Edited Version of private advice

Authorisation Number: 1051621569907

Date of advice: 20 February 2020

Subject: Superannuation guarantee - status of worker

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)?

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

Not applicable

This ruling applies for the following period(s)

End of year 30 June 2019

End of year 30 June 2020

End of year 30 June 2021

The scheme commences on

14 May 2019

Relevant facts and circumstances

You are the director of the Company.

The Company is registered with the National Disability Insurance Agency (NDIA) to provide services to participants in the National Disability Insurance Scheme (NDIS).

You personally search to find workers with the correct qualifications and or experience. It can be as simple as you becoming aware of people in the industry and you offer them work.

You do not advertise your business. You do have a website and have just developed a brochure. Most of your clients find you through word of mouth or via the NDIS portal.

The workers enter into an arrangement with you to provide services to participants who are clients of the NDIS.

There is a written contract between you and the Workers.

This is a specialist service requiring either qualifications or relevant experience.

The first Worker signed their contract in 2019.

The Worker is engaged on a job to job basis which usually lasts two weeks. Work is scheduled in advance so the Worker will move from one job to the next.

The Worker decides what hours they work and then they will meet and call clients. Often the Workers will be working outside regular business hours.

The expectation is that the work is commenced on the agreed start date and completed by the end date but a job may run over schedule.

The Worker will not receive a PAYG summary.

You review the work once it is completed. You may provide advice during the job if it is requested by the Worker.

Any complaints or escalated issues are managed by you as the Proprietor.

You schedule the work for the Worker, one job after the next. You may change work arrangements as agreed with the Worker.

The Worker has the ability to work for others during the time they are working for you so long as there is no conflict of interest. You have stated though in further information we requested from you that you may approve a Worker engaging with another company depending on the conflict.

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

The Worker is not paid under an award or workplace agreement.

The Worker is not entitled to any paid or unpaid leave.

Invoices are issued by the Worker.

The service agreements with the clients (participants) are allocated as per their funding based on hours. The Worker is required to complete validation sheets which evidences the hours for the NDIS.

The rate of a particular job is set by you.

Invoices from the Worker to you are per job, or part of a job.

The fee for each job is discussed between the Worker and you and agreed upon by approval of a quote which the Worker will provide for each piece of work and payment.

The Workers do not pay a fee to you for 'hot desking' or using your facilities

Workers spend more than 50% of their time working from home or other places.

You have an office located in town.

Workers supply all their own equipment including computers.

Workers are engaged in work for you between 30-40 hours per week.

The Worker may sub-contract their work their work out subject to conditions as per the contract.

This rarely occurs however the Worker may decide to seek assistance from another Worker in order to complete the work. The Worker may pay another Worker to contribute to work.

If the Worker delegates their work then they must pay the person they have delegated the work to.

If you reschedule the work then the Worker who completes it is paid by you.

In reality you are only aware of one Worker who has sort assistance or delegated work. The work ultimately remained the work of the Worker as their name was attached to it.

Each Worker is registered with the NDIS and has been issued with an ID. If Workers are delegating their Work they must do so to someone who is also registered with the NDIS and has an ID.

It takes 4-6 weeks to get registered with the Commission. In order to become registered the practitioners complete an s29 form and includes details about the proposed Worker such as experience, qualifications and personal details.

Prior to July 2019 the requirement to become registered with the NDIS, Workers require a relevant degree and or 2 years direct experience in a role writing behaviour support plans. Since July 2019 these requirements have been replaced by the capability framework. However the self-assessment tool which tests ones capabilities has not yet been released by the NDIS.

Due to the work being a specialist field it is difficult to find appropriately skilled and competent Workers.

Invoices are only paid for completed work.

The process works in the following way. You receive a referral from the community that someone requires the services of your company. You schedule the work with an available Worker. You then lodge a service booking with NDIS. Once the job is completed you make a claim through the NDIS. NDIS pay you directly for the services performed by the Worker. You receive an invoice from the Worker as outlined above and pay that invoice (from the Worker) from the money received from NDIS. As the proprietor you retain a portion of the money received from NDIS before paying the invoice to the Worker.

You provide regular supervision (unpaid) as required by the NDIS commission. During supervision you may review and discuss quality of work with the Worker.

Each Worker has a university degree and is provided supplementary training which is free to them and provided by the NDIS.

You do not provide mandatory training. You do invite contractors to attend webinars.

You may also provide time to contractors to explain a particular approach or style. Both of which are unpaid and are not contractor obligations.

The Worker is required to comply with policies. These policies are based on NDIS practice standards and the NDIS code of conduct.

The Worker pays all their insurances.

Assumption(s)

Nil assumptions

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3

Further issues for you to consider

Nil

Anti-avoidance rules

Not considered

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 not 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 will not 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 Workers 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 Director to provide practitioner services to clients.

There is a written contract.

The contract refers to the Worker as an independent contractor 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.

Either party may terminate the agreement by giving at least one month's written notice to the other party. You can terminate the agreement without notice for a serious breach.

The provision of the Worker is a specialist service requiring qualifications and community experience. You do not provide training but webinars are available through the NDIS as a means of training support to the Workers.

Duties include completing a behaviour assessment report and behaviour support plan for participants of the NDIS. The Worker meets and interviews families, observes and interacts with the participant, reviews participant's records pertaining to their behaviour and then provides a written report. Once the behaviour assessment report is complete, this informs the behaviour support plan and the behaviour support practitioner interprets the findings from the assessment and develops a behaviour support plan with specific, person centred strategies to improve someone's life or reduce behaviours of concern. It appears that the worker can decide the way the work is done and are free to exercise their discretion in completing the work. This would indicate a contractor relationship.

You ensure the Workers maintain a certain quality of work and you respond to any incidents or complaints.

The Worker is free to determine what days they work and what hours they work. Often the Worker will work outside of regular business hours. The Workers will not be entitled to any holiday leave or superannuation guarantee as the contract does not mention or make provision for either. A Worker can refuse jobs and tasks and is not required to work from the business premises. The Worker supplies all of their own equipment. These are characteristic of a contractor.

You provide direction to the Worker which involves the start date and future jobs. This could indicate a certain amount of control you have over the Workers and would therefore indicate an employee/employer relationship.

The Worker can delegate their work but they must provide evidence from NDIS that they approve and also you as the proprietor must agree in writing. All delegated work must go to other registered Workers with the NDIS. Whilst you gave an example of where one of your Workers "delegated" a task or job, it does not appear to be within the true meaning of delegation. It appears that they got an opinion on something rather than getting a Worker to complete a task or job for them. If that had been the case, it would follow that the delegated Workers name would be on the report and not your Worker.

As this is a new business for you it does not appear that the true right of delegation has been put into practice. Our view on this is neutral as there are not enough facts to argue either way.

Each Worker sets their rate of pay in line with what is funded by the NDIS. You have provided invoices from two of your Workers but they are not the same and don't provide a lot of detail.

The fee for each job is discussed between the Worker and you and agreed upon by approval of a quote which the Worker will provide for each piece of work and payment. There is no negotiation of the 'fees' as such.

The Worker is paid in stages as certain tasks are completed. Once the job is completed you lodge a claim with NDIS. Once you have received payment from the NDIS you pay the Workers invoice and retain a portion for your services.

Whilst a discussion takes place between you and the Worker prior to the job being accepted by the Worker about the agreed fee, ultimately the Worker will only get a set amount for the job as per the NDIS schedule. The payment of the job is based on an hourly rate but the hours to complete the job are set by the NDIS. You set the hourly rate but the Workers are paid an hourly rate in-line with what NDIS recommend. The Workers are not in a position to negotiate their "rate". Independent Contractors are able to negotiates rates of pay or set a fee for the job they are about to undertake. The fee is set with a view to making a profit as they are running their own business. This does not appear to be the case in this situation.

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. The invoices are prepared by the Workers and given to you for payment. Invoices are issued at the completion of certain tasks. The Worker applies their knowledge, skills and experience to achieve a specific outcome. Workers are not paid for work that is not completed. The satisfactory completion of the report or the plan is the "result" for which the Worker is engaged. As the Workers are paid on the completion of a job this would indicate that the agreement is results based.

The Workers can work for other people so long as there is no conflict of interest. You as the proprietor can give permission for the Workers to work elsewhere depending on the level of conflict. However you say that the Workers are engaged for you between 30-40 hours per week giving them little opportunity to Work for other organisations. Whilst they are free to work for others (with conditions) the Workers do not seem to be working independently from your Company. In addition without these Workers you do not have a business. These facts indicate an employer/employee relationship.

If a Worker cannot honour their commitment due to illness or a clash in scheduling then the job waits for them to return until it is completed. If there is going to be a significant time away from the job if the Worker agrees their jobs will be allocated to other Workers. You are responsible for finding a replacement Worker. The Workers are not paid for incomplete work and are required to hold adequate professional indemnity and public liability insurance.

The Workers are not provided with sick leave or any other sort of paid leave. There is no provision for superannuation guarantee. The Worker is not required to wear any logo branded uniform indicating where they work but they are expected to dress in a professional manner. This indicates a contractor relationship.

You are the person that deals with any complaints or escalated issues. You bear no risk of the costs arising out of injury or defect in carrying out the work as it is the Worker who is not paid. It is appears there is very little risk to you. It can be determined that the Workers are carrying on a business of their own.

Our conclusion regarding the common law definition of employee

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

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?

Summary

As the Workers meet the definition of an employee under subsection 12(1) of the SGAA we do not need to consider subsection 12(3).

ATO view documents

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

Other references (non ATO view)

Stevens v. Brodribb ((1986) 160 CLR 16 at 36)