Edited version of private advice

Authorisation Number: 1051582407568

Date of advice: 15 November 2019

Ruling

Subject: Status of worker

Question 1

Is the support co-ordinator an employee of the registered provider according to section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No

Question 2

Are the support co-ordinators employees of the registered provider according to subsection 12(3) of the SGAA?

Answer

No

This ruling applies for the following period(s)

End of financial year 30 June 2018

End of financial year 30 June 2019

The scheme commences on

1 January 2018

Relevant facts and circumstances

The worker has entered into an arrangement with the principal to perform services to participants.

There is a written contract.

The role requires either qualifications or relevant experience in the area.

The client service agreement is between the principal and the client.

The principal does not exercise any right of control over the manner in which the worker performs their services. They do impose quality control standards and safeguards.

The worker has autonomy to determine how services are provided to participants provided they operate within quality and safeguard requirements.

Initially the contract stated that unless agreed in writing by the Company, the services must be performed by the worker personally.

The contract has been amended to provide more clarity to the workers, allowing them to delegate within certain guidelines.

It is considered that the clients are equally clients of the worker.

The worker is responsible for developing their own referral networks and finding new clients however the principal will refer any client enquiries they receive.

The worker is free to determine their hours and location of work.

The worker has the ability to carry out work for others so long as there is no conflict of interest created.

The worker has the right to refuse a particular job or task.

The worker has no minimum hours of work. They can determine their own hours of work based on their existing group of clients.

The worker is engaged on a job indefinitely however no work is guaranteed and they are responsible for generating their own client referrals not with-standing the principal generates a portion of referrals to the business via their our own marketing efforts.

The workers choose if they wish to work with any of the general referrals and will often make this decision based on the type of client, the location, their own workplace/capacity and size/scope of work required for the client. If they had no clients they would not have any work duties to perform.

The principal has no control over the support co-ordinator in regards to the following:-

·        The times the work should be done

·        Scheduling the work to be performed

·        The time that should be taken to complete the job

·        Quality control during the work period.

The registered principal may direct workers to familiarise themselves and follow the Code of Conduct or to keep adequate time records and notes. Outside this scope no other directions are given.

The workers must perform in the interest of maintaining ongoing support for their clients. In order to do this they will occasionally use another worker to provide the services. If for instance they are travelling, have capacity issues or need specialised skills/experience. The principal must have verified the worker providing the direct client services and it cannot be just anyone. As such, the workers will organise this between each other and in some cases will do so on a reciprocal basis or in other cases on a job sharing basis.

There are a number of indirect client services that are provided by the workers, (such as administration) which can be performed by other people. The principal does not give any directions in this area nor do they allocate "tasks".

The principal will refer any clients who have come directly to them via their marketing activities.

In most cases clients will be brought to the principal by the workers or be referred directly to the workers.

The worker is required to provide the majority of their equipment and tools including laptop, phone and motor vehicle.

No allowance or reimbursements are paid to cover their expenses for providing the tools and equipment needed to perform the work.

The worker is responsible, at their own cost, for fixing any problems or defects in their work and for any damages or injury caused by their work and are required to hold adequate professional indemnity and public liability insurance.

·        Professional Indemnity Cover - $1,000,000

·        Public Liability Cover - $5,000,000

The worker works primarily from their home office but will regularly travel to meet clients.

The principal provides receptionist services, administrative services, meeting rooms and hot desks for the workers.

The worker is required to pay for the use of the reception services, meeting room, hot desks, marketing, general administration and other expenses provided by the principal.

Workers are free to provide clients with their own mobile number.

Use of the meeting rooms and hot desks is infrequent.

The worker has the option to wear corporate branded shirts, business cards and name tags but is not required to do so.

The worker is required to use the registered providers email domain and software.

The worker is not paid under an award or work place agreement.

Payments are made regularly on a monthly basis.

There are some mandatory recording processes that the principal must follow.

At the end of each month the principal invoices clients according to the workers billing rate which they are free to set subject to price limits.

The workers provide the principal with an invoice for their client billings excluding GST in accordance with the fees section of their contract. The principal does not pay the workers until they have received a valid invoice.

The principal retains their portion of the client's billings they receive and then pays the remaining to the workers.

Distributions received by the workers are in respect of, and conditional to, the completion of each of their jobs.

No deductions are made from the amounts distributed to the workers.

There is no provision for annual leave or sick leave. Therefore the principal is not entitled to any paid or unpaid leave.

There are no employees performing the same or similar tasks for the principal. However an offer of employment has been made to the various workers with the understanding there would be significantly different terms of employment including:-

·        Fixed salary

·        Fixed working hours as determined by the principal

·        Required to work with the client they are directed to work with

·        Required to work in the office under the direct supervision

The support co-ordinator is not given an income statement at the end of the financial year.

The principal is required to maintain a quality control framework which sets out minimum requirements including worker screening/qualifications, complaints, incidents, code of conduct, practice standards and quality control audits.

The principal will respond to any complaints or incidents.

Outside of this framework the workers are free to apply their own professional skills and judgement to their role.

If the engagement was to be terminated early the workers would be entitled to claim damages. Both parties are required to give one month's notice to terminate the agreement or two weeks notification to terminate for a break. The principal can terminate without notice for a serious breach or material breach.

The principal does not have performance management or review meetings. No "targets" are set or supervision provided. They do monitor and enforce minimum quality standards and safeguards.

Workers are responsible for their own training. The management of the company does not have the same background or experience. Their expertise is in business administration, risk management and quality control frameworks.

The principal is not in a position to provide training or supervision and, if they did decide to employ any directly, would require them to also hire a manager who can supervise, train and manage the workers. Instead they have chosen to engage suitably qualified workers who choose how to provide their services within the requirements.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 - Section 12

Reasons for decision

Issue 1

Question 1

Summary

The facts and evidence suggest that the workers are not employees for the purposes of the SGAA under the common law test as set out in subsection 12(1) of the SGAA. You therefore do not have an obligation to pay superannuation contributions on behalf of the worker.

Detailed reasoning

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

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

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

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

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

Common law employee

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 and circumstances of the formation of the contract

The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. We must determine the nature of the contract between the parties, consider whether the contract is written or verbal, and whether the terms and conditions are expressed or implied. These factors are important in characterising the relationship between the parties.

When considering the intentions of the parties in forming the contract, it must be determined what each party could reasonably conclude from the actions of the other. 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.

Control

The extent to which the engaging entity 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 lays not so much in its actual exercise, but in the right of the employer to exercise it.

Even though the modern approach to defining the contractual relationship is to have regard to the totality of the relationship between the parties, control is still an important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb ((1986) 160 CLR 16 at 36) (Stevens v Brodribb), where they state:

In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee.

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.

Does the worker operate on his or her own account or in the business of the payer?

This distinction is also referred to as the integration or organisation test.

If the worker's services are an integral and essential part of the business that engages them (under a contract of service), 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 (under a contract for services), 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 professional skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skills or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills.

Consideration may also be given to whether the worker could be expected to generate goodwill in their own right.

'Results' contracts

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.

In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the result for which the parties have bargained.

Conversely, under a contract of service, payment is not necessarily dependent on, and referable to, the completion of the specified services.

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.

Whether the work can be delegated or subcontracted

An unlimited power to delegate work is an important indication that the worker is an independent contractor. Delegation is generally implied in a contract for services where the emphasis is on result. 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.

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.

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.

Therefore, 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.

Delegation is not simply the act of substituting one employee for another, or shifting a task 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 subcontract or employ others to perform the work, or to assist the contractor in their business to perform the work contracted for.

Risk

Generally speaking, employers are vicariously liable for negligence and injury caused by their employees, whereas a principal will not be liable for negligence or injury caused by an independent contractor.

Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out his or her work, he or she is more likely to be an employee.

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.

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 services, or that the contract is with an independent contractor.

Provision of tools and equipment and payment of business expenses

A worker/payee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required to complete 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 they will seek separate payment for such expenses from the principal.

In this case

The workers have entered into a written contractwith the principal to provide services to the participants who are clients of the principal. The contract refers to the workers as independent contractors. If the engagement was to be terminated early the workers would be entitled to claim damages. Both parties are required to give one month's notice to terminate the agreement or two weeks notification to terminate for a break. The principal can terminate without notice for a serious breach or material breach.

This agreement indicates the intention of both parties to act as principal and independent contractor but is not determinative by itself of the categorisation of the relationship.

The provision of the worker is a specialist service requiring qualifications or relevant experience.

The principal does not provide training and is not in the positon to provide such training as required for the role. The client service agreement is between the principal and the client or their nominee. It is however considered that the clients are equally clients of the workers.

They are required to maintain a quality control framework which sets out the minimum requirements including worker screening/qualifications, complaints, incidents, code of conduct, practice standards and quality control audits. The principal maintains and enforces this framework and will respond to any incidents or complaints. Outside this framework the workers are free to apply their professional skills and judgement to the role. The principal does not allocate tasks the support co-ordinator can refuse to take on further clients if they so choose and can refuse tasks or jobs.

Information sent in by the principal states that they do not control the times that the work can be done, scheduling of the work or the time taken to complete the job.

No supervision is provided but initially the contract stated that the workers would report to and perform services at the direction of the Director of the company or such other person as notified by the company.

In September 2019, the contract was amended to include quality and safeguards regulations that the workers must adhere to.

The workers set their own hourly rate and are not required to be at the business premises.

The facts indicate that the principal does not exercise a high level of control in respect to the work performed and the workers have a lot of control over how they do their work. This is more indicative of an independent contractor.

Initially when the company commenced the principal requested that the work not be delegated out. That is the workers must provide the work themselves. As of September 2019 the contract has been amended to allow the workers to delegate services but tight restrictions are in place as outlined in the facts.

Initially the workers were required to perform the job themselves. Occasionally they will use another worker to provide the services. The principal must have verified the worker providing the direct client services and it cannot just be anyone.

There are a number of indirect client services that are provided by the workers, for e.g. client administration, which can be performed by other people. The principal does not give any directions in this area nor do they allocate tasks. The principal has advised at least one worker engages a family member to complete administration tasks.

Even though the direct client services are difficult to be delegated, other parts of the workers role are able to be delegated and have been delegated. This is more indicative of them being categorised as independent contractors.

As outlined in SGR 2005/1 at paragraph 42 the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services.

The workers are paid an agreed percentage of billings. They are not paid under an award or work place agreement.

In this case invoices are raised to and fees are paid by the principal's clients directly to the principal and deposited into an account maintained by the principal.

The worker effectively keeps the remaining percentage in consideration for their supply of services (use of facilities, marketing, general administration, client billings etc).

A payment for labour is usually an hourly rate taking the form of salary and wages. The principal is not paying salary or wages; they are paying the workers a percentage of their client's billings. They retain the remaining percentage for associated administration costs.

The workers receive the distribution of their client's billings upon the completion of each of their client supports, making the agreement results based.

The workers are not required to wear the company uniform with logos on it but they can if they wish.

The workers work primarily from their home office. They can use the offices of the principal if needed but the use of the meeting rooms and 'hot desks' are infrequent.

The workers are required to use the principals email domain and software.

The information provided indicates the workers could present as being a part of the principals business, unless they had sourced the client themselves and didn't wear the branded shirt. It would be possible for the workers to generate goodwill for themselves but they would be restricted in the maximum number of clients they could service as they have to see clients themselves. They also don't work at the principal's premises. The integration test is not conclusive as to whether the workers are employees or independent contractors.

It is mandatory that the workers supply their car, mobile phone and lap-top.

No allowance or reimbursement is paid to cover their expenses for providing the tools and equipment needed to perform the work.

The principal provides receptionist services, administrative services, meeting rooms and hot desks for the workers.

The workers are responsible, at their own costs, for fixing any problems or defects in their work and for any damages or injury caused by their work and are required to hold adequate professional indemnity and public liability insurance.

All of these factors indicate the workers would be independent contractors given they bear risk and pay for their own equipment, which includes a vehicle so a substantial amount.

Conclusion

Upon consideration of the facts of this case we have applied them against the six tests in SGR 2005/1. The factors that indicate a principal/independent contractor outweigh those of an employee/employer relationship; therefore, the support co-ordinator is not considered to be an employee of the registered provider and they are not eligible for superannuation support from the registered provider.

Question 2

Summary

The facts and evidence suggest that the workers are not employees for the purposes of superannuation as set out in subsection 12(3) of the SGAA. You therefore do not have an obligation to pay superannuation contributions on behalf of the worker.

Extended definition of employee for SGAA purposes

The extended definition of employees 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 requires the individual to be working wholly or principally for the labour of the person to meet the extended definition. The SGR 2005/1 provides further guidance on this issue and states at paragraph 11 that:

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.

Each of the three conditions must be met to consider a contract to be wholly or principally for the labour of the individual.

Is the Worker remunerated wholly or principally for labour?

In assessing whether a person has been remunerated wholly or principally for labour and skills the ATO view is that, in the context of subsection 12(3) of the SGAA the word 'principally' assumes its commonly understood meaning that is, chiefly or mainly.

A contract is wholly or principally for labour where the labour content exceeds 50% of the value of the contract. The payment for a result is a factor in determining whether a contract is wholly or principally for labour.

Contracts which predominantly provide for payments in respect of the supply of goods, materials, or hire of plant or machinery and any other related costs incurred by the recipient of such payments in the course of performing work under the contract are not principally for labour.

Based on the available facts and evidence, the Commissioner considers that the facts and evidence suggest that the workers were paid primarily for their own labour and professional skills. While they did have some expenses to cover, it would not constitute more than 50% of the payment.

Is the Worker required to perform the work personally?

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 contractor 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 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.

It is also documented in the agreement that the workers can delegate services providing the appropriate worker screening has been completed. There is at least one reported case of a worker engaging a person to complete administration tasks. Therefore it is considered that the worker has the ability to delegate the work.

Is the Worker paid to achieve a result?

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.

In this case it is considered that the result for which the worker is working is the successful provision of their professional services to the clients. They are paid a percentage of their billings which is based on the hours they bill the clients to perform agreed services.

This is evidenced by the invoices the worker provides to the principal.

On balance, with respect to the results test, the available facts and evidence indicate that the worker is paid to produce a result.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between the principal and the workers, the Commissioner concludes that the workers do not meet the definition of an employee, for the purposes of the SGAA under the common law test or under the extended definition. Therefore the principal does not have an obligation to provide superannuation support to the workers in accordance with the SGAA.