Edited version of private advice

Authorisation Number: 1052201859698

Date of advice: 21 December 2023

Ruling

Subject: Status of a worker

Question 1

Will the Service Providers be considered common law employees of the Company for the purposes of subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Answer

No

Question 2

Will the Service Providers be considered employees of the Company for the purposes of subsection 12(3) of the SGAA?

Answer

No

This advice applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The arrangement commenced on:

1 July 20XX

The scheme commenced

1 July 20XX

Relevant facts and circumstances

The service providers operate separate businesses outside of the arrangement with the Company. They hold a separate valid Australian Business Number (ABN) or engage through a separate legal entity, trust or partnership.

The service providers engage with the Company under the Standard Service Provider Agreement (the Agreement). This Agreement covers several types of services that would ordinarily be undertaken by the Service Provider in the ordinary course of business.

The Service Provider provides all tools of the trade including a mobile, tablet and car.

There are no set hours of work, and the Agreement does not specify how and when the services are to be provided.

The Service Providers are free to offer and advertise their services to other external businesses.

The agreement does not prohibit the delegation of work (that is, in the event of sickness or unavailability) as required and does not stipulate the quantum of work to be conducted with the Company.

Service Providers are paid a pre-agreed fee for services. This fee is dictated by the level of work required to perform a particular service. The fee is dictated by the Service Providers as agreed with the client.

The Service Provider has sole responsibility for superannuation workers compensation and taxes.

The Service Provider further acknowledges that neither it nor its personnel have, pursuant to the Agreement, any entitlement from the Company in relation to any form of employment or related benefit.

The Service Provider indemnifies and keeps indemnified the Company and its employees, officers and agents from and against all actions, claims losses, damages, costs (including legal costs), penalties or demands consequent upon, occasioned by or arising from any act or mission of the Service Provider.

The parties expressly agree the Service Provider acts as an independent contractor.

Service Providers are able to use the Company's software for operational requirements.

Delegation

Where delegation does arise, this is documented on the Company proprietary software.

The ability to delegate work is at the complete discretion of the Service Provider.

Tools of the trade

Under the Agreement, Service Providers are required to supply all relevant tools of trade

Obligation to work

The Agreement does not stipulate quotas or obligations for the Service Providers to observe.

Hours of work

There is no stipulation on a minimum or maximum number of hours that a Service Provider needs to work.

Way in which work is performed

The Service Provider has full and complete organisational and creative control over the directing of each engagement. No set approach is stipulated. The Service Providers engage directly with clients to organise respective requirements.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(3)

Reasons for decision

Question 1

Will the Service Providers be considered common law employees of the Company for the purposes of subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?

Summary

The facts and evidence provided indicates that the Service Providers are not common law employees of the Company for the purposes of subsection 12(1) of the SGAA.

Detailed reasoning

The law

Under the SGAA, employers are required to make superannuation contributions into a complying superannuation fund or retirement savings account for the benefit of their eligible employees in accordance with minimum prescribed levels.

The definition of 'employee' for the purposes of the SGAA is found in section 12, which is both a clarifying and extending provision.

Subsection 12(1) of the SGAA states that 'employee' and 'employer' take on their ordinary or common law meaning.

Where the relationship between the parties to a contract is not a common law employment relationship, or there is doubt in respect of the status of a person, the expanded meaning of 'employee' is contained in subsections 12(2) to 12(11). Of relevance here is subsection 12(3).

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 [2022] HCA 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 which constitute that relationship.

As such, the totality of the relationship is derived from the rights and obligations created by the contract between the parties, construed at the time they entered it. 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.

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. In these circumstances there is no need to consider evidence of subsequence work practices.

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. In Marshall v Whittaker's Building Supply Co [1963] HCA 26, 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.

Whether a 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. 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.

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.

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.

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.

'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.

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 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. The total fee may reflect an estimated completion time.

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. 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.

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.

There may be situation where payment between the putative employer and the worker in respect of the provision of tools reflects something other than a payment for services rendered or provision of labour. The payment may better reflect, for example, a lease or a bailment.

Broadly, a bailment is an arrangement where bailer provides a particular item or tool for which the bailee pays a rental fee to use the item. The existence of a bailment arrangement is considered to point away from an employment relationship.

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 because of a subjective characterisation that the contract is one for service, and as such must be considered in light of the entire contract.

Application

Nature of the business

Service Providers engage with the Company to provide services to their clients through the Company platform.

The Service Providers operate separate businesses outside of the arrangement with the Company. They hold a separate valid ABN or engage through a separate legal entity, trust or partnership.

In your case

Common law employee

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.

As such, the totality of the relationship is derived from the rights and obligations created by the contract between the parties, construed at the time they entered it. 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.

The Agreement provides a statement with respect to the intention and the expectations of parties.

Under the terms of the Agreement, the Company agrees to provide certain administrative services, and marketing support and guidance. The Service Provider use their own staff to provide the services.

The Company requires the Service Provider to ensure compliance with policies and code of conduct of the Company.

Although most Service Providers operate as sole traders, some operate under partnership, company or trust structures.

Paragraph 13 of Superannuation Guarantee Ruling 2005/1 Superannuation Guarantee Ruling - Superannuation guarantee: who is an employee? states:

Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. However, the individual may be the employee of the intermediary company or trust, depending on the terms of the arrangement.

In determining the relationship between the Company and the Service Provider consideration of other multifactorial elements is required.

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], 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.

Each Service Provider is their own Company, Partnership, Trust or Sole Trader operating an independent business. The Service Provider in line with the clients wishes has full control over how they perform the job.

The Agreement with the Company allows for complete creative and organisational control over service delivery. During this organisation and engagement process, Service Providers will meet with clients in either their own homes or the offices of their respective businesses.

This further emphasises the fact that the Company as a business, merely acts as a 'facilitator' for independent business operators. Accordingly, the Company (as a business) has minimal involvement with each engagement after the respective Service Provider has accepted the job. Furthermore, in at least 50% of the situations, Service Providers source their own clients and sales leads. The remaining 50% is sourced by the Company however this does not impact the way Service Providers are able to carry out the work.

The Service Provider is required to follow the Company policies and code of conduct. However, on the day of the scheduled booking, it is the Service Provider who essentially has control of operations. The Company has no control over that side of the business.

Service Providers are free to refuse a job or not take a booking if they chose to, indicating a high degree of independence in the relationship between the Company and the Service Providers.

Service Providers are also paid a pre-agreed fee for their services which is dictated by the level of work required by the client. Payment is received after the issuing of an invoice. This payment arrangement is consistent with a fee for service arrangement.

Service Providers have complete control over how many hours they work.

The facts provided indicate that the Service Providers have a high degree of control in the way they performed their work, supporting that the Service Providers are independent contractors.

Delegation

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.

A substitution is not considered a delegation. For example, if an employee asks a colleague to take on 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.

Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the 'result'). A person who has a right to delegate work (whether or not that right is exercised in practice) does not work under a contract wholly or principally for their labour. 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.

Delegation does occur, and this is documented on the Company proprietary software.

The Company enters into an agreement with the Service Providers who undertake independent businesses and therefore there is an expectation that they will utilise additional resources. Each Service Provider has sole responsibility for superannuation, workers compensation and taxes for the personnel that the Service Provider engages to fulfil the services performed.

Accordingly, based on the above, we consider that the delegation test is indicative that the Service Providers are working as independent contractors and not as employees of the Company.

Result

The facts indicate that the Service Providers are paid by the Company the agreed fee upon the completion of agreed services. The Service Providers are paid after the Company has invoiced the client and the client has paid the outstanding fees.

Payment is not made to the Service Provider until the job for which they were engaged is completed. It is considered that the Service Providers are paid to achieve a result, indicating the Service Providers are contractors and not employees.

Terms of engagement

The Service Providers are engaged as independent businesses, in their own right, trading under their trading names, using their own ABN.

They carry out their work on a job-by-job basis and work the agreed job specified at the time of the booking. The Service Providers can use their own staff to complete the task and are free to work with other Service Providers.

The Contract Service Agreements states that the Service Providers are to work as independent contractors and are responsible for their own taxes and superannuation.

Accordingly, the terms of engagement are indicative that the Service Providers are working as independent contractors and not as employees of the Company.

Risk

Employers are generally liable for costs arising out of injury or defects in carrying out the agreed work by their employees, whereas a principal will not be liable for costs arising out of injury or defects 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 themselves.

The Service Provider must indemnify and keep the Company indemnified against any claim whatsoever. It indicates that the Service Providers carry complete risk of costs arising out of injury or defect in carrying out their work under their own business arrangements.

Accordingly, based on the facts and evidence relevant to the risk test, it is considered that the working relationship between the Company and the Service Provides resembles that of an independent contractor.

Conclusion

Hence, after the evaluation of the above common law tests, we consider that the working arrangements between the Principal and the Workers were contractual arrangements principally for the skill and expertise provided by the Workers.

Consequently, the Service Providers are considered independent contractors.

Question 2

Will the Service Providers be considered employees of the Company for the purposes of subsection 12(3) of the SGAA?

Summary

The facts and evidence provided suggest that the Service Providers are not employees of the Company or the purposes of subsection 12(3) of the SGAA.

The law

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

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

(b)          which is wholly or principally for the labour of a person, and

(c)           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:

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

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

(c)           the individual is not contracted to achieve a result.

Wholly or principally for the person's labour

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 Pty Ltd v Moffet [2020] FCAFC 118(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 (that is, the quasi-employer).

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

... 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. 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. For that reason, the Services Agreement was, from Dental Corporation's perspective, wholly or principally for Dr Moffet's labour. It was substantially for that purpose, 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.

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. 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. 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. For example, in Commissioner of State Taxation v Roy Morgan Research Centre Pty Ltd, 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. 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.

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. 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. 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) [2011] FCA 366 (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.

Person works under the 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.

Where a person has a right to delegation and has in fact delegated their work to someone else, it is less likely that the person has worked under the contract.

In your case

If an individual is found to be an employee for the purpose of the SGAA, superannuation guarantee obligations will only arise if payments to the employees are salary and wages.

The term salary or wages under the SGAA has an extended definition in Section 11. Paragraph 11(1)(ba) is the equivalent extended definition to subsection 12(3), to include payments:

•                     made under a 12(3) contract, and

•                     made in respect of the labour of the person.

Whilst an individual may be an employee under the extended definition, there may not have been payments of salary or wages made to them within the extended definition in paragraph 11(1)(ba). If no payments of salary or wages have been made, then there is no superannuation guarantee obligation on the payments of the individual.

We need to consider if the terms of the contractual relationship meet all the requirements.

Wholly or principally for labour

A contract may be partly for labour and partly for something else.

The arrangements between the Company and the Service Providers demonstrates a fee arrangement that is clearly for the provision of services, rather than for remuneration relating wholly or principally to their labour which produced that result.

The individual must perform the duties themselves

Whether the individual must perform the duties themselves is a significant factor in determining whether an individual is considered an employee under the extended definition of the SGAA.

The Service Providers have complete discretion to delegate the work to a trusted colleague.

The Service Provider has sole responsibility for superannuation, workers compensation and taxes for the additional personnel that the Service Provider engages to fulfil the services performed. Alternatively, they can delegate to another Service Provider outside their business.

This clearly demonstrates a right to delegate work to certain persons. Specifically, the Company does not intervene to prevent delegation in such situations. The right to delegation that exists here is highly indicative of the fact that Service Providers are not required to perform the duties themselves if they are unable to do so for various reasons.

The right for Service Providers to delegate work is sufficient to establish that such persons do not meet the definition of employees under subsection 12(3) of the SGAA.

Not paid to achieve a result

As noted in the Agreement, Service Providers are paid an agreed fee which is dictated by the nature of the job to be provided as opposed to the number of hours worked (of which there is also no set hours of work requirement).

Additionally, payment for services is only made by the Company upon completion of each service.

Conclusion

In considering all the terms of the contractual relationship the Commissioner of Taxation can conclude that the Service Providers are not employees of the Company under subsection 12(3) of the SGAA.