Edited version of private advice

Authorisation Number: 1051776061632

Date of advice: 8 December 2020

Ruling

Subject: Status of the worker

Question 1

Is the Worker considered a common law employee of the Principal under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) for the period 1 July 20XX to 30 June 20XX?

Answer

No. Refer to 'why we have made this decision'

Question 2

Is the Worker an employee of the Principal under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour?

Answer

No. Refer to 'why we have made this decision'

This advice applies for the following period

1 July 20XX to 30 June 20XX

This scheme commenced on

1 July 20XX

Relevant facts and circumstances

We considered these to be the relevant facts

The Principal operates a civil construction business offering civil construction services on infrastructure construction and maintenance projects

The Principal engages a variety of contractors who provide services to complete the tendered works and maintenance contracts.

The service provided by the Worker is laying of concrete slabs, footpaths and driveways. As well as kerb or channel handiwork and installing grates and lintels.

There is not a written contract between The Principal and the Worker.

The Worker charges unit rates per square metre or lineal metre or a unit rate per item.

If an item or job is less than a minimum rate the Worker charges a daily charge out rate.

The Worker provides a schedule of unit rates to the Principal each year and the rates are negotiated between Principal and Worker.

A foreman representing the Principal notifies the Worker of work to be completed with the address and the timeframe in which the work required to be completed.

The Worker is free to accept the job or reject the job.

The Worker is free to accept work for other parties.

The Worker is free to delegate the job to another Worker of his choice.

The Worker or the delegated Worker will meet the foreman on site each day for a safety induction.

The foreman does not supervise how the Worker carries out his services.

The Worker provides his own equipment such as trowels, safety gear and shovels.

The Worker issues the Principal a tax invoice upon completion of each job.

If the invoice includes work carried out by sub-contractors sourced by Worker, the Principal will pay the Worker and the Worker is responsible for paying the sub-contractors.

The Worker must hold his own work cover and liability insurance.

The Work is responsible for poor workmanship.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the Worker is not an employee of the Principal for the purposes of the SGAA under either the common law test or the extended definition as set out in subsection 12(3) of the SGAA. The Principal therefore does 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 Worker 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 Worker, as to whether there was a common law employer and employee relationship, or whether the Worker meet the extended definition of employee under subsection 12(3) of the SGAA.

Question 1

Is the Worker a common law employee of the Principal under subsection 12(1) of the SGAA for the period 1 July 20XX to 30 June 20XX?

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 subcontracted

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

The Principal engages the Worker sending out a schedule of work, where the Worker can accept, delegate or decline a job. The Principal states that the Worker is engaged to complete concreting services which can include concreting driveways, kerbs and footpaths as well as installing grates and lintels.

While the Principal controls where the work is to be completed, it is considered a common condition in the construction industry that Worker is required to complete their work at the location specified by the end client and this is considered a neutral factor in respect of control. The Principal has a foreman onsite to conduct safety inductions, however, the foreman does not supervise or have control over how the Worker or any delegates complete the job as a representative for the Worker business.

The Principal usually procures the materials because of receiving a bulk discount, however, if the standard of Worker workmanship is faulty, the Worker responsible for redoing the work at their own time cost and paying / reimbursing The Principal or any replacement concrete costs.

The Worker invoices the Principal when they have completed the scheduled job. The Worker sets a unit rate for each job per square or lineal meter or individual item. If the item or job is under the set unit rate a daily rate is charged. This indicates result based remuneration.

The Worker can engage additional labour or delegate the whole job to a third party of their choice.

Where any work is delegated, the Worker is responsible for remunerating the person to whom they have delegated to. You also contend that the Worker is free to work for other parties. This indicates that the Worker is not integrated into the Principal's business as an employee would be and can engage others to carry on their business as they choose.

Based on the facts and evidence provided, it is our view that the Worker is engaged for their services to produce a given result.

The Worker continually holds work cover insurance to cover liabilities under the Workplace Injury Rehabilitation and Compensation Act 2013 and public liability insurance. The Worker bears all risk and is responsible for remediating any poor workmanship at his own cost. This is consistent with an independent contractor conducting their own business.

Our conclusion regarding the common law definition of employee

With respect to the relationship between the Principal and the Worker, the facts and evidence provided, points to the conclusion that the Worker is not a common law employee of the Principal.

Please be aware that the overall common law employee test result is based solely on the facts considered for this advice. Therefore, you cannot rely on the common law employee test outcome if the actual nature of the engagement differs to the facts.

Question 2

Is the Worker an employee of the Principal under subsection 12(3) of the SGAA?

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 Worker is paid primarily for their own labour and skills as the amount of equipment provided would be minimal and they don't usually provide materials.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the Worker does 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 is paid for a result.

Our conclusion regarding the extended definition of employee

Accordingly, as the Worker does not satisfy all three components of the extended definition under subsection 12(3) of the SGAA.

Conclusion - overall

After considering all available facts and evidence relating to the working relationship between the Principal and the Worker, the Commissioner concludes that the worker does not 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 do not have an obligation to provide superannuation support to Worker in accordance with the SGAA for the period under review.

Please be aware that this conclusion is solely based on the relevant facts considered for this advice. Therefore, this advice will cease to apply if the actual nature of the engagements later turns out to differ to the facts stated in this advice.