Edited version of private advice

Authorisation number: 1052165893934

Date of advice: 3 November 2023

Ruling

Subject: Status of the worker - superannuation guarantee

Question 1

Is the Worker a common law employee of the Principal under subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 2023 to 30 June 2024?

Answer

No.

Question 2

Is the Worker a common law employee of the Principal under the expanded definition contained in subsection 12(3) of the SGAA for the period 1 July 2023 to 30 June 2024?

Answer

No.

This advice applies for the following period:

Income year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

The Principal is a not-for-profit, charitable organisation providing aged care and in-home services to the local community.

Services offered including person care; home help; individual social support; outings; gardening; allied health services; nursing and transport. The home maintenance/gardening services provided to the consumers are to help with their outdoor areas and basic safety and maintenance tasks. The home maintenance component of the Principal's services includes mowing, edging, wedding, pruning, removing garden waste, wood chopping and sweeping.

The Worker is employed under a Contractor Service Agreement (the Agreement). Under the Agreement:

•         The Worker must provide all materials, tools and equipment.

•         The Worker must submit monthly invoices for payment for which they receive a payment in accordance with the agreed upon rates.

•         The Worker must maintain their own Workers' Compensation insurance, if necessary.

•         The Worker must maintain public liability insurance.

•         The Worker may not assign or subcontract the Agreement without the written consent of the Principal.

•         The Worker is free to work for other clients.

•         Cancellation fees may apply to either party.

If the Worker is unable to undertake the work then it may be allocated to another Worker. If one of the sole traders has their own employees then, provided it is communicated to the Principal, that employee could undertake the work.

Invoices provided by the Principal show that the Worker invoices the Principal for the hours worked for each client that they attend.

The Worker does not wear the Principal's uniform or show the Principal's logo. The Worker represents themselves, in their own uniforms, and generates their own goodwill.

The Worker can choose how and when the work is done while the Principal provides a list of the properties where the services are to be completed. The work is required to be completed on a fortnightly, monthly or ad hoc basis for the clients.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Summary

The Worker is not your employee 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.

You therefore do 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 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.

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 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.

Question 1

Is the worker your common law employee under subsection 12(1) of the SGAA for the period 1 July 2023 to 30 June 2024?

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

Terms and circumstances of the formation of the contract

The Worker is engaged via written contract to provide services to the Principal. Specifically, the terms of the Agreement entered into with the Worker and signed by the Principal and the Worker, provide an Agreement, wholly in writing, and signed by the parties.

Control

The Agreement provides that the Principal will notify the Worker of an assignment, advising of the property the Worker is required to attend to perform the services, and the actual services the client requires.

However, under the terms of the Agreement, the Worker is only required to comply with a reasonable standard of service, being that they conduct themselves in a courteous and efficient manner and may otherwise perform the work as they choose.

The Worker may also, within reason, perform the work when they choose, with the Principal requiring only that the services be provided on a fortnightly, monthly or ad hoc basis, as required by the client.

An assignment may be cancelled by either the Principal or the Worker with 12 hours' notice. If the Principal gives less than 12 hours' notice, they must, at the request of the Worker, pay a cancellation fee. If the Worker gives less than 12 hours' notice the Principal may charge a cancellation fee.

The terms of the Agreement show a high degree of control is exercised by the Worker in how the work is to be performed. This is a strong indicator that the Worker is a contractor and not an employee of the Principal for superannuation purposes.

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

The Worker is providing services as an individual carrying on their own business (under a contract for services).

The Worker is not integral to the Principal's business but rather provides a service to support the business, as one of a number of workers who provide home maintenance services for aged care residents.

The Worker represents their own business and generates their own goodwill by providing their skills in the execution of their services. This strongly suggests that the Worker is an independent contractor and not an employee, for superannuation purposes.

Results' contracts

The Agreement does not stipulate the means by which the Worker must perform the services, other than requiring that they behave in a reasonable manner. The Worker is otherwise free to employ their own means to achieve the contractually-specified outcome. The essence of the Agreement is to achieve a result - maintenance and repairs of client properties.

Satisfactory completion of the specified services is the result for which the parties have bargained. That is, payment becomes payable when, and only when, the contractual conditions have been fulfilled. The Worker must invoice for services performed.

The Worker is required to submit an invoice for payment to the Principal by the third day of the following month, or more frequently. The Principal pays the Worker for the services provided at the rates agreed upon in the terms of the contract. Once the work has been performed and completed, the Worker will receive their payment.

While the invoices are for the hours of work required to complete the particular job, this appears to be down to convenience, being in line with the funding that the Principal receives from government.

Overall, the Worker is paid to achieve a result.

Whether the work can be delegated or subcontracted

The right to delegate or sub-contract is a strong indicator of a contract relationship, rather than employment.

Under the terms of the Agreement, the Worker may direct an employee of their own business (if such exists) to complete the work required to be done.

However, they may not assign or subcontract the Agreement without the prior written consent of the Principal.

Given the particular industry in which the Principal is engaged (aged care and in-home services) which includes vulnerable and unwell individuals, this is not considered an unreasonable requirement.

Risk

The Agreement requires the Worker to maintain Workers' Compensation, if necessary, along with public liability insurance in respect of the work done for the Principal. Additionally, under the terms of the Agreement, the Worker is responsible for any loss, damage, injury or death sustained in the performance of their duties.

This would not occur in the case of an employment relationship, as employers are vicariously liable for their employees.

This factor is suggestive of a relationship of contract, not employment, as the risk is borne by the Worker.

Provision of tools and equipment and payment of business expenses

The terms of the Agreement state that the Worker must, at their own expense, provide all employees' materials, tools and equipment necessary to carry out their work. This is indicative that the Worker is a contractor, as an employee would usually have all materials and equipment provided for them by an employer.

Our conclusion regarding the common law definition of employee

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

Question 2

Is the worker your employee 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, it is considered that the Worker is paid primarily for their own labour and skills. There is no evidence that their remuneration is intended to cover any more than this, as they were not required to supply any materials and had no significant ongoing expenses.

The individual must perform the duties themselves

As discussed earlier, we consider that the facts and evidence indicate that the Worker may delegate the work to other employees they have employed.

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, 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 Worker, the Commissioner concludes that the worker does not meet the definition of 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 did not have an obligation to provide superannuation support to the Worker in accordance with the SGAA for the period under review.