Edited version of private advice

Authorisation Number: 1051610362789

Date of advice: 28 November 2019

Subject: Superannuation Guarantee - Status of worker

Question 1

Will the Workers be considered your common law employees under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer

Yes

Question 2

Will the Workers be your employees under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour?

Answer

Yes

Relevant facts and circumstances

This is a new business in its start-up phase.

It is a digital platform based business.

Company retains a commission.

Clients make a request for a specific Worker for a job.

Minimum booking is for two hours.

The client provides the job details.

Discounts apply for longer bookings.

Alternatively a customer can request a custom package (put together by the Company). Minimum booking for custom packages is for three hours.

The company will plan the itinerary through consultation with the client, making any adjustments before making the booking and reservations.

In both scenarios the client chooses their Worker. If they do not have a preference the Company will make a recommendation.

Once a booking is received from the client, the Company contacts the companion to confirm their availability. They may or may not accept the job.

Once the Worker has accepted a job, they issue the Company a tax invoice. Invoices will be issued fortnightly. Fortnightly payments will be deposited to the Workers nominated bank account.

The Company then generates their own invoice to the client.

The tax invoice will be calculated as follows:- rate per hour x the number of hours. The Company will add a 30% commission to this invoice.

If the Company has to plan the itinerary for the client an additional fee is charged to the client.

The hourly rate for every Worker will be different and determined by the Workers and agreed upon on an individual and per job basis with the Company. The Workers also have the flexibility to adjust their hourly rate based on demand.

Once payment is agreed with the Worker, the company returns to the client with a quote.

If the client agrees with the quote they pay the Company the full amount. The Company holds this money in trust.

If the Worker fails to carry out the job or does not show up to the job as agreed they are not paid.

A client may request a Worker but the Worker can decline the job. So in essence the Workers set their own hours and work availability which they must communicate to the Company.

The Company bears the cost of marketing and promotion on the website.

The Worker bears the costs of the job.

The Worker is responsible for ensuring the client is happy with the level of service provided.

The client is responsible for covering all costs. Large expenses need to be paid for in advance.

The Worker is responsible for all of their own insurances.

Workers are not allowed to work additional jobs with direct competitors.

Workers are required to have an ABN.

There is no provision for superannuation, sick leave or annual leave entitlements from the company.

No payment summary will be provided.

No allowances will be provided.

No official training will be provided. A list of guidelines of good practice will be issued.

In the future once the Company has packages ready to offer to clients, the Workers may be debriefed on these packages and given coaching on selling these to the clients.

The Workers will not need to attend meetings with the Company. They can phone or email all communications to the Company. There may be one or two social gatherings of Companions and Directors during the year.

Tasks or jobs are allocated to the Workers once they agree to the job.

The Workers are not entitled to paid breaks.

The Workers are not supervised whilst they are on the job. They are expected to make a call to the Company upon the completion of a job.

If a Worker requires some time off they need to give the Company notice. The website will be updated to reflect that they are not available.

The Companies main way of advertising is on the website. Worker need to have a public profile on the website. They may have to use promotional products of the Company when they are upselling packages.

The Company will not be providing any resources or equipment.

If a client is unhappy with the service they need to contact the Company directly.

A refund may be provided to the client if it is agreed that this is the most appropriate solution. If the Company is convinced the fault is on the Worker, the Company will issue a refund even if the Worker disagrees with this decision. The Worker will not get paid and the Worker will lose the commission.

The Workers are provided with guidelines which the Company recommends they follow to encourage good customer service.

If a Worker is unavailable to take on a job because of illness or conflicting schedule the need to communicate this to the Company. The Company will then notify the client and recommend an alternate Worker who would be suitable for the job. The Workers are not free to delegate their work to others.

The Workers must agree to respond to a job as soon as practical but no later than three hours (between the hours of 9am and 9pm, 7 days per week) of receiving a request. The Companions will be notified by text message.

A mobile phone is a necessary piece of equipment and must be supplied by the Worker.

The Workers are required to sign an agreement.

The Workers will not be working under any work-place agreement or agency agreement.

The Workers are required to adhere to Company policies.

The Workers are allowed to seek other work so long as it is not a direct competitor of the Company.

The Company is responsible for promoting the services of the Workers to the clients.

Reasons for decision

Issue 1

Status of worker

Question 1

Will the Workers be considered your common law employees under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Summary

The facts and evidence suggest that the Workers will be your employees for the purposes of the SGAA under both the common law test and the extended definition as set out in subsection 12(3) of the SGAA. You therefore have an obligation to pay superannuation contributions on behalf of the Workers.

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? 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 extended 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 extended definition of employee under subsection 12(3) of the SGAA.

Are the Companions your common law employees under subsection 12(1) 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.

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

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.

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 subcontract

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.

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.

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.

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 your case

Question 1

In this arrangement it is necessary to determine what the relationship is between the Workers and the employing entity.

The Worker is engaged by the directors via a digital platform.

This is a start-up business and business has not commenced.

No letters of appointment have been issued but the terms of agreement (TOA) that will be issued to the Workers has been provided.

The TOA refers to the Workers as sub-contractors however simply defining someone as a contractor does not necessarily lead to a conclusion that the individual is providing services as part of an operation of their own independent business.

It is the expectation that Workers will be available to work whatever hours they choose and however many days a week they choose. Work is only available to them if a client chooses them or the Company recommends the Worker to the client. The Company will schedule where the work is to be performed in consideration with the client. The Company will advise via the guidelines on how the Workers should act whilst with the clients. The Worker will have no say as to where the work is performed. This provides a certain level of control over the Workers. In addition it is a requirement that the Worker perform the job personally and if they are unable to Work the Company will arrange for a substitute Worker to complete the job. This indicates that the Company has control over who is to complete the work. In consideration of the above, the level of control over the Workers by the Company suggests an employer/employee relationship.

Workers are required to follow the Companies policies, guidelines and directions and they are unable to perform other work which gives rise to a conflict of interest with direct competitors. The guidelines provided to the Workers, indicates that they are at all times representing the Company and they are required to leave a good impression.

Workers will not be required to wear logo branded company uniforms but they may in the future be required to upsell the services being provided by the Company and will be required to show brochures to clients. It can be determined that the Worker serves the Company as opposed to carrying on a business of their own. In consideration of these facts, the degree of which the Workers will be integrated into the Company is indicative of an employer/employee relationship.

A significant factor in establishing the nature of the 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).

In a contract of service a worker is employed as an integral part of the business and under a contract for services, although a worker may do work for a business, the work is simply an accessory to the business and not integral (Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans (1952) 1 TLR 101).

An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour so as to enable their employer to achieve a result.

In this case the Workers will be paid on a per hour rate and will be paid in arrears on a fortnightly basis. Minimum hourly payment for the Workers is two hours. The invoices will be calculated on the number of hours worked. The amounts will vary from job to job depending on the hours and requirements by the client. The Workers will be paid under a contract of service. The workers are integral to the existence of the business. This would indicate an employer/employee relationship.

Due to the nature of the working arrangement the Workers cannot delegate their work to other Workers. This is a significant factor in deciding whether a worker is an employee or independent contractor. If a Worker cannot honour their commitment due to illness or a clash in scheduling then they must notify the Company in a timely manner so the client can be contacted and given the option to choose another Worker. Therefore it can be said that the Company is responsible for finding a replacement Worker. In consideration of this the delegation test indicates that an employer/employee relationship will exist.

The Workers are free to determine what days they work and what hours they work. This will vary on a client by client basis and the availability of the Workers. The Workers will not be entitled to any holiday leave or superannuation guarantee.

Each Worker sets their own rate of pay and can increase or decrease that rate of pay depending on the job and supply and demand at the time.

The Workers are free to refuse jobs if they feel they are not suitable and can refuse to do tasks they are not comfortable with (if requested by the client) as outlined in the TOA.

At the same time the Company is able to dismiss the Workers if they do not comply with the Company guidelines. Whilst there is no provision of leave entitlements, the Worker will be expected to give prior notice to the Company so that their availability can be communicated to the clients. The TOA mentions that if the Workers do not respond to job requests in a timely manner as outlined or they fail to turn up to a job then it may result in a cessation of future work. It is the Companies responsibility to arrange for the jobs to be completed whilst the Worker is away. The TOA also stipulate that the Workers must follow safety procedures. The Workers are paid on an hourly basis and not for the completion of a specific task. The Workers complete the job as directed and organised by the Company for the benefit of the Company. In light of the above the engagement test suggests that of an employer/employee relationship.

The Company does not provide insurance for the Workers. The Workers will be advised to obtain their own insurances. The Company bears no risk of the costs arising out of injury or defect in carrying out the work. The responsibility lies with the Worker to ensure that the client is satisfied with the job. In the event that a client is not satisfied and is refunded their money, the Worker will not get paid and the Company will lose their commission. This indicates some risk to the Company.

Our conclusion regarding the common law definition of employee

The factors indicate that the employer/employee relationship outweighs those of a principal/independent contractor relationship; therefore the Workers are considered to be employees and are eligible for superannuation guarantee payments from the Company.

Question 2

Will the Workers be your employee under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour?

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 will be paid primarily for their own labour and skill. There is no evidence that their remuneration was intended to cover any more than this.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the Worker will not have the right to delegate work to others.

Not paid to achieve a result

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

Our conclusion regarding the extended definition of employee

Accordingly, the facts and evidence indicate that the Workers also meet the extended definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between the Company and the Workers, the Commissioner concludes that the Workers will meet the definition of an employee, for the purposes of the SGAA under both the common law test and extended definition as set out in subsection 12(3) of the SGAA. Therefore you will have an obligation to provide superannuation support to the Workers in accordance with the SGAA for the period under review.