Edited version of private advice

Authorisation Number: 1051792442802

Date of advice: 9 February 2021

Ruling

Subject: Status of the worker

Question 1

Are the workers considered your common law employees under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) for the period 1 January 20XX to now?

Answer

Yes. Refer to 'why we have made this decision'

Question 2

Are the workers 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. Refer to 'why we have made this decision'

This ruling applies for the following period

1 January 20XX to present

This scheme commenced on

1 January 20XX

Relevant facts and circumstances

We considered these to be the relevant facts

An Internal Audit and Risk Management Policy was developed to assist agencies to fulfil their legislative obligations that requires them to establish and maintain an effective internal audit function ("the policy").

The policy establishes an independent Audit and Risk Committee to provide the agency with relevant and timely advice on their governance, risk and control frameworks and its external accountability obligations ("the committee").

A Prequalification Scheme: Audit and Risk Committee Independent Chairs and Members ("the scheme") was established to assist the agencies in complying with the XXX.

A 'prequalified panel' is made up of individuals with relevant skills, experience and qualifications and who satisfy the criteria; these requirements are outlined and established by the scheme.

These individuals apply to be on the panel and are subject to an interview and selection process.

The agency head selects individuals from the 'prequalified panel' and appoints these individuals to their agency's Audit and Risk Committee ("committee members or "members").

Members are selected on a merit basis and the agency head must consider their suitability for the role and whether they possess certain skills necessary to perform.

The members selected form the agency's Audit and Risk Committee.

Once selected, a panel member is issued a letter of engagement which outlines the terms of their engagement, the member signs this letter and this serves as a written agreement.

The initial term of appointment is 3-5 years, which can be extended subject to a performance review, and a member's overall appointment cannot exceed 8 years.

A member can be on the committee of more than one agency.

A member is subject to a number of terms:

•         A member cannot be a current company employee in any capacity, or have been employed by the government in the past three years, or have any family connection at a senior level in the government

•         A member is bound by the Code of Conduct and must adhere to the company's Procurement Policy Framework

•         A member is subject to the agency's Audit and Risk Committee Charter, which is made up of the Prequalification Scheme conditions and guidelines

•         A member is subject to performance reviews and their performance is assessed against the Committee's charter

•         A member's engagement ends at the end of their term of by termination

•         Termination can occur in breached the Scheme Conditions or code of conduct, or provided unsatisfactory performance on the particular committee or declared or is found to be in a position of conflict of interest which is unresolvable

•         The panel members are subject to the same conditions as government employees.

The role of committee members is to review and overview the agency's corporate governance arrangements and overview the agency's financial information.

The committee is directly responsible and accountable to the agency head for the exercise of its responsibilities.

The rates of remuneration for a member is fixed and is set by the Charter, the amount either being payable per meeting day or per annum depending on whether the member is Chairperson or not.

The method of payment is at the discretion of the agency and can be either through the agency's payroll or by invoice.

The committee sits within the agency's internal structure and must maintain a direct reporting line to and from the agency's internal audit area, and directly reports to the agency head.

Members are unable to delegate functions to others.

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 workers are your employees for the purposes of the SGAA under both the common law test and the extended definition as set out in subsection 12(1) and (3) of the SGAA respectively. 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 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 super guarantee 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. Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? ("SGR 2005/1") outlines the relevant case law and principles that must be considered when defining the relationship. However, defining the contractual relationship between the employer and employee can be difficult and depends 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 is a common law employer and employee relationship, or whether the workers meet the extended definition of employee under subsection 12(3) of the SGAA.

Question 1

Are the workers your common law employees under subsection 12(1) of the SGAA for the period 1 January 20XX to present?

Yes

Common law employee

Subsection 12(1) of the SGAA provides that if a person is an employee at common law, that person is an employee under the SGAA. In deciding whether an individual is a common law employee, there are a number of factors outlined in SGR 2005/1 to consider, which we have considered and 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 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. Close attention should be paid not only to the terms of the contract but also to the systems in place and operated by the employer.

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.

As stated by Dixon J in Humberstone v. Northern Timber Mills ((1986) 160 CLR 16 at 24),

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's orders and directions.

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 the most important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb ((1986) 160 CLR 16 at 36),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.

'Results' contracts

Where 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 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. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result. Having regard to the true essence of the contract, the manner in which payment is structured will not of itself exclude genuine result-based contracts. While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service.

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.

Risk

Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. 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.

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. 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. An employee, unlike an independent contract, is often reimbursed (or receives an allowance) for expenses incurred in the course of their employment.

Other indicators

One indicator the suggest an employer-employee relationship includes the right to suspend or dismiss the person engaged.

In your case

The committee members are in a contract of service with the agency. The members are subject to a selection process and are selected based on their merit and suitability to serve on the committee. Their letter of engagement acts as written employment contract with express terms in it. The members are subject to the terms of their engagement and they must adhere to the Charter and Code of Conduct. The intention of the agency and its committee members is to engage the members to undertake a specific role.

The members are under the control of the agency. Their role is specifically defined, and they apply for the position on that basis. The agency has the right to control the manner in which the work is undertaken as they provide the task, the physical location to complete the task and have clearly outlined the scope of the members' responsibilities and what they are required to do. The agency has ultimate authority over the members regardless of whether they actually exercise it.

The members are not paid to achieve a specific result. There is no completion to the task they are engaged to do. They are not free to employ their own means and there is no contractually specified outcome. The members provide an ongoing service to the agency and their role is continuous. There was no bargaining between the parties. Their rate of remuneration is fixed under the Charter. The agency elected to pay its members by invoicing to their ABN after each day's work. This does not amount to payment upon completion of a job, rather a schedule and method of remuneration selected by the agency.

The members cannot delegate functions and cannot engage others to undertake or complete the task. They do not provide their own tools or equipment and they are reimbursed for any travel costs incurred. The agency holds the right to terminate a member if they do not meet certain performance expectations or breach the Charter.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the workers, the facts and evidence provided points to the conclusion that the workers are common law employees of the principal.

Question 2

If the workers are not employees under subsection 12(1), are the workers your employees under subsection 12(3) of the SGAA?

Yes

Extended definition of employee for SGAA purposes

Subsection 12(3) of the SGAA that 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.

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. 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.

In your case

The committee members are remunerated principally for their personal labour and skills. They are selected to be on the prequalification panel and then selected again by the agency head based on their skills, experience and qualifications. They are specifically chosen after undertaking a selection process to perform the role required. The members perform the work personally and cannot delegate or engage other individuals to complete it. They work with the other committee members to perform the task required.

As discussed above, the members are not paid to achieve a result. Their role is continuous and ongoing and only ends by termination. There is no specified end date or result that must be achieved in order to receive payment.

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 you and the workers, the Commissioner concludes that the workers meet the definition of employees, for the purposes of the SGAA under both subsection 12(1) (the common law test) and the extended definition as set out in subsection 12(3) of the SGAA. Therefore, you did have an obligation to provide superannuation support to workers in accordance with the SGAA for the period under review.