Edited version of private advice

Authorisation Number: 1051667733538

Date of advice: 29 April 2020

Ruling

Subject: Status of the worker

Question 1

Are the Workers considered common law employees of the Principal as defined by subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 20XX to 30 June 20XXinclusive?

Advice

No. Please refer to 'why we have made this decision'.

Question 2

Are the Workers considered employees of the Principal by virtue of subsection 12(3) of the SGAA for the period 1 July 20XX to 30 June 20XX inclusive?

Advice

No. Please refer to 'why we have made this decision'.

This advice applies for the following period:

1 July 20XX to 30 June 20XX

The arrangement commences on:

1 July 20XX

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

We considered these to be the relevant facts

·   You operate a business where you engage Workers as tour guides.

·   You book tour guides directly or use services of tour guide companies such as another company's details provided (a Company who has a group of tour guides readily available to run tours.)

·   When you engage a tour guide directly, you pay them directly once the tour for which you engaged them has been completed. The invoice is based on a previously agreed market fixed rate between you and the tour guide. If you engage a tour guide via another tour company, you pay that tour company for that tour guide's services. In both instances, it is a direct business transaction.

·   If a tour guide is booked directly by you, an invoice is provided by the tour guide with an ABN attached. You provided several examples of this.

·   If a Worker becomes ill or is no longer available to perform the tour, the guide can personally find their replacement. The replacement needs to be approved by you to ensure they satisfy your guidelines such as having correct level of public liability insurance and other items contained in your standard written agreement and guidelines. You provided copies of these documents with your application.

·   Workers are not subject to a non-competition agreement and are not restricted from setting up private unscheduled side excursion/tour/event with customers without your prior approval. The Worker handles arrangements and collection of moneys for side trips.

·   The Workers are free to accept or reject an assignment.

·   The Workers provide their own maps, videos, journals and periodicals and does not use any of your equipment or tools.

·   A written agreement is formed between you and the Workers based on work to be performed, in line with your guidelines and rates. Workers are paid to complete the tours and are not paid until the tours have been completed. You provided sample copies of your standard agreement between you and the Workers and a copy of a city's guide rates to illustrate this.

·   You do not require the Workers to wear a uniform. You only require them to dress professionally for the tour. You provided a copy of the standard written agreement to illustrate this point.

·   You only engage Workers with the expertise to complete the tour and you ensure the Workers have strong reputations before engaging them.

·   You prepare the itinerary for the tours which outline specific destinations the clients have requested so that the Workers are well informed. However, the Workers are required to add personal touches on tours. Tours are not scripted or fixed and only inclusions paid for by the client must be included. While the tour content is set for the Workers, they are expected to make their own modifications and personalise the tour. The Workers can control how the tour is performed. You provided an example scenario to illustrate this point.

·   You pay your Workers using competitive market forces and monitor these to set fixed rates for tours performed. You provided a copy of a city's guide rates to illustrate this point. You are provided rates by external companies in which they can engage tour guides through their businesses. If for example, you utilise this company's service, you pay this company directly and not the Worker.

·   Workers do not need to pay an attendance or booking fee to work for you.

·   Several Workers may complete different sections of a tour. The same Worker does not necessarily stay with the clients for the entire tour. The Worker is paid for the part of the service the complete and only when it is completed.

·   You may engage Workers in their home city, or book them for an entire tour e.g. Sydney to Darwin in which case, you will pay for meals accommodation and flights as well as a pre-determined market rate for the tour completed.

·   You receive a booking from a travel agent. You then book all services included in the tour such as hotels, transfers, admissions, external tours and Workers. Workers are organised once the tour has been booked. Workers offer their availability and you ensure that the Worker you choose suits the booked tour. Workers are not paid until after the tour has been completed.

·   You provided an amended copy of the standard agreement between you and the Workers. In this amended agreement, under the heading 'Organise Replacement' you added that the Worker's responsibility is to: 'When and if you are required to organise a replacement for your tour, please note you will be responsible for the remuneration of the replacement independent contractor.'

Reasons for decision

Why we have made this decision

Summary

1.    The facts and evidence suggest that the Workers were not your employees for the purposes of the SGAA under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA. You therefore did not have an obligation to pay superannuation contributions on behalf of the Workers.

Detailed reasoning

2.    The SGAA states 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).

3.    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.

4.    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.

5.    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.

6.    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.

Question 1

Were the Workers your common law employees as defined in subsection 12(1) of the SGAA for the period 1 July 20XX to 30 June 20XX?

Common law employee

Terms and circumstances of the formation of the contract

7.    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.

8.    When considering the intentions of the parties in forming the contract, the task is to decide 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

9.    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.

10. 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?

11. 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.

12. 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.

'Results' contracts

13. 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.

14. 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. Payment is often made for a negotiated contract price, as opposed to an hourly rate.

Whether the work can be delegated or subcontracted

15. 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.

16. 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.

17. 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.

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

Risk

19. 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.

20. 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.

21. 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.

22. Provision of tools and equipment and payment of business expenses

23. 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.

24. 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

25. You didn't advertise for the Workers, you found the Workers via their membership with a professional association or use services of other companies that have tour guides readily available to run tours. Each Worker signed an Agreement indicating they were engaged as a sole trader or business operator. They supplied invoices upon completion of the tours to you for payment and all have an ABN. While the fact that the Workers had to be registered for an ABN is not indicative of whether they are employees or contractors (as per paragraph 16 of SGR 2005/1), all of these factors taken together indicate both parties intended for the Workers to be engaged as contractors. Paragraph 31 of SGR 2005/1 provides that 'the circumstances surrounding the formation of the contract may assist in determining the true character of the contract'. While not completely determinative of the working relationship, this does indicate a Principal/contractor relationship between the parties.

26. The Workers have the ability to vary or personalise the tours or activities indicating they have control over how the work is performed. None of the Workers are required to wear the Principal's uniform. These factors indicate that the Workers are not intending to provide services as part of the Principal's business, but as independent contractors.

27. The written agreement specifies that a Worker is able to delegate their work as they are expected to find their replacement if they commit to a trip with the Principal but later have to cancel. You have amended the standard agreement to state under the heading 'Organise Replacement' you added that the Worker's responsibility is to: 'When and if you are required to organise a replacement for your tour, please note you will be responsible for the remuneration of the replacement independent contractor.' A copy of the amended Principal/Worker agreement was provided. These factors indicate that while the Worker's power to delegate is subject to the delegated person complying with the obligations imposed by the Agreement, these restrictions however, do not amount to giving the Principal control over the delegation (Bowerman v. Sinclair Halvorsen Pty Ltd).

28. In accordance with paragraph 49 of SGR 2005/1, unless the contract expressly requires the service provider to personally perform the contracted services, the Worker is free to arrange their personnel to perform all or some of the work in the completion of their duties.

29. Based on the information provided, the restrictions upon a power to delegate do not displace this power to the extent that the Worker is contractually required to personally perform the work. This indicates that the relationship between the Principal and the Worker is one of Principal and independent contractor.

30. The invoices provided were structured for the Principal to pay on completion of a tour or several tours, hence this is considered to be results oriented as the Workers are free to employ their own means to achieve the result specified thereon.

31. The Workers are responsible for their own public liability insurance. This is documented in the Worker/Principal agreement.The Workers bore the risk of rectifying defects by having their own public liability insurance coverage should clients suffer injury or loss during one of the tours.

32. The Workers are able to influence their ability to charge a higher fee for their tours by their qualifications, experience or ability to personalise or vary the tours as they see fit.These are indicators that the Workers bore the risk 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.

33. The Principal did not provide any tools or equipment to the Workers. The Workers are expected to provide their own maps, videos, journals and periodicals when conducting tours. The Principal/Worker agreement did not require the Workers to wear uniforms, but only to have a professional appearance. These factors indicate that the Workers were not integrated into the business of the Principal.

34. In summary and under subsection 12(1) of the SGAA, when looking at the relationship as a whole, the facts and evidence provided indicate that the workers were not your employees as they were able to delegate, could employ their own means to achieve a specific outcome and were subject to risk.

Question 2

Were the Workers your employees by virtue of subsection 12(3) of the SGAA?

Expanded definition of employee for SGAA purposes

35. The expanded definition of employee within subsection 12(3) of the SGAA, which 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.

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

37. 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.

38. 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

39. 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.

40. 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.

41. 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

42. As discussed earlier, we consider that the facts and evidence indicate that the Workers did have the right to delegate work to others.

Not paid to achieve a result

43. As discussed earlier, we consider that the facts and evidence indicate that the Workers were paid for a result.

44. Accordingly, as the Workers do not satisfy all three components of the expanded definition under subsection 12(3) of the SGAA, they do not meet the expanded definition of employee as set out under subsection 12(3) of the SGAA.

Conclusion - overall

45. Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers did not meet the definition of an employee for the purposes of the SGAA under either common law or the expanded definition provided under subsection 12(3) of the SGAA. Accordingly the Principal did not have an obligation to pay superannuation contributions for the benefit of the Workers under the SGAA.

We took these laws in to account

Superannuation Guarantee (Administration) Act 1992 subsection 12(1)

Superannuation Guarantee (Administration) Act 1992 subsection 12(3)

We considered the following case law

Australian Mutual Provident Society v. Chaplin and Anor (1978) 18 ALR 385

Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21

Montreal v. Montreal Locomotive Works [1947] 1 DLR 161

Stevens v. Brodribb (1986) 160 CLR 16

We followed the following ATO view documents

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