Edited version of private advice

Authorisation Number: 1051818532516

Date of advice: 17 June 2021

Ruling

Subject: Status of the worker

Question 1

Are the Workers your common law employees under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 20XX to 30 June 20XX?

Advice

No. Please 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?

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 relevant facts

•                    The Principal is a xxxxx operating from two locations in a capital city.

•                    The Principal engaged qualified xxxxx (Workers) to perform services of a high technical nature.

•                    From 20XX to 20XX the Principal engaged a number of Workers to provide these medical services to clients.

•                    All Workers have ABNs.

•                    The Principal entered into agreements with the Workers for generally X years in length.

•                    Most of the Workers do not maintain their own website or advertise their services to the public.

•                    Due to the nature of the industry the Workers do not generally undertake advertising as a method of connecting with intermediaries for the provision of services.

•                    Some Workers however do provide their services through other practices and in the local hospitals.

•                    The Workers cannot represent themselves as an agent of the Principal for any purpose.

•                    The Workers are not required to wear a uniform or identification which would affiliate them with the Principal.

•                    The Workers must follow all reasonable directions of Clinical Protocols and Practice Guidelines of the Principal.

•                    The agreements the Workers entered into agreements with the Principal allow the Workers to delegate and engage authorised representatives.

•                    The Principal's xxxxx equipment is not personnel/user specific and can be operated by any user with a designated login.

•                    Delegated Workers are able to access the system using a login and password and produce reports for xxxxxxx examinations.

•                    The Principal has a number of reporting workstations available, being the primary tool used by the Workers.

•                    The Worker's workflow is facilitated by the Xxxxx Xxxxx Xxxxxx (XXX), which the delegated Worker can access using a login and password and produce reports for xxxxxxx examinations.

•                    The XXX is configured with the Principal's billing policy which dictates fees charged and generates invoices accordingly.

•                    The Principal had no agreements with any referring Worker that the radiology services provided by the practice be provided by any specific Worker.

Facts for Workers One and Three

•                    The fees agreed with these Workers and the Principal were negotiated and agreed to at the commencement of the contract, and is outlined at item X of the reference schedule to the agreement.

•                    The consultancy fee includes reimbursement to the Worker by the Principal for additional services, charges and fees incurred by the Worker to cover

-   membership fee of professional bodies

-   professional indemnity insurance

-   fees and expenses relating to professional development

-   new protocols and procedures introduced by the Worker.

•                    All payments by the Principal to the Worker exclude GST for which the Worker is liable.

•                    Regarding cost and expenses, the Worker is responsible for:

-   remuneration and benefits, superannuation, annual leave, sick leave, long service leave, overtime and penalty rates

-   work care levies, group tax, payroll tax, FBT, SGC, and other impost or levies imposed by law, and

-   any payment upon termination of service.

•                    The Worker's performance is reviewed by the Principal periodically and may need to participate in an annual performance review.

Worker One

•                    Provided services to the Principal between 20XX and 20XX.

•                    Provided services to the Principal X days a week.

•                    It cannot be confirmed if this Worker performed services to other clinics in this period.

•                    The Worker was paid in arrears per month and was calculated as $X per session exclusive of GST up to 20XX, then $X per session exclusive of GST post 20XX.

Worker Three

•                    Commenced providing services to the Principal in the 20XX-XX income year and continues to provide services for the Principal.

•                    The fees agreed with this Worker and the Principal were negotiated and agreed to at the commencement of the contract, and is outlined at item X of the reference schedule to the agreement.

•                    The Worker was paid in arrears on a fortnightly basis at $X per session exclusive of GST.

•                    The Worker is eligible for an additional bonus payment equivalent to X% of the principal's site revenue billed in excess of $X. If eligible the bonus if calculated and paid quarterly.

Vendor Agreements

•                    From XX Month 20XX the Principal entered into amended contracts with the Workers to reflect the nature of the agreement.

•                    The Principal is obligated in the agreement to provide services to the Worker's with respect to management services, office, accounting and bookkeeping services, use of premises and equipment, and administrative support.

•                    Under these agreements the Worker's are the principal and the Principal is the service provider.

•                    The service provider is to employ people as deemed necessary to conduct the business and operate and maintain the equipment.

•                    The service provider is responsible for training of staff.

•                    The service provider is responsible for appropriate insurance in relation to the equipment and employees.

Relevant legislative provisions

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

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

Relevant case law

Stevens v. Brodribb (1986) 160 CLR 16

Building Workers' Industrial Union of Australia and Others v. Odco Pty Ltd 20 (1991) 29 FCR 104

ATO view documents

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

Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries

Reasons for decision

Why we have made this decision

Summary

The facts and evidence suggest that the Workers are not your employees for the purposes of the SGAA under both the common law definition and 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 these Workers.

Detailed reasoning

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).

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? (SGR 2005/1) 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 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.

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 expanded 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 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

1.            Between 20XX to 20XX the Principal engaged a number of Workers to perform technical services of xxxx, xxxx, xxxx, xxxx, xxxx, xxxx, xxxx, xxxx, xxxx, and xxxx.

2.            The Principal engaged qualified Workers to perform these services of a highly technical nature.

3.            You have advised that the Workers perform services for other clinics and local hospitals not affiliated with the Principal. This can also indicate that the Workers are operating in a business of their own, and that they are able to generate goodwill through use of their specialist skills.

4.            You have advised that the Workers are not required to wear a uniform or any other form of identification (i.e. name tag or ID card) which identifies the Workers as being affiliated with the Principal.

5.            You advise the Workers do not maintain their own website or advertise their services to the public, however due to the nature of the industry the Workers do not generally undertake advertising as a method of connecting with intermediaries for the provision of services

6.            You also advised that in practice, there is no legal, logistical or systems-based impediment for the Workers delegation of the performance of duties on any given day.

7.            However, you state the Principal's radiology equipment is not personnel/user specific and can be operated by any user with a designated login where the login is provided by the Principal at short notice.

8.            You also advise the Principal has no agreements with any referring Worker that the xxxx services provided by the practice be provided by any specific Worker.

9.            Paragraph 33 of SGR 2005/1 states that 'a common law employee is told not only what work is to be done, but how and where it is to be done'. In accordance with paragraph 33 of SGR 2005/1, the Workers would not be considered under the control of the Principal.

10.         This indicates that the Workers do have a true right of delegation, and that the Workers are not paid to perform the work personally through use of their specialised skills. The Workers are able to delegate work to a qualified authorised representative.

11.         You have advised that the Worker is provided with all the tools necessary to perform their duties by the Principal. This is generally an indicator that the Worker is a common law employee of the Principal.

12.         You have advised that the Workers are required to hold their own professional indemnity insurance, and that this forms part of the arrangement between the Principal and the Workers.

13.         Paragraph 51 of SGR 2005/1 states that an independent contractor will often carry their own insurance and indemnity policies. This indicates that the Worker bears the primary risk for any costs that arise from carrying out their services.

14.         The contract between the Principal and the intermediary contains a clause stating that the intermediary is indemnified 'against any liability arising from any negligent, wilful or unlawful act or omission of the locum'.

15.         Paragraph 25 of SGR 2005/1 provides that the totality of the relationship between the parties must be considered to determine whether, on balance, a Worker is an independent contractor or an employee of the Principal.

16.         In this situation, there are factors that indicate the Workers are in business for themselves, they are not integrated into the Principal's business while they are engaged to work for them, the control the Principal has over the Workers, and the fact they are not engaged to produce a given result and can delegate, that mean, on balance, the Workers would not be considered employees of the Principal.

Our conclusion regarding the common law definition of employee

With respect to the relationship between you and the Workers, the facts and evidence provided point to the conclusion that Worker's were not common law employees of the Principal.

Question 2

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

Expanded definition of employee for SGAA purposes

The expanded 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.

As per our advice at common law, the invoices issued by the Workers to the Principal constitute the legal relationship between the end-user and the Workers, for the purpose of making payment in consideration for the work performed as a xxxx.

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 were paid primarily for their own labour and skills as xxxxs.

The individual must perform the duties themselves

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

Not paid to achieve a result

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

Our conclusion regarding the expanded definition of employee

Accordingly, as the Workers do not satisfy all three components of the extended definition under subsection 12(3) of the SGAA, they do not 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 do not meet the definition of employees, 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 did not have an obligation to provide superannuation support to the Workers in accordance with the SGAA for the period under review.