Edited version of private advice

Authorisation number: 1052191798968

Date of advice: 9 April 2024

Ruling

Subject: Superannuation status of the worker

Question 1

Are members of the Committee (Members) employees of the Entity under subsection 12(9) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No.

Question 2

Are Members, common law employees of the Entity, under subsection 12(1) of the SGAA?

Answer

No.

Question 3

Are Members, employees of the Entity, under the expanded definition in subsection 12(3) of the SGAA?

Answer

No.

Question 4

Are sitting fees paid to Members, included as ordinary time earnings (OTE) on which the Entity is to calculate the minimum level of support for the Members under the SGAA?

Answer

No.

Question 5

Are sitting fees paid to Members, and then immediately transferred to their nominating employer, included as ordinary time earnings (OTE) on which the Entity is to calculate the minimum level of support for the Members under the SGAA?

This advice applies for the following periods:

1 July 20YY to 30 June 20YY

The scheme commenced on:

01 July 20YY

Relevant facts and circumstances

The Entity makes payments of sitting fees to Members who are appointed to a Committee.

The Committee is not a body established under legislation.

Several Members are employed by organisations that require the sitting fees that are paid by the Entity to be paid to these employer organisations.

The Committee operates under specific Terms of Reference.

The sitting Members represent 13 organisations.

Members are appointed to the Committee by the relevant Minister for Industrial Relations.

The role of the Committee is to provide a high level dialogue between the relevant Australian Government, employers, representative associations and unions on significant issues in the commercial construction sector.

The Entity is aware of Income Tax Ruling IT (IT 2014) - Fees paid to members of governmental commissions or councils - requirement on member to pay fees to employer and they contend that the content of the ruling may be relevant to the issue of superannuation guarantee liability.

Relevant legislative provisions

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

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

Superannuation Guarantee (Administration) Act 1992 subsection 12(9)

Reasons for decision

Question 1

Are Members employees of the Entity under subsection 12(9) of the SGAA?

Summary

The Members do not exhibit all the characteristics of an office holder and consequently are not employees of the Entity under subsection 12(9) of SGAA.

Detailed reasoning

The classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law employment relationship. While the definition includes persons who at common law would be regarded as employees, it also extends to other members and persons as follows.

Section 12 of the SGAA states:

SECTION 12INTERPRETATION: EMPLOYEE, EMPLOYER

12(1) Definitions

Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons.

...

12(9) Employees of Commonwealth, State, Territory

A person who:

(a) holds, or performs the duties of, an appointment, office or position under the Constitution or under a law of the Commonwealth, of a State or of a Territory; or

(b) is otherwise in the service of the Commonwealth, of a State or of a Territory (including service as a member of the Defence Force or as a member of a police force);

is an employee of the Commonwealth, the State or the Territory, as the case requires. However, this rule does not apply to a person in the capacity of the holder of an office as a member of a local government council.

An office holder is either a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law or a common law office holder who is otherwise in the service of the Commonwealth, a State or a Territory.

Paragraph 90 of Superannuation Guarantee Ruling SGR 2005/1 - Superannuation guarantee: who is an employee (SGR 2005/1) states:

90. The wording in subsection 12(9) of the SGAA is very similar to the wording contained in paragraphs 12-45(1)(b), (c), and (d) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Taxation Ruling TR 2002/21 provides comprehensive guidance on the interpretation of the wording contained in those paragraphs. A similar interpretation applies for the purposes of interpreting subsection 12(9) of the SGAA.

Taxation Ruling TR 2002/21 Income tax: Pay as You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to officers (TR 2002/21) discusses PAYG withholding from salary, wages, commissions, bonuses or allowances paid to office holders.

Paragraph 14 of TR 2002/21 states that an individual is considered to be appointed or engaged under an Act where it can be identified in the relevant legislation or statutory instrument that either:

•         the particular office, position or appointment or

•         the constitution of the relevant body (such as a panel, board committee or tribunal) to which the individual has been appointed

Further, paragraph 15 of TR 2002/21 states that the appointment, office or position must also exhibit the following characteristics of an office holder:

•         independent existence: The office must exist regardless of the individual who occupies the office from time to time - that is, if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual

•         duties, functions, responsibilities or powers: The office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument

•         the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office

Paragraphs 17-18 of TR 2002/21, discusses about common law office holders, who are otherwise in the service of the Commonwealth, a State or a Territory.

17. The common law has identified two types of individuals in the service of the Crown:

•         office holders; and,

•         common law employees of the Crown.

18. Payments to common law employees of the Crown are subject to PAYG withholding under section 12-35 in Schedule 1 to the TAA. Payments to office holders whose office is under the Constitution or an Australian law are covered by paragraph 12-45(1)(b) in Schedule 1 to the TAA. Payments to individuals in other offices, such as police officers, military officers and members of Parliaments or local governing bodies are specifically subject to PAYG withholding under paragraphs 12-45(1)(a), (c) and (e) in Schedule 1 to the TAA. Therefore the only office holders who are not already covered by the previously mentioned withholding events are common law office holders.

Additionally, paragraph 19 of TR 2002/21 states:

19. A common law office holder would come within paragraph 12-45(1)(d) in Schedule 1 to the TAA where the office has the characteristics mentioned in paragraph 15 of this Ruling and is not an office under the Constitution or an Australian law.

TR 2002/21 also makes specific comment on whether Advisory Committee members are office holders under the Constitution or an Australian law.

Paragraphs 146 and 147 of TR 2002/21 state:

146. Advisory committees may be established, often through the exercise of a statutory power, by a person or statutory body to provide advice on matters referred to the committee. The positions, duties and functions of the committees are not covered by a statute, nor is there a relationship created with the Crown itself. They are at the discretion of the person or body that establishes the committee and would be covered by the contract with the committee members. As such, the positions do not have an independent existence and cannot have powers, duties or functions attached to the positions.

147. Therefore, members of these types of committees would not be statutory or common law office holders.

The example in paragraphs 100 and 101 of TR 2002/21 explains why Advisory Committees are not in the nature of the functions or duties which would be exercisable by a statutory or common law office holder.

100. Section 20B of the Marketing of Potatoes Act 1946 (WA) states that: The corporation may establish consultative groups of persons for the purpose of considering and advising the Corporation on, any matter relating to the performance of the functions of the Corporation that is referred to them by the Corporation...

101. Persons appointed to those consultative groups would not be considered covered by paragraphs 12-45(1)(b) or (d) in Schedule 1 to the TAA. The Marketing of Potatoes Act 1946 does not specify actual positions which members of consultative groups can occupy, and the constitution of the group may vary from time to time as the members are appointed on an ad hoc basis without tenure of appointment. There are no duties, powers or functions which attach to the position itself. The positions, duties and functions are at the discretion of the Corporation and would be covered by the contract between the Corporation and the individual engaged on the advisory group. The individual's engagement will be governed by contract between the parties - that contract will either be a common law employment contract or an independent contract. The functions or duties which the consultative group performs - that is, an advisory function - are not in the nature of the functions or duties which would be exercisable by a statutory or common law office holder.

Application

Members need to satisfy the criteria stated in paragraph 14 and 15 or 19 of TR 2002/21 to be considered an office holder.

Accordingly, it is necessary to consider whether the Member holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law or whether the member is otherwise in the service of the Commonwealth, a State or a Territory.

The role of the Committee is to provide a high level dialogue between the relevant Australian Government, employers, representative associations and unions on significant issues in the commercial construction sector.

Additionally, from a governance perspective, the Committee holds no power to make any directives or decisions and its remit is advisory in nature only which aligns with the operation of the Advisory Committees as discussed in paragraphs 100, 101, 146 and 147 of TR 2002/21.

Furthermore, Members are not appointed under a specific Act that provides details of the constitution of the committee or their specific duties or functions.

Accordingly, the Committee was established with the role of only being advisory.

On this basis, Members are not considered to be office holders. Therefore, Members are not employees of the Entity under subsection 12(9)(a) of the SGAA.

The question also arises as to whether Members will come under paragraph 12(9)(b) of the SGAA by virtue of being a person who 'is otherwise in the service of the Commonwealth, of a State or of a Territory'. This phrase is common to both paragraph 12(9)(b) of the SGAA and paragraph 12-45(1)(d) of the TAA.

The characteristics mentioned in paragraph 15 of TR 2002/21, in particular the requirement that the office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function, are not met.

As mentioned previously, from a governance perspective, the Committee holds no power to make any directives or decisions and its remit is advisory in nature only which aligns with the operation of the Advisory Committees as discussed in paragraphs 100, 101, 146 and 147 of TR 2002/21.

Therefore, Members cannot be considered as 'otherwise in the service of the Commonwealth, of a State or of a Territory' as stipulated in paragraph 19 of TR 2002/21.

Consequently, Members do not exhibit all the characteristics of an office holder, therefore, Members are not employees of DMIRS under paragraphs 12(9)(a) or (b) of the SGAA.

Question 2

Are Members common law employees of the Entity under subsection 12(1) of the SGAA?

Summary

Members are not common law employees of the Entity under subsection 12(1) of the SGAA.

Detailed reasoning

The relationship between an employer and employee is a contractual one. When a business engages a worker, generally it will either be a relationship of employment, often referred to as a contract of service, or a principal/independent contractor relationship that is referred to as a contract for services.

The leading case outlining the principles governing the ordinary meaning of 'employee' is Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contacting Pty Ltd[1] (Personnel Contracting). The majority of the High Court in Personnel Contracting confirmed that whether a worker is an employee of a putative employer is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations with constitute that relationship.[2]

As such, the totality of the relationship is derived from the rights and obligations created by the contract[3] between the parties, construed at the time they entered into it.[4] Where the parties have comprehensively committed the terms of their relationship to a written contract, and the contract has not been varied, challenged as a sham or subject to legal or equitable relief, then it is the legal rights and obligations in that contract alone that are relevant in this analysis.[5]

Evidence of subsequent conduct and work practices can only be considered in some instances, such as establishing the existence of a contract, identifying the contractual terms agreed to where the contract is wholly or partially oral, demonstrating that the contract has been varied or is a sham, and establishing evidence of other legal or equitable entitlements.[6]

Where a contract is oral, evidence of the way the parties conducted themselves may be considered but only for the purposes of inferring what terms and conditions were verbally agreed to or necessarily implied into the contract. The relationship cannot be characterised based on the 'reality' of what took place over the duration of the performance of work.[7]

The examination of the totality of the relationship must be considered through the focussing question of whether the worker is working in the business of the putative employer, having regard to the various employment indicia from case law.[8] In Marshall v Whittaker's Building Supply Co,[9] Windeyer J said that the distinction between an employee and an 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."

The common law indicia include the level of control exerted by the putative employer, the extent of integration of the worker into the business, whether the worker is able to delegate, whether the remuneration is for a specified result, whether the worker uses their own tools and equipment, whether either party generates goodwill and the level of risk borne by each party. Importantly though, the indicia are not to be applied as if they are a mechanical checklist.[10]

Whether worker is serving in your business

An employee serves in the business of an employer, performing their work as a representative of that business. In contrast, an independent contractor provides services to a principal's business, but the contractor does so in furthering their own business enterprise and representing their own business.

A person is not excluded from being an employee just because they also conduct their own business.[11] A person may realistically have more than one job and may both conduct their own business and be employed in someone else's business.

As such, it is helpful to focus attention upon the aspects of the contractual relationship which bear more directly upon whether the worker's work was so subordinate to the employer's business that it can be seen to have been performed as an employee of that business rather than as part of an independent enterprise.[12]

Characterising a putative employer's business

The correct characterisation of the business being carried on by the putative employer is an essential part of determining whether the worker is working in the business of the putative employer.[13]

In Personnel Contracting, the majority considered that the core of Construct's business was their promise to supply compliance labour to their customer, Hanssen. Construct's right to control the provision of Mr McCourt's labour was an essential asset of their business, which they deployed in order to fulfil contractual obligations with Hanssen.[14]

Presenting as an emanation of the business

Whether a worker is represented to the public as an emanation of the putative employer's business is a key consideration in determining whose business they are serving in.

However, it is important to distinguish between a worker being contractually obliged to present as an emanation of the putative employer's business (such as in Hollis v Vabu Pty Ltd (Hollis)[15]), and them merely choosing to do so to abide by a business' expectations (such as in ZG Operations Australia Pty Ltd & Anor v Martin Jamsek & Ors (ZG Operations)[16]).

Control

An employer is usually able to control how, where and/or when its employee performs their work. The importance of control in this context lies not in its actual exercise, but rather in the contractual right of the employer to exercise such control.[17]

Where the main operating activity of the business is the supply of labour or a service of some kind, often a critical element of the business is the need to retain control over that labour or the workers providing the service. This was emphasised by Kiefel, Keane and Edelman JJ in Personnel Contracting:

"... the existence of a right of control by the 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 to be regarded as a contract of service rather than a contract for services."[18]

A term in a contract that purports to confer a right to control must be interpreted in the context of the broader contract and the services being provided. A contract may afford an employer a different kind of control, such as control over how long a casual worker can work, or the clause may allow 'reasonable direction' as distinguished from a true right to control a worker.[19]

Delegation

An unlimited, unfettered power to delegate or subcontract to others to perform the work is usually an indication that the worker is not an employee.[20] That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise. In contrast, where a person is contractually required to personally perform the work, this points to the person being an employee. Personal service is generally seen as a critical feature of an employment relationship, whereas a contractor having the ability to utilise their own workforce is consistent with carrying out their own business.

True delegation is differentiated from situations where the worker has delegated tasks in a supervisory capacity or has asked another colleague to take an additional shift or responsibility where the worker is unable to work.[21] In these arrangements, the worker has merely organised a substitution or shared the workload. It is not the same as the freedom of an individual to subcontract or employ others to perform the work in their own business. A subcontractor is generally paid by the worker, reflecting that they work for the worker, whereas a substitute is usually paid directly by the putative employer, without the involvement of the worker.

Some contracts may provide a "limited or occasional" power of delegation where the scope and operation of the power is so narrow that the worker cannot exercise it unilaterally, for example where the putative employer needs to provide consent before a subcontractor is engaged. This factor is not inconsistent with an employment relationship[22], as the putative employer effectively has full control over who provides the services.

The case in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (On Call) entailed both of these circumstances. A purported power to delegate was found to be not any more than job swapping that can occur amongst casual employees, given the requirement that any replacement interpreter had be on the register and approved by On Call.[23]

'Results' contracts

Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services.[24]

The meaning of the phrase 'producing a result' means the performance of a service by the worker for the putative employer where the worker 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 provide the worker's labour.

Under a results-based contract, payment is often made for a negotiated fixed price on completion of the job, as opposed to an hourly rate.[25] The total fee may reflect an estimated completion time.

However, a piece rate or output-based remuneration can still be consistent with an employment relationship if they are a natural means to remunerate the particular kind of task the worker is performing.[26] For example, in Commissioner of State Taxation v Roy Morgan Research Centre Pty Ltd (Roy Morgan), the Court found that although interviewers were only paid on the completion of each assignment, their pay was calculated by reference to their time spent, not for producing a result.[27] In Hollis, it was considered that payment to the bicycle couriers per delivery was a natural means to remunerate employees whose sole purpose is to perform deliveries, for ease of calculation and to provide an incentive to more efficiently to make deliveries.[28]

Tools and equipment

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for their work and be reimbursed for business expenses by the employer. This includes being given a reimbursement or allowance for the use of the worker's own assets such as a car.

In comparison, independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses.[29] Usually, they will have factored these costs in their overall fee or will seek separate payment for such expenses from the principal.

The question of scale with respect to the cost of tools and equipment is important. Where a worker uses a substantial item or piece of equipment for which they are wholly responsible to conduct their work, the mechanical aspect of the contract outweighs the personal.[30]

Equipment that is not specialised or used only for completing the contracted services, such as a mobile phone, are less likely to be considered significant.[31]

Goodwill and Intellectual Property

If an independent contractor performs services in the course of their own business, it would be common for the contractor to be able to generate goodwill for that business.

Where a contract between a worker and putative employer prevents any goodwill from accruing for a worker's possible business, this may indicate that the worker is instead serving in the putative employer's business.

Risk

Generally, employers are vicariously liable for negligence and injury caused by their employees. In contrast, a principal will not be liable for negligence or injury caused by an independent contractor.

Where a contract requires a worker to obtain their own insurance or indemnify the putative employer against loss arising from harm or injury caused by the worker, it may be seen as a consequence of a subjective characterisation that the contract is one for service, and as such must be considered in light of the entire contract.

In On Call, although interpreters were contractually required to indemnify On Call against loss, Bromberg J found that On Call bore the ultimate financial risk for a failure by an interpreter to perform the work, having taken out its own insurance policy against claims made by clients and not financially penalising interpreters for unsatisfactory work.[32]

In Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd[33], the Full Federal Court concluded although these workers were required to acquire their own public liability insurance, this one factor alone was insufficient to support a conclusion that the workers were not employees.

Use of labels to characterise relationship

In Personnel Contracting the High Court found that the "labels" which the parties may have chosen to describe their relationship are not determinative or even likely relevant to, the characterisation of their relationship.[34] Rather the characterisation of the relationship needs to turn on the substantial rights and duties between the parties.[35]

Clauses that stem as a consequence of the parties' characterisation of their relationship will be similarly limited in their impact on the actual character, for the same reasons, for example obtaining an ABN or the provision or lack of provision of certain work entitlements.

Application

Serving in the engaging entity's business

As detailed above the majority of the High Court in Personnel Contracting confirmed that whether a worker is an employee of a putative employer is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship.[36]

As such, the totality of the relationship is derived from the rights and obligations created by the contract[37] between the parties, construed at the time they entered into it.[38] Where the parties have comprehensively committed the terms of their relationship to a written contract, and the contract has not been varied, challenged as a sham or subject to legal or equitable relief, then it is the legal rights and obligations in that contract alone that are relevant in this analysis.[39]

The Australian Taxation Office's response to the Personnel Contracting case is provided in a Decision impact statement (the Statement) issued on 31 March 2022, and states:

The long-established employment indicia are still relevant when characterising the contractual relationship between the parties. However, they are to be considered through the focusing question or prism of whether the putative employee is working in the business of the employer. This reflects the Commissioner's understanding and application of the business integration test. The High Court has elevated that test as one of the primary and focusing aspects of the examination of the contractual terms. In addition, the High Court has continued the emphasis on the examination of control as a complementary focus to the business integration test.

(emphasis added)

Characterising a putative employer's business

The Members are neither serving in the business of the Entity nor being held out as representatives of the Entity. They are in in effect providing a service to the Entity and in doing so are furthering the interests of the organisation they represent.

The terms on which the Members are engaged makes no reference of an intention to form an employment relationship. Furthermore, the Members are only paid sitting fees if they advise the Entity that they wish to receive the fees - an arrangement which is not a characteristic of an employment relationship.

The remit of the Committee is advisory in nature with the major industry stakeholder representative members contributing to a forum for a high-level dialogue on significant issues in the commercial construction sector.

Presenting as an emanation of the business

No evidence was provided that Members perform any duties or have any executive roles relating to Entity's operation. Additionally, on an objective basis it is unlikely that a Member who attends quarterly meetings to provide advice whilst the Member is also engaged as a stakeholder to represent the views of their own organisations, would be seen as an employee serving in and presenting as an emanation of the Entity's business.

Control

The role of the Committee is to provide a forum for a high-level dialogue between stakeholders. Apart from the Entity providing a Secretariat which may indicate some procedural control, no further evidence was provided to demonstrate that the Entity is able to control how the Members were to perform their roles.

Meetings were conducted quarterly, however no evidence was provided as to where the meetings were held and if they were conducted electronically/virtually or physically in one location. It is expected for practical reasons that the Entity would have control over where the services were to be delivered by the Members. Of more importance in the context of control for this relationship, is how the services were to be provided by the Members.

The letter of appointment and the Terms of Reference do not include any explicit terms to indicate that the Entity has a contractual right to exercise control over how the Members perform their work. Of more relevance, is the fact that the consultative and advisory objectives, under Governance and Objectives elements of the Terms of Reference, imply a necessary lack of control by the Entity in order to promote the necessarily independent opinion of the Members.

Summary - Business Integration and Control

The Members are neither integrated into, nor held out as representatives of the Entity's business. Their engagement is based on them making contributions that reflect the views of their stakeholder organisations. The right by the Entity to exercise control is limited to duration of meetings and the provision of the Secretariat. The right to control and exercise of that right to control the operation of the Members would run counter to the diversity and independence of the advisory body formed.

Other indicia

Whether the work can be delegated or subcontracted

Potential Members are firstly nominated by their organisations and then, subject to Cabinet approval, are appointed to the Committee by the Minister for the Entity. The Terms of Reference state that if the Members are unable to attend a meeting, they are to advise the Chairperson before the meeting.

The letter of appointment and the Terms of Reference document do not include terms in respect of delegation. Given the nomination, approval and appointment process, it appears initially that an implied right to delegate is unable to be read into those written terms. However, it is reasonable to expect that a degree of delegation exists to enable the Members to gather information and data in an efficient and effective manner to allow for forum contributions.

The role of the Committee is to provide a forum for a high-level dialogue between the stakeholders on significant issues in the commercial construction sector. An agenda and meeting papers are circulated five working days prior to each meeting. It is implied that the Member is engaged for their relevant or professional expertise and would be able to employ their own means in order to deliver that result.

In these circumstances any delegation likely be made to colleagues of the Member's organisation or others, in contrast to being made to the Entity's employees.

'Results' contracts

The letter of appointment and Terms of Reference document are central in understanding the nature and operation of the contractual relationship between the parties. The decision impact statement issued for the Personnel Contracting case states, amongst other things, that the most significant clarification arises in primarily examining the terms of the written contract between the parties to establish the character of the relationship. Furthermore, as highlighted in JMC[40] at [10], the law is settled in respect of the need to consider both express and implied contract terms when determining the nature of a relationship.

Representatives from major industry stakeholders are appointed as Members to attend the Committee meetings and provide input on a range of matters relating to the building industry, and to promote an environment that will stimulate building activity, skills development, and jobs growth.

In these circumstances, in addition to the express requirement for the Members to attend the Committee meetings in order to trigger payment, it is implied that the Members would be consulting, researching and communicating on matters within their stakeholder group, otherwise an incongruous situation would occur.

No evidence was provided to show that this activity of the Members prior to Committee meetings was recognised as labour and paid at an hourly rate. Rather, under the contractual relationship, payment for the labour of the Members both prior to and during meetings, was based solely on payment of the fixed price sitting fees determined by the Minister for Industrial Relations.

The Members are free to employ their own means to achieve the required outcome in preparing their stakeholder's views and then attending and presenting at the Committee meetings. This preparation, attendance and presentation is the result that the Member is paid to achieve. Rather than being paid an hourly rate, the Members are paid fixed rates for attendance of meetings - the fixed remuneration rates include reading and preparation time. The question arises as to whether the payments are made on a piece rate basis.

Hollis indicates that a piece rate or output-based remuneration can still be consistent with an employment relationship if they are a natural means to remunerate the particular kind of task the worker is performing [41] . This case can be distinguished from Hollis where the methods of payment, per delivery and not per time period engaged, was a natural means to remunerate employees whose sole duty was to perform deliveries. In this case, the method of payment is not a natural means to remunerate the Members as it bears no resemblance to the time taken to perform the express and implied tasks both prior to and during the Committee meetings.

The purpose and structure of the payments are indicative of being paid for a result, in contrast to being paid an hourly rate for actual hours of attendance. Additionally, the recent view expressed in paragraph 62 of Taxation Ruling TR 2023/4 - Income tax: pay as you go withholding - who is an employee? states that a payment is more likely to be for a result if it bears little to no reference to the time spent working to produce the outcome [42]. Given the range of stakeholder groups and the diverse range of issues on which input is required both prior to and during meetings, the chances of the fixed payments for attending the Committee meetings reconciling with the time spent working to produce the outcome are unlikely.

Members present their views in relation to the significant issues identified for each of the quarterly meetings and have high level dialogue with other Committee Members to advise the Minister on those matters identified. The result the Committee achieve is the advice to the Minister. Members contribute to the forum in order for the Committee to achieve this result. Likewise, this contribution is the result the Entity expects Members to achieve being a member of the Committee. Consequently, the sitting fees is paid for this contribution of the Members in preparing and participating in the high level dialogue than it is merely being paid for attending the meeting.

In summary, under the express and implied contractual terms, the Members have contractual obligations to spend time working both prior to and during the Committee Member meetings. This preparation, attendance and presentation is the result that the Members are paid to achieve.

Tools and equipment

No evidence of significance was provided in relation to the provision of tools and equipment, risk and associated insurance arrangements.

Generation of goodwill

Both the Entity and the Members may be able to generate goodwill simultaneously, in that representations made by the Members could for example result in the Entity improving the safety environment in the commercial construction sector and those same improvements could be recognised as those initiated by the Member and his/her stakeholder organisation.

On balance, it is considered that the Members are not common law employees of the entity under subsection 12(1) of the SGAA.

Question 3

Are the Members, employees of the Entity, under the expanded definition subsection 12(3) of the SGAA

Summary

The Members are not employees of the Entity, under the expanded definition subsection 12(3) of the SGAA.

Detailed reasoning

The law

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

•         there must be a contract (written or otherwise);

•         which is wholly or principally for the labour of a person; and

•         that person works under that contract.

For the purpose of determining if a contract is wholly or principally for the labour of a person, it is useful to identify whether the terms of the contractual relationship indicate that:

•         the individual is remunerated (either wholly or principally) for their personal labour and skills

•         the individual must perform the contractual work personally (that is, where there is no right to delegate, or only a limited right), and

•         the individual is not contracted to achieve a result.

The existence of a contract (written or otherwise)

Requirements for establishing a contractual relationship had been already discussed in earlier paragraphs.

The person works under that contract

The word 'work' in subsection 12(3) takes on its ordinary meaning. The Macquarie Dictionary defines 'work' as a verb to mean 'to do work, or labour; exert oneself.' Where a person has provided the agreed services in accordance with the contract, the person has worked under the contract.

Application

Each of the elected member organisations nominate their employee who is subject to the Cabinet approval. Once approved, the Members meet quarterly and are entitled to sitting fees for attending meetings.

The individuals are advised of their appointment to the Committee by way of letter from the Minister for the Entity. Once appointed as a Member, the Member is to operate under a document titled 'Terms of Reference'.

The document comprises of the following sections: context, role, objectives, membership, governance, meetings and remuneration.

Therefore, the letter of appointment and Terms of Reference document are central in understanding the nature and operation of the contractual relationship between the parties and the Members dedicate their time and expertise as per requirements in these documents.

Wholly or principally for the person's labour

A person's labour can include mental and artistic effort, as well as physical toll.[43]

The words 'wholly' and 'principally' take on their ordinary meaning. The Macquarie Dictionary defines the word 'wholly' to mean 'entirely; totally; altogether; quite.' To the extent that a contract is partly for labour and partly for something else (for example, the supply of goods, materials or hire of plant or machinery), it will only meet the provision if it is 'principally' for labour. The word 'principally' is defined by the Macquarie Dictionary as 'chiefly; mainly.'

Benefit derived by the putative employer

The case of Dental Corporation v Moffet (Moffet) provides guidance as to determining whether the contract is wholly or principally for the labour of the individual engaged. Specifically, the question must be answered from the perspective of the person obtaining the benefit of the labour (i.e. the quasi-employer).[44]

In Moffet, Perram and Anderson JJ considered that the Services Agreement provided Dental Corporation, the putative employer, with two sets of benefits:[45]

"... One related to Dr Moffet's personal services as a dentist, as a practice manager, as a consultant both in relation to the administration of the practice but also in relation to fees and as a maintainer of medical records (i.e. the 'Dentistry Services' contained in Sch 1). The other was his promise that the practice would achieve a minimum cash flow which was backed up by a right in Dental Corporation to reduce his monthly drawings by 50% until any shortfall was made good."

Dr Moffet's obligation to provide personal services as a dentist and manager was 'for labour', whereas the promise to achieve the minimum cash flow was not.[46] The two benefits were so intertwined that they had to be dealt with together, where the requirement to provide minimum annual cash flows could not be met without Dr Moffet carrying out his services.[47] For that reason, the Services Agreement was, from Dental Corporation's perspective, wholly or principally for Dr Moffet's labour.[48] It was substantially for that purpose[49], notwithstanding that the contract also provided a secondary, non-labour benefit.

Contract for a result

Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is not wholly or principally for the person's labour, but rather for the worker to produce the result they have contracted to produce. While the worker may perform labour, they do so for their own purposes to achieve the contracted result.[50]

A contract is for the production of a given result where the worker 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 wholly or principally to provide the worker's underlying labour that produces the result.

Where a worker uses a substantial item or piece of equipment for which they are wholly responsible to conduct their work, the contract may be better described as for a result that entails the specific use of the item.[51] In other circumstances, the contract may be for the sum of multiple components that involve both labour and equipment, but the use of the equipment is so significant that the labour is no longer principal. This contract would not be wholly or principally for the worker's labour even if it is not for a result.

Under a results-based contract, payment is often made for a negotiated fixed price on completion of the job, as opposed to an hourly rate.[52] The total fee may reflect an estimated completion time.

However, a piece rate or output-based remuneration can still be consistent with an employment relationship if they are a natural means to remunerate the particular kind of task the worker is performing.[53] For example, in Commissioner of State Taxation v Roy Morgan Research Centre Pty Ltd (Roy Morgan), the Court found that although interviewers were only paid on the completion of each assignment, their pay was calculated by reference to their time spent, not for producing a result.[54] In Hollis, it was considered that payment to the bicycle couriers per delivery was a natural means to remunerate employees whose sole purpose is to perform deliveries, for ease of calculation and to provide an incentive to more efficiently to make deliveries.[55]

As such the contractual relationship as a whole must still be considered to determine whether the legal rights and obligations in contract demonstrate an intention to wholly or principally engage labour to serve in the putative employer's business or to obtain a result.

Worker must perform the work personally

Subsection 12(3) requires the contract to be for the worker's labour specifically. An unlimited, unfettered power to delegate or subcontract to others to perform the work is usually an indication that the worker is not required to perform the work personally.[56] That is so even if the contractor actually does personally perform the work and had no intention of doing otherwise. Even if a contract is "for labour", an unrestricted delegation power indicates that the contract is not for the worker's labour.

Some contracts may provide a "limited or occasional" power of delegation where the scope and operation of the power is narrow and the worker cannot exercise it unilaterally, for example where the putative employer needs to provide consent before a subcontractor is engaged. The putative employer effectively has full control over who provides the services and the contract more clearly contemplates that it would primarily be the worker who does the work. Thus, a limited delegation power may indicate that while the contract is not wholly for the worker's labour, it is still principally for their labour.

True delegation is differentiated from situations where the worker has delegated tasks in a supervisory capacity or has asked another colleague to take an additional shift or responsibility where the worker is unable to work.[57] In these arrangements, the worker has merely organised a substitution or shared the workload. It is not the same as the freedom of an individual to subcontract or employ others to perform the work in their own business. A subcontractor is generally paid by the worker, reflecting that they work for the worker, whereas a substitute is usually paid directly by the putative employer, without the involvement of the worker.

The case in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) (On Call) entailed both of these circumstances. A purported power to delegate was found to be not any more than job swapping that can occur amongst casual employees, given the requirement that any replacement interpreter had be on the register and approved by On Call.[58]

Application

Wholly or principally for the person's labour

The agreements were not in part for the supply of any materials or equipment.

The Terms of Reference and the appointment letter confirm that the Members efforts were to represent their organisations in facilitating the progression of issues of significance.

The consultative process of which the Members' services are of fundamental importance provides an identifiable benefit for the Entity resulting from the Member's labour. The purpose of engaging the Members from the perspective of the Entity was to realise this benefit.

Although there is an implied term that Members can meet their representative roles by utilising the support of labour from industry colleagues, it is assumed that the benefit realised by the Entity results principally from the labour of the Members.

Contract for a result

As discussed previously, the Members are free to employ their own means to achieve the required outcome in preparing their stakeholder's views and then attending and presenting at the Committee meetings. The nature of the contract is to achieve a result and not wholly or principally to provide the Members underlying labour that produces the result.

Rather than being paid an hourly rate, the Members are paid for attendance of a meeting. The purpose and structure of the fixed price payments are indicative of being paid for a result, in contrast to being paid an hourly rate for actual hours of attendance.

Hollis indicates that a piece rate or output-based remuneration can still be consistent with an employment relationship if they are a natural means to remunerate the particular kind of task the worker is performing [59] . This case can be distinguished from Hollis where the methods of payment, per delivery and not per time period engaged, was a natural means to remunerate employees whose sole duty was to perform deliveries. In this case the method of payment is not a natural means to remunerate the Members as it bears no resemblance to the time taken to perform tasks both prior to and during the Committee meetings.

On consideration of the contractual relationship as a whole, inclusive of the implied term requiring Members in their capacity as representatives of industry stakeholders to utilise the labour of industry colleagues, an intention of the Entity to obtain a result is preferred to an intention to wholly or principally engage labour to serve in the Entity's business.

Accordingly, the substance of the contract is to achieve a result.

Worker must perform the work personally

The letter of appointment and the Terms of Reference document do not include rights in respect of delegation. Given the nomination, approval and appointment process, it appears initially that an implied right to delegate is unable to be read into those written terms. However, it is reasonable to expect that a degree of delegation exists to enable the Members in their representative capacity, to gather opinions, information and data in an efficient and effective manner to allow for forum contributions.

Additionally, the Terms of Reference and the appointment letter doesn't explicitly state how the Member is required to prepare for the forum. Circulating the agenda and meeting papers prior to the meeting allows the Member to contribute to the forum on significant issues in the commercial construction sector meaningfully. This contribution is the result the Member is paid to achieve. However, there is no contractual restriction placed (express or implied) on the Member about how to prepare for this contribution. It is implied that the Member has the autonomy to employ their own means of expertise to deliver that result.,

In these circumstances any delegation would be made to colleagues of the Member's organisation or others, in contrast to being made to Entity's employees.

Summary

Accordingly, as the substance of the contract is to achieve a result and some extent of delegation is implied, the Members do not meet the extended definition of employee as set out under subsection 12(3) of the SGAA.

Overall conclusion

On balance, the Members are not employees of the Entity for the purposes of subsections 12(1) (3) and (9) of the SGAA.

Question 4

Are sitting fees paid to the Members, included as ordinary time earnings (OTE) on which the Entity is to calculate the minimum level of support for the Members under the SGAA?

Answer

Sitting fees paid to the Members are not relevant for consideration as OTE on which the Entity is to calculate the minimum level of superannuation support, as the Members are not employees for the purposes of the SGAA.

Question 5

Are sitting fees paid to Members, and then immediately transferred to their nominating employer, included as OTE on which the Entity is to calculate the minimum level of support for the members under the SGAA?

Answer

Sitting fees paid to the Members and then immediately transferred to the Member's nominated employer, are not relevant for consideration as OTE on which the Entity is to calculate the minimum level of superannuation support, as the Members are not employees for the purposes of the SGAA.

[1] Personnel Contracting [2022] HCA 1.

[2] Personnel Contracting at [61] and [172-173].

[3] Personnel Contracting at [60], [124] and [173].

[4] Personnel Contracting at [174].

[5] Personnel Contracting at [43], [59] and [173]; WorkPac Pty Ltd v Rossato [2021] HCA 23 at [56-57] and [63].

[6] Personnel Contracting at [54], [59] and [177].

[7] Secretary, Attorney-General's Department v O'Dwyer [2022] FCA 1183.

[8] Personnel Contracting at [36-39], [61-62], [121], [173] and [183]. The relationship may be affected by statutory provisions and by awards made under statutes (Personnel Contracting at [41]).

[9] (1963) 109 CLR 210 at [217].

[10] Personnel Contracting at [34].

[11] Personnel Contracting at [181].

[12] Personnel Contracting at[39].

[13] Personnel Contracting at [70-71], [89] and [200].

[14] Personnel Contracting at [89].

[15] Hollis 2001 ATC 4508 at [50-52].

[16] ZG Operations at [32-33] and[52-53].

[17] Zuijs v Wirth Bros Pty Ltd [1955] HCA 73; 93 CLR 561 (Zuijs) at [571-573]; Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1; 160 CLR 16 (Stevens) at [9] and [15-20], per Mason J.

[18] Personnel Contracting at[73].

[19] ZG Operations at [69] and [105].

[20] Australian Mutual Provident Society v Chaplin and Anor (1978) 18 ALR 385 at [391]. See also Neale (DFC of T) v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at[425].

[21] On Call [2011] FCA 366 at [105] and [253].

[22] Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515, cited with approval in On Call at [283].

[23] On Call at [253].

[24] World Book (Australia) Pty Ltd v FC of T 92 ATC 4327 at [4334].

[25] For example, in Stevens.

[26] Hollis at [54]

[27] Roy Morgan (2004) SASC 288at [42].

[28] Hollis at [4520].

[29] Stevens at [12].

[30] ZG Operations at [88].

[31] Hollis at[56].

[32] On Call at [290].

[33] [2015] FCAFC 37.

[34]Personnel Contracting at [58], [63], [127] and [184].

[35] Personnel Contracting at[66].

[36] Personnel Contracting at [61] and [172-173].

[37] Personnel Contracting at [60], [124] and [173].

[38] Personnel Contracting at [174].

[39] Personnel Contracting at [43], [59] and [173]; WorkPac Pty Ltd v Rossato [2021] HCA 23 at [56-57] and [63].

[40] JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76

[41] Hollis v Vabu Pty Ltd [2001] HCA 44 S149/2000 at [54]

[42] Roy Morgan Research Pty Ltd v Commissioner of Taxation [2010] FCAFC 52

[43] Deputy Commissioner of Taxation v Bolwell (1967) 1 ATR 862 at 873.

[44] Moffet [2020] FCAFC 118 at [96-97].

[45] Moffet at [100].

[46] Moffet at[101].

[47] Moffet at[103].

[48] Moffet at [104].

[49] Ibid.

[50] World Book at [4334].

[51] ZG Operations at [88]. See also Humberstone v Northern Timber Mills (1949) 79 CLR 389.

[52] For example, in Stevens.

[53] Hollis at [54].

[54] Roy Morgan (2004) SASC 288 at [42].

[55] Hollis at [4520].

[56] Australian Mutual Provident Society v Chaplin and Anor (1978) 18 ALR 385 at [391]. See also Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 (Neale) at [425].

[57] On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (On Call) at [105] and [253].

[58] On Call at [253].

[59] Hollis v Vabu Pty Ltd [2001] HCA 44 S149/2000 at [54]