to perform services for him. Each Worker individually enters into the same agreement with the Principal.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Summary

The facts and evidence suggest that the Workers were employees for the purposes of the SGAA under the common law test and the extended definition as set out in subsection 12(3) of the SGAA.

Therefore, the Principal has an obligation to pay superannuation contributions on behalf of the Workers.

Why we have made this decision

Question 1

The SGAA requires employers to provide the prescribed minimum level of superannuation support for its employees (unless the employees are exempt employees) or pay the Superannuation Guarantee Charge determined under Part 3 of the SGAA.

Subsection 12(1) of the SGAA defines the terms 'employer' and 'employee' as:

"Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a)  expand the meaning of those terms; and

(b)  make particular provision to avoid doubt as to the status of certain persons."

In particular, subsection 12(3) of the SGAA expands the ordinary meaning of the term 'employee' to include persons who are contracted wholly or principally for their labour.

In accordance with subsection 12(1) of the SGAA, a worker will be an employee for Superannuation Guarantee (SG) purposes if he or she is a common law employee.

It is therefore necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law 'tests' are not met or are inconclusive, whether the extended definition of 'employee' in subsection 12(3) of the SGAA applies.

Control

The extent to which the principal or payer has the right to control the manner in which the work is performed is critical in determining the nature of the working relationship. Control includes the power to specify the work to be done, the way in which it will be done, the means to be employed in doing it and the time and place where it will be done. What matters is the lawful authority to command and whether this rests with the principal.

If the work is left to the discretion of the person performing the work, then this is an indication of an independent contractor relationship. If the principal has the right to direct and control the worker concerning the performance of his/her work, this is indicative of an employer/employee relationship.

The right to control versus actual control is relevant where the nature of the work requires a considerable degree of experience, knowledge and skill.

In this case, whilst there was limited scope to supervise the Workers, the Principal did seek to control the Workers in other ways, such as:

The Principal would conduct periodic performance reviews or 'audits' which included checking the client records are properly maintained,

Compulsory team meetings on a regular basis,

Attend promotional activities on behalf of the Principal to attract new business,

Schedule appointments for Workers via an online calendar,

Although the Workers were not subject to direct supervision whilst consulting with clients, the facts indicate that the Principal did exercise a degree of control over the Workers in relation to the hours they worked and what work they did, as they were directed to perform other tasks in addition to consulting with clients. This leads to the conclusion that the lawful authority to command rested with the Principal indicating the existence of an employer/employee relationship.

Integration test

The integration test determines whether the worker operates on his/her own account or whether they work within the business of the principal.

The client's initially make contact with the Principal, and subsequently have consultations with a Worker. When meeting with the clients, the Worker is required to wear a polo shirt displaying the logo of Principal (the Workers are not permitted to wear work attire that doesn't display the Principal's logo). To the client, the Worker would appear to be working in the business of the Principal.

In addition to wearing a 'uniform' bearing the Principal's logo, the Workers distributed business cards and brochures displaying the Principal's name and logo to current and prospective clients.

Correspondence was prepared using Principal's letterhead and client reporting was done using documents/forms designed by the Principal and displayed the Principal's business name.

The e-mail addresses used by the Workers was the Principal's e-mail addresses.

Each of the Workers have advised that they were required to undertake promotional work for the Principal (including attending industry events). Evidence of this was found on the Principal's Facebook page which contains a photograph of a Worker appearing in the Principal's uniform at an expo.

The facts and evidence clearly indicate that the Workers worked within the business of the Principal and therefore the relationship between the parties is an employee/employer relationship.

Contracting to achieve a result

Where the substance of a contract is to achieve a result, there is a strong (but not conclusive) indication that it is a contract for services. However, the contractual relationship between an employer and employee is referred to as a contract of service.

The phrase 'production of a result' refers to the performance of a service by one party for another where the first 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 payment is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. (Paragraph 43, Superannuation Guarantee Ruling SGR 2005/1)

If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result. In contracts to produce a result, payment is often for a negotiated price as opposed to an hourly rate.

In this case the Workers are paid by the Principal which is in the business of providing services. The Workers are engaged by the Principal to provide services under the Principal's name.

Our conclusion in relation to the integration test is that the parties have an employer/employee relationship

Right to delegate

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 an independent contractor. If the person is contractually required to personally perform the work, this is an indication that the person is an employee. (Paragraph 48, SGR 2005/1).

If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this 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. In these circumstances, the contractor is the party responsible for remunerating the replacement worker. (Paragraph 49, SGR 2005/1).

Essentially what occurs is that the Workers, when unavailable to take an appointment, arrange for a colleague to substitute for them and the Worker who provides the service is subsequently paid by the Principal not the Worker they have substituted for. In accordance with paragraph 50 of SGR 2005/1 this is not delegation consistent with that exercised by an independent contractor.

The obvious conclusion is that the Workers do not have a genuine right of delegation which indicates an employer/employee relationship.

Risk

A worker who bears little or no risk of the costs arising out of injury or defect in carrying out their work is more likely to be classified as an employee. On the other hand, an independent contractor generally bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries his or her own insurance and indemnity policies.

The Workers have all acknowledged that they were required to maintain their own personal accident insurance and professional indemnity insurance (required by law).

The Workers have also acknowledged that any errors made in relation to reporting and administrative tasks had to be rectified by them in their own time.

The facts in relation to this key indicator suggest the Workers are operating as independent contractors.

Provision of tools and equipment

A situation where a worker provides his or her own tools or equipment suggests that a worker is operating their own business (as an independent contractor). However, the provision by the worker of the necessary tools and equipment is not necessarily inconsistent with an employment relationship.

The level of provision and maintenance of tools and equipment and the payment of business expenses should be significant for the individual to be considered an independent contractor as highlighted in the case of Hollis v Vabu Pty Ltd [2001] HCA 44.

The Workers have acknowledged that they provide their own mobile phones, laptop computer (or similar device) and motor vehicles and that they are not reimbursed for any expenditure incurred in relation to these items.

It is not uncommon for workers, both independent contractors and employees, to use their own mobile phones, computer devices and vehicles in the performance of their work. The fact that the Workers provide tools and equipment of this nature is therefore not considered to be determinant of the relationship.

The Workers are given access to the premises and the staff, plant and equipment at the premises. Therefore, through the contractual arrangements the Principal has with the premises that are used, is providing the Workers with the necessary equipment used for the purposes of treating their clients.

The significance of the equipment to the work performed by the Workers is a determining factor for this key indicator. The fact that this equipment is provided by the Principal suggests the parties have an employer/employee relationship.

Exclusive right to the services of the worker

Under the agreement signed by both parties, the Workers are prevented from carrying on a business, or being employed as Worker, in the area within 12 kilometres of a premises at which the Principal provides services, during the term of the Agreement and for a period of 6 months after the expiration of the Agreement.

In terms of providing services, the Workers are not free to advertise their services to the public as an independent contractor may be expected to do. They are restricted under the Agreement to providing such services exclusively to the Principal which suggests the existence of an employer/employee relationship (Paragraph 58 of SGR 2005/1).

Conclusion

Based on the above analysis it is concluded that the Workers are employees under common law and are therefore considered employees for the purposes of subsection 12(1) of the SGAA.

Question 2

Extended definition of employee for SGAA purposes

The extended definition of employee within subsection 12(3) of the SGAA states:

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

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

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

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

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

•         the individual is not paid to achieve a result.

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

Wholly or principally for labour

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

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

Based on the available facts and evidence, we consider that the Workers were paid primarily for their own labour and skills.

The individual must perform the duties themselves

As discussed earlier, the Workers were generally expected to perform the work personally. If they were unable to undertake a scheduled client appointment could arrange with another Worker to substitute for them. The Worker did not have any genuine right to delegate their work.

Not paid to achieve a result

As discussed earlier, we consider that the facts and evidence indicate that the Workers were not paid for a result.

Our conclusion regarding the extended definition of employee

Accordingly, as the Workers satisfy all three components of the extended definition under subsection 12(3) of the SGAA, as a result they meet the extended definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers meet the definition of an employee for the purposes of the SGAA and under the expanded definition provided under subsection 12(3) of the SGAA.

Accordingly, the Principal has an obligation to pay superannuation contributions for the benefit of the Workers under the SGAA.