Edited version of private advice

Authorisation Number: 1051955369564

Date of advice: 1 April 2022

Ruling

Subject: Status of worker

Issue 1

Question 1

Was the Worker considered your common law employee under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer

No

Question 2

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

Answer

No

This advice applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The arrangement commences on:

1 July 20XX

Relevant facts and circumstances

The Principal operates a business over several locations.

The Worker was employed by the Principal as an employee prior to the periods being ruled on in this ruling.

The Principal put out to tender for services. The Worker submitted an expression of interest as he was running a sole trader business at the time. He was successful in securing the tender.

An hourly rate GST inclusive was agreed upon during the tender process.

It is understood that the arrangement was established requiring services to be performed as and when requested, noting some regularity existed in relation to some tasks.

A formal contract was executed by both parties at the time the arrangement commenced.

The contract was not renewed post June 20XX.

The Worker had the ability to refuse/not offer to do tasks.

The Worker would complete tasks based on what the Principal requested.

The Worker would invoice the Principal for all services provided.

The Worker was renumerated on an hourly basis. The hourly rate was set at the tender for the job and subsequent service agreement. The hourly rate was not negotiable. No set fee for a particular job was ever given.

Invoices were raised by the Worker occasionally based on when services were provided. There was no regularity to when the invoices were raised.

If sub-contractors were required or purchases required to complete the job, the Worker engaged the service directly, incurred the costs and incorporated these costs into the charges he raised in his invoicing process. The Worker used sub-contractors that he was familiar with. He did not need to seek approval from the Operations Manager to use sub-contractors of his choice.

The Worker provided their own tools and equipment. They were not provided with an allowance or nor were they reimbursed for the cost of purchasing tools.

The Worker was required to have their own insurance and were legally responsible to rectify any defects at their own cost.

The Worker had the freedom to determine how the services were performed and to schedule and complete the work based on availability and capacity.

The Worker was entitled to work for others and did so.

The Worker advertised his services using the social media platform Facebook.

The Worker wore clothing of his choice.

The Worker was responsible for his own tax affairs.

The Worker did not receive paid holiday leave or paid sick leave.

The work performed required qualifications and experience.

No formal training was provided by the employer.

The Worker reported to the Operations Manager who checked the quality of the work performed.

Where the tax invoice provided by the Worker listed the tasks performed, the Operations Manager ensured the tasks were completed to an acceptable standard prior to payment of the invoice. If an invoice listed hours worked, an informal discussion took place between the Worker and the Operations Manager to ascertain the progress towards the completion of the task list. The invoice would be paid if the Operations Manager was satisfied that sufficient progress was being made on the tasks that the Worker had been contracted to do.

The Operations Manager was provided a list of tasks, which he prioritized and allocated to the Worker. Typically, Worker attended the premises two to three days per week (Monday to Wednesday). His attendance at the premises was agreed with the Operations Manager and he did not have to inform anyone if he was not going to attend on a particular day.

Typically, on a Thursday and Friday the Worker worked for his private clients.

The Principal paid workers compensation insurance for the Worker.

Relevant legislative provision

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for Decision

Question 1 & 2

Summary

The facts and evidence suggest that the Worker was not an employee 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. The Principal therefore had no 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 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.

This Ruling is currently being reviewed in light of the decisions of the High Court of Australia in Construction, Forestry, Maritime, Mining and Energy (CFMMEU) v Personnel Contracting Pty Ltd (Personnel) and ZG Operations Australia Pty Ltd v Jamsek (Jamsek).

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, the recent high court judgements mentioned above have determined that the multifactorial approach causes uncertainty for both the parties involved and the courts and that it is more appropriate that we consider the totality of the relationship between the employer and the worker.

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.

While not discounting the multifactorial approach in its entirety, the Courts place high relevance on the following criteria in addition to looking the relationship in its entirety:

•         The written contract

•         Control

•         Integration

•         Results

•         Delegation.

In Personnel at paragraph 172 it states that:

In deciding whether a relationship between two parties is one of employment, it is the "totality of the relationship" which must be considered,

Question 1

Is the Worker considered your common law employee under subsection 12(1) of the SGAA?

Common law employee

In this arrangement it is necessary to determine what the relationship was between the Worker and the Principal by examining the relevant indicia.

The Worker was engaged by the Principal to provide building maintenance services including general buildings and grounds maintenance along with capital works and repairs across six holiday parks.

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 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. 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.

In Personnel, the character of the relationship between the parties was determined by the rights and duties created in the written contract which established the relationship between the parties.

At paragraph 173, the judgment states:

...in the case of a wholly written employment contract, the 'totality of the relationship' which must be considered is the totality of the legal rights and obligations for in the contract. To ascertain those legal rights and obligations the contract in issue must be construed according to the established principles of contractual interpretation.

Therefore, where the contract is committed in writing, the terms of that written contract need to be considered to determine the nature of the relationship.

The judgment also considers that subsequent behaviour or conduct after a wholly written contract has been entered in should not be considered. However, in the event that a contract is oral or partly oral and partly written, considering the conduct of the parties may be necessary to determine the contractual terms.

In your case

A written contract was formulated at the start of the working relationship. Due to numerous administrative changes a copy of that contract cannot be located. In the absence of that contract, we need to consider the conduct of the parties to the contract to establish what the terms of the written contract were.

In the event that a copy of the written contract is provided by either party in the future, and the terms and conditions in that contract differ from what has been provided to the Commissioner and upon which this ABA has been issued, then the ABA would not be binding on the Commissioner.

You provided by way of the facts that the job was formally put out to tender, to which the Worker was the successful entity to win the appointment of the contract. In the absence of the contract and therefore looking at the conduct of the parties, this suggests that the intended relationship between the successful party of the tender and the Principal was not to be one of employee/employer but rather one of independent contractor/principal.

The Worker was contracted to provide specific services, however, as an ex-employee he was experienced in many other tasks which he would complete when the Principal was short staffed and if the Worker had some spare time. The Worker was given the role based on his qualifications and ability to perform the role. The Worker had the ability to refuse/not offer to do these tasks. These facts indicate that part of the contract was verbal. As the Worker had previously been employed as an employee for the Principal, they were aware of the change in the employment status by entering into the tender process. This conduct suggests that the Worker was entering the contract under the context of being an independent contractor.

Control

The extent to which the engaging entity has the right to control the manner in which the work is performed is used 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 Sawmilling Co Pty Ltd ((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.

The Personnel judgment references Stevens v Brodribb and, at paragraph 73, states:

...the existence of a right of control by a putative employer over the activities of the putative employee serves to sensitise one to the subservient and dependent nature of the work of the employee, so as to assist in an assessment of whether a relationship is properly regarded as a contract of service rather than a contract for service.

In your case

The Worker reported to the Operations Manager during the contracted period who also monitored the quality of the work being performed. Invoices were not paid unless the Operations Manager was satisfied with the work completed or the progress of the job. Invoices were issued by the Worker occasionally. There was no regularity to issuing of the invoices. Tasks were given to the Worker by the Operations Manager. The Worker had the ability to refuse tasks if he wanted. The Worker organised the day as they pleased including the order in which they performed the tasks. The Worker did not need to notify anyone if they were in attendance on a particular day and could choose their days and hours of operation to complete the tasks. When the Worker was not in attendance, he was attending to his private clients. If sub-contractors were required, the Worker was able to engage these services without consent from the Principal. The Principal appears to have maintained very little control over the Worker, only ensuring that the work was completed prior to paying the Worker's invoices.

Does the worker operate on his or her own account or in the business of the payer? (integration)

In Hollis v Vabu, the majority of the High Court quoted the following statement by Windeyer J in Marshall v Whittakers Building Supply Co that the distinction between an employee and independent contractor is:

...rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.

Windeyer J's comments were also included in the Personnel judgment.

That decision also considered that asking whether a person is working in their own business may not be perfect as it focuses attention on those aspect of the relationship generally defined by the contract. Therefore, preference should be given to looking at the written contract to determine the characterisation of the parties' relationship.

In an employment relationship, tasks are performed at the request of the employer and the employee is said to be working in the business of the employer. An independent contractor carries on a trade or business of their own.

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.

In your case

There was a written contract which cannot be located at the time of writing this ruling. In the absence of the written contract, we can only look at the relationship based on the facts. In this situation, while the Worker was given a list of tasks to complete based on priority, they were tasks agreed to in his contract. The Worker also had a high level of flexibility about how and when the work was performed. In addition, he was only on site three days a week, carrying out these tasks, typically on Monday to Wednesday. On other days of the week the Worker was carrying out work for his private clients.

'Results' contracts

The relationship between an employer and employee is a contractual one. If it is often referred to as a contract of service. An employee contracts to provide their labour (typically to enable the employer to achieve a result) and payment is not necessarily dependent on, and referable to, the completion of specified services.

Such a relationship is typically contrasted with the principal / independent contractor relationship that is referred to as a contract for service. An independent contractor typically contracts to achieve a result.

According to the High Court of Australia in Neale (Deputy Commissioner of Taxation) v Atlas Products (Vic) Proprietary Limited (Neale), remuneration payable when and only when the contractual conditions have been fulfilled indicates the remuneration is made for producing a given result.

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.

In you case

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 Worker was paid to apply their knowledge, skills and experience to perform the job. The Worker was paid an hourly rate, the fee was agreed at the time of the Worker applying for the tender. No set fee was ever agreed upon for a job that was about to take place. Independent contractors are able to negotiate rates of pay or set a fee for a job they are about to undertake. This 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. Additionally, when the Worker invoiced for hours worked, they were paid for tasks not yet completed (and by extension "results" that were not yet achieved) However, the fact that the worker was not paid on any regular basis and instead was only paid upon presenting a task-based invoice, and the that the Principal would ensure completed tasks were done to a satisfactory level prior to payment, do support the notion that the Worker was paid for the achievement of particular results. On balance, the way in which the payments are made to the Worker does not indicate that the Worker was contracted to achieve specified results.

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.

In your case

The Worker was free to delegate work to other Workers without prior authority from the Principal. He did so with some regularity. The Worker paid the other Workers and not the Principal. This arrangement is not usual in an employee/employer relationship.

The relationship in totality

In this case, the written contract is not available, so we need to look at the behaviour of the parties to determine the legal rights and obligations that make up the employee relationship. The Worker had made application for a tender to the Principal under a business name which holds its own ABN. The Worker was engaged to carry out services in addition to other general tasks. He was required to hold qualifications. He had the flexibility to provide those services when and how he wished. Payments for the Workers services were made only after the Worker had submitted an invoice to the Principal for payment. The Principal was not liable to pay any annual leave, sick leave or any other statutory entitlement which is usually paid under an employee/employer relationship. When not in attendance, the Worker did private work which he advertised on social media platforms. The Worker provided all his own equipment. He purchased materials that he required to complete the job and then invoiced the Principal.

Our conclusion regarding the common law definition of employee

The totality of the relationship between the Worker and the Principal was one of independent contractor. There are very little indicators that suggest a relationship of employee/employer. From the commencement of the tender process, it was obvious that the employment relationship had changed from employee/employer to that of independent contractor/principal.

Question 2

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.

For someone to be an employee under subsection 12(3) of the SGAA, three elements must be satisfied:

1. there must be a contract (written or otherwise);

2. which is wholly or principally for the labour of a person; and,

3. that person must work under that contract.

These three elements establish a framework to determine whether subsection 12(3) operates to make an individual an employee under the SGAA (Dental Corporation v Moffett [2020] FCAFC 118).

It is clear that there was a contract, and that the Worker worked under that contract, satisfying the first and third elements. Therefore, the key question is whether the contract is wholly or principal for the Worker's labour.

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 was paid wholly or principally for their labour and skills.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the worker did have the right to delegate work to others. The Worker was permitted to obtain sub-contractors to assist in completing tasks, without any authority or consent from the Principal.

As such, while the contract may be for labour, as there was no requirement that the Worker perform the contractual work personally, it cannot be said to be wholly or principally for the Worker's labour as required by subsection 12(3).

Accordingly, the Worker does not meet the extended definition of employee as set out under subsection 12(3).

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, the Principal did not have an obligation to provide superannuation support to the Worker in accordance with the SGAA for the period stated.