Private ruling: ABA - Status of the worker
Published: April 2012
Date scheme commenced: After 1 July 2011

Ruling: Q1: Are the workers, engaged by the principal under their Contractor Terms and Conditions agreement, employees or independent contractors for the purposes of section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? Advice Based on the provided information the workers are not considered to be employees. Accordingly, the principal does not have an obligation under the SGAA to make superannuation guarantee payments on behalf of workers.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice. The Commissioner received a request for advice from the principal with respect to superannuation guarantee and workers to be engaged as cleaners. The request included the following statements: No contractors have yet been hired. Contractors will be hired by the principal to clean homes and offices. Contractors have their own ABN, public liability insurance, pay their own tax and the Client will cover them for workers compensation if required. Contractors must complete the work themselves as they are being referred personally to the client and have been screened through the principal who take care of all the initial phone calls to get the clients and ongoing client contact to keep the clients. The client will pay the contractor directly, and then weekly, the contractor will pay the principal a placement fee. The Tax Office subsequently received from the principal, a copy of the: Placement Fee form (Placement Form) Contractor Terms and Conditions (Contractor Agreement) Completed status of the worker - (principal questionnaire) The information from the questionnaire is summarised below: The type of work completed includes cleaning of offices, strata buildings and residential homes. Contractors have their own insurance and own ABN and pay their own tax. The relationship is to be established by word of mouth or advertisement There is a written agreement between the worker and the principal. The worker cannot negotiate their own pay rate or terms and conditions. They must charge the principal rates as provided by the contract which has to be accepted by the principal after police checks etc completed. The principal has the right to dismiss the worker. No training is provided to the contractor by the principal. The contractors may pick and choose which hours/days they work at their own discretion. The principal will contact the contractor and offer them a job, the contractor can either accept the job or not. If the job is accepted, the name, address, contact numbers of the client, type of job, specified day and time of the job is then messaged through to the contractor via SMS. The contractor is then required to make initial contact with the client to confirm job details and to give a more specified quote for the particular job in accordance with the principal set fees. Contractors may work any day. The contractor will call the client before the initial job to discuss tasks required by the client and then meet the client on the first job and discuss the tasks required of them. Workers are not entitled to paid breaks. The specific jobs the worker has to perform are arranged and allocated by the client. The principal only finds them jobs and connects them with the clients. The workers are supervised by the client. The principal asks the client to provide a prioritised task list for the contractor so they can satisfy client needs in allocated time. If more time is needed to complete job, contractor will discuss this with client and come up with their own solution together. The worker can refuse tasks. At the initial application stage, a contractor is asked which tasks they will perform, such as ironing or washing clothes, so that clients can be matched to contractors. If therefore a client asks contractor to cook, they can refuse. A worker would not have to seek permission from the principal to take time off but has to provide two weeks notice to the principal so they can find fill-in contractors if required. This is stated in the terms and conditions. Workers can provide services for another individual or business, but are unable to take on the principal clients for a period of 12 months. Contractors can work individually or as a team of two, ie husband and wife. The principal does not put teams together. Contractors can decide this prior to signing contract with the principal. Business cards are provided to contractors but they are not required to use them. Workers have their own receipts with their own ABN number which they provide to clients after every job is completed. The principal does not advertise its business on the workers tools or equipment The contractor is allowed to promote their own business at any time, although as stated in their contract, they cannot take on the principal's clients for a period of twelve months. The contract cleaner sends a placement fee form to the principal every Friday along with fee payment Fees are set by the principal. This may increase in future if the principal increases the set cleaning prices for clients and this will increase rate of pay to contractor. Both contractor and client will be notified if this price increase ever does occur. The contractor is paid directly by client. If client does not pay, contractor does not get paid. Terms of payment are between client and contractor only. The principal receives only the referral fee from the contractor. The principal does not check the contractor's work, but will at intervals contact the client to make sure they are happy with service provided. Workers are paid into their bank account, by cheque, cash, in the contractor's name as per their agreement. No reimbursements such as travel allowance etc are paid to the contractors. No income tax, superannuation or other fees are deduction from the worker. As per their contract the contractor must complete all the work personally as the client depends on the principal to provide the connection between themselves and the client. If a worker is sick or on holidays and the client wants a replacement, the principal will provide another contractor. A worker cannot organise their work/ tasks to be completed by another employee of the principal or an employee of the contractor without permission from the principal. Only the principal can organise another contractor to complete any task required. The responsibility for the insurances are as follows: Workers compensation neither worker or the principal Accident insurance worker Public liability insurance worker Workers are not required to guarantee their work for a period of time. Client provides all cleaning products and equipment for a contractor for regular domestic clients. For commercial and one off domestic jobs - the contractor provides all products and equipment. The principal does not supply the worker with any assets, equipment or tools. The principal does not reimburse the worker for any tools or equipment. The client and contractor discuss and decide on best products to use for each specific job. The worker is not required to wear protective work gear. A tax officer who telephoned the partner was advised the following: the principal did not have contracts with the clients, rather the partner wrote them a letter at the start of the engagement, letting them know not to contact cleaner directly, but to contact the principal. When asked how the client knew the terms and conditions of the cleaning arrangement, the partner stated that the they went through the details of the arrangement with them over the phone when the cleaning job was set up.

Relevant legislative provisions: Superannuation Guarantee (Administration) Act 1992 section 12 .

Reasons for decision: Summary: The engagement of workers by the principal does not satisfy the common law definition of Employee or the extended definition of employee under subsection 12(3) of the SGAA. Accordingly, the principal does not have an obligation under the SGAA to make superannuation guarantee payments on behalf of the worker. | Detailed Reasoning - Detailed reasoning: The SGAA states that an employer must provide the prescribed minimum level of superannuation support for their employees (unless the employees are exempt employees) or they must 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. The employment relationship is often referred to as a 'contract of service'. This relationship is to be distinguished from a contract for service which is typically a contractor and principal type of relationship and will not attract any 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. 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 a difficult task and will depend on the facts of each case. In an ongoing relationship, it is not always clear when the precise moment the legal criteria of a contract is fulfilled, therefore it becomes necessary to determine the true nature of the whole relationship between the principal and the worker as to whether there was a common law employer/employee relationship, or whether the worker meets the extended definition of employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Common law employee: The courts have developed a method for applying the ordinary, or 'common law' meaning of an 'employee'. Their approach is to look at a wide range of factors, which indicate whether a person is an employee. For example, if the employer provides the place of work, this might indicate an employment relationship, while the absence of holiday pay might suggest the opposite. The courts' decisions tend to be taken on balance, after considering the relevant factors. The common law meaning of the term 'employee' was stated by the High Court in Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16. It is clear from that case that there is no single objective test which will give the answer: …it is the totality of the relationship between the parties which must be considered...the question is one of degree for which there is no exclusive measure. While various factors have been identified by the courts as indicators of the true nature of the relationship, those features are only ever a guide to answering that question. It is necessary in each case to examine all the terms of the contract and to determine whether, on balance, the person is working in the service of another (as an employee) or is working on his or her own behalf (as an independent contractor). A clause in a contract that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee must be considered with all the other terms of the contract. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole. That is, the parties cannot deem the relationship between themselves to be something that it is not. The parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label. Subsequent conduct of the parties may demonstrate the relationship has a character contrary to the terms of the contract. | Detailed Reasoning - 1. Terms of engagement: The fundamental task is to determine the nature of the contract between the parties. The terms and conditions of the contract whether express or implied, in the light of the circumstances surrounding the making of the contract, whether verbal or written, will always be of considerable importance to the proper characterisation of the relationship between the parties. Some conditions of engagement are closely associated with employment and may, therefore, be persuasive indicators. For example: provision of benefits such as annual, sick, and long service leave; provision of other benefits prescribed under an award for employees; payer prescribed times and location for the performance of work; remuneration in the form of a salary or wage; the worker uses assets and materials provided by the payer or is reimbursed, or paid a compensatory allowance, for expenses incurred in respect of use of own assets and materials; and payer discretion (within the constraints of industrial relations laws) in respect of task allocation and termination of engagement. However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor. It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. In the observation made by Isaacs J in Curtis v.The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17: Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance. Therefore, 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. Superannuation Guarantee Ruling SGR 2005/2: Superannuation Guarantee - work arranged by intermediaries (SGR 2005/2) considers the notion of tripartite arrangements (i.e. where the principal arranges for a worker to complete tasks for a third party client of the principal) and how the definitions of an 'employer' and 'employee' apply to these arrangements. In accordance with paragraphs 34-39 of SGR 2005/2, it must be ascertained whether a written or verbal contract governing the employment relationship exists, and if so, who the parties to the contract are. In the absence of a contract, no employment relationship can exist. | Detailed Reasoning - Application of the tests to the facts provided: A clause of the Contractor Agreement states that workers agree to provide their own ABN and issue receipts containing their own ABN. While not conclusive, it is considered that the use of an ABN pursuant to a working arrangement is somewhat indicative of a worker being engaged under a contract for services. However, this factor alone cannot be viewed as wholly determinative of the status of the worker. A cause of the Contractor Agreement indicates that it is the intention of the parties to the Agreement that the relationship be a principal and independent contractor relationship. A clause of the Contractor Agreement states that the worker agrees to provide their own public and products liability insurance, indicative of a principal and independent contractor relationship. However, as stated above, it is necessary to consider all of the terms of a contract, and (where possible) any action taken, in order to determine what type of relationship exists between the parties. It is not possible to alter the character of a relationship simply by labelling it as, or deeming it to be, a principal and independent contractor relationship in a contract if other terms of the contract indicate that an employer and employee relationship exists. The principal states in the completed questionnaire that they have the right to dismiss the worker. This factor is indicative of an employee/employer relationship. The principal completed questionnaire states that workers are not entitled to holiday pay or sick pay. Such terms are consistent with both casual employment and a principal and independent contractor relationship. Clauses of the Contractor Agreement state that the worker accepts that the principal cannot guarantee placements of work will be offered; the frequency of placements; and that a worker may decline to accept work offered by the principal at their discretion. As the Contractor Agreement allows the worker to accept or decline any work offered by the principal at their discretion, it is considered that this term is more indicative of a principal and independent contractor relationship than an employer and employee relationship. Therefore in regard to the terms of engagement test, the Commissioner considers that on balance, the facts and evidence support the notion that the relationship between the principal and the worker is that of principal/independent contractor. | Detailed Reasoning - 2. Control - lawful authority to command: A prominent factor in determining the nature of the relationship between the parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of the master-servant relationship. The degree of control varies with the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it. The degree of control will vary according to the type of work, but the general rule is that the greater the obligation on a person to obey the orders of another as to the manner of the performance of work, the more conclusive it will be that the worker is the employee of the principal/payer. Traditionally, a common law employee is told what work needs to be done, how it is to be done, and where it is to be done. However the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship and a high degree of direction and control is not uncommon in contracts for services. It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. In Zuijs v.Wirth Brothers Pty Ltd (1955) 93 CLR 561 the High Court articulated the significance of control in an employment relationship in the following way: What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters. There may be circumstances where the employer may reduce the level of supervision but still retains the right to control the employee, even if that right is not exercised. Dixon J stated in Humberstone v. Northern Timber Mills (1949) 79 CLR 389 : The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in performance of his work resided in the employer so that he was subject to the latter's orders and directions. However, as cited by Wilson and Dawson JJ in Stevens , it is important to note the qualifying principle enunciated by Dixon J in Queensland Stations Pty. Ltd. v. Federal Commissioner of Taxation [1945] HCA 13; (1945) 70 CLR 539 to the broader tenet articulated in Humberstone and Zuijs . In this case, Dixon J considered that the reservation of a right to direct the performance of a certain task cannot transform what is an inherently independent contract into a contract of service. Once it has been established that a contractual relationship exists between the principal and the workers (see paragraphs 34-39 of SGR 2005/2), it must be discerned the extent of control exercised by the principal over the workers pursuant to the arrangement. In applying the control test to a tripartite arrangement, paragraph 65 of SGR 2005/2, in accordance with the decision of the High Court in Zuijs and the view of Full Court of the Supreme Court of South Australia in Mason & Cox Pty Ltd v. McCann (1999) 74 SASR 438, considers that the ultimate or legal control over the worker is of paramount relevance, as opposed to the day-to-day control of the worker. | Detailed Reasoning - Application of the tests to the facts provided: As per the discussion in relation to the terms of engagement test, it has been established that a contract exists between the principal and the workers, as per paragraphs 34-39 of SGR 2005/2. Having established this, it must be ascertained to what extent the principal exercises control over the workers pursuant to this contract. the principal has indicated in the questionnaire response that the workers were: not provided with any training; permitted to determine their own hours of work; not entitled to paid breaks; not subject to the scheduling or direction of tasks by the principal; not supervised by the principal; can refuse jobs; and can refuse tasks if they were outside the tasks which they agreed to when they registered. These responses would appear to indicate that in practice, the workers were subject to minimal control from the principal in undertaking their work and are indicative of a principal and contractor relationship. However, in the Contractor Agreement the worker also agrees that they will: not charge in excess of the rates and fees set by the principal give two weeks notice if intending to take a leave of absence so that the principal can find a replacement cleaner for the client give the principal two weeks notice if they choose to have their name removed from their register not accept any work form a client of the principal that excludes the placement fee without prior written approval from the principal immediately report all referrals from clients to the principal. The principal states in the questionnaire that they do not check on the work performed by the workers but will, at intervals, contact the client to make sure they are happy with the service provided. In an email received by the Tax Office, the principal confirms that they would contact the cleaner after the first clean, and then periodically every 4-6 months. If the client was unhappy with the service, or made a complaint about the service, which could not be solved between the client and the worker, the principal would talk to both parties and try to negotiate a favourable outcome - for example more time for the cleaner to finish or a prioritised list from the client indicate which tasks should be completed first. If a client is unhappy with the cleaner, the principal would find them a new cleaner, and then find the cleaner a new job. Whilst the restrictions mentioned above regarding setting fees, giving notice, accepting work without placement fee and referrals suggest that the principal has control over the worker, these restrictions are not restrictions in the performance of their duties/tasks as such, but rather restrictions within their contract. These restrictions therefore, do not cover the work performed by the employee and thus cannot be used to support the notion of the relationship as one of employee/employer. However, the fact that the principal can check up on the worker's performance and negotiates and facilitates resolution of differences regarding the work/tasks that the workers are completing suggests there is some control. Similarly, the fact that the principal will find a replacement cleaner for a client whilst a worker is on leave is a characteristic of an employee/employer relationship. Whilst the principal does not have direct control over the workers day to day scheduling and completion of tasks, the fact that they ultimately are the entity which resolves any differences between the worker and the client indicates a degree of control over the worker. Overall, the Commissioner is unable to ascertain a clear result in the control test thus the outcome of this test is inconclusive. | Detailed Reasoning - 3. Integration - does the worker operate on their own account or in the business of the payer?: Another significant factor in establishing the nature of a contractual relationship at common law is to determine whether the worker's services are an integral part of the employer's business (under a contract of service as an employee) or providing services as an individual carrying on his or her own business (under a contract for services as an independent contractor). This is otherwise known as the 'business' or 'integration' test. Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their own enterprise as an independent contractor or operator and whether they could be expected to generate goodwill in their own right. In Montreal v. Montreal Locomotive Works [1947] 1 DLR 161, Lord Wright said: ...it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior. Similarly, in Stevenson, Jordan and Harrison Ltd v. MacDonald and Evans [1952] 1 TLR 101 Denning LJ said: ...under a contract of service, a man is employed as part of the business, and his work is done as a integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it. The Full Bench of the High Court in Hollis v. Vabu (2001) 207 CLR 21 endorsed the proposition stated by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210 that the distinction between an employee and independent contractor is: …rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own. The 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 skill 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. This was highlighted in Hollis v Vabu at paragraph 48, where the court said in relation to bicycle couriers hired by Vabu: The couriers were not providing skilled labour or labour which required special qualifications. A bicycle courier is unable to make an independent career as a free-lancer or to generate any 'goodwill' as a bicycle courier… Activities or requirements of the worker which may indicate his/her integration into the business include: wearing a company uniform; the provision of protective equipment by the principal for the worker; an ongoing relationship between the principal and the worker; and the worker is effectively restricted to providing services for the one principal. | Detailed Reasoning - Application of the tests to the facts provided: In the questionnaire response the principal states that the workers are able to contract with other businesses during the period in which they are engaged by the principal; that they do not supply or require the workers to wear a uniform; and the workers do not advertise or promote the principal or their own business on their equipment or tools during the period of engagement. These factors suggest that the workers do not identify with or hold themselves out as a part of the principal's business. A clause of the Contractor Agreement the workers specify that they will provide their own personal ABN and provide client's with receipts displaying their own ABN. The principal provides workers with the principal business cards but states they are not obliged to use them. The Contractor Agreement states that any business cards must be returned to the principal if a worker's name is removed from their register of cleaners. The business cards include details of the principal business, their email address and phone number. In this case, a third party could view the worker as part of the business of the principal As discussed above under the control test, if there are any issues that cannot be resolved between the client and the worker, the principal will liaise with the parties to facilitate a resolution. Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their own enterprise as an independent contractor or operator and whether they could be expected to generate goodwill in their own right. The business cards are the only factor that would suggest to a third party that the workers identify with the principal. The other conditions agreed to by the workers demonstrate that they intend to carry on a business on their own account, and do not support the notion that they form a constituent element of the principal's business. Overall, the Commissioner is satisfied that the integration test in isolation is more in favour of the notion that the relationship between the principal and the workers was one of principal and independent contractors. | Detailed Reasoning - 4. 'Results' contracts: Under a results based contract, payment is often made for a negotiated contract price, as opposed to an hourly rate. 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. 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. 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 production of a given result is considered to be a mark of independent contractor status. In World Book (Australia) Pty Ltd v. FC of T (1992) ATC 4327, Sheller JA said: Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor…. 'Results' contracts describe traditional principal/independent contractor arrangements where a specific identifiable task is performed. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to the hours worked. In a contract for services (whether written, oral or implied), the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the result for which the parties have bargained. Conversely, under a contract of service, payment is not necessarily dependant on, or referable to, the completion of the specified services. While the notion of 'payment for result' is expected with a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in Hollis v Vabu considered that the payment to the bicycle couriers per delivery, rather than per time period engaged was a natural means to remunerate employees whose sole purpose is to perform deliveries. Similarly, the calculation of remuneration in accordance with an hourly rate is not necessarily inconsistent with a contract for services, as per the view of Bromberg J in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 at paragraphs 277 and 282. The focus must be on whether the remuneration was paid on the completion of a specific result or results, irrespective of the manner in which the amount is calculated. | Detailed Reasoning - Application of the tests to the facts provided: The worker is paid directly by the client on completion of their allocated time having completed tasks as agreed to in the prioritised list. The principal has stated that the cleaner does not get paid if the client does not pay them. The rate of payment is set by the principal. Information obtained from the questionnaire and the Contract Cleaner Placement Fee payment form indicates that payment is made per number of hours agreed in the booking. The principal confirmed that they would base the rates on their experience of how long a job should take. The principal confirmed that if a job looked like it would take longer than these quote rates, the cleaner would have to talk to the client when they first got there, and re-negotiate the rate with the client. The client can either pay for more time, or provide a prioritised list of jobs to be completed in the specified time frame. This arrangements indicates that an outcome is to be achieved before payment is made. Furthermore, there are defined tasks and instructions from the end user specify the order in which the tasks are to be completed, if time does not permit completion of all tasks. The worker is not paid unless the client pays the worker directly. On balance the Commissioner considers that with regard to the results test the worker is paid to achieve a result and as such the relationship between the principal and the workers is one of principal/contractor. | Detailed Reasoning - 5. Delegation - whether the work can be delegated or subcontracted: The power to delegate or subcontract the work is a significant factor in deciding whether a worker is an employee or an independent contractor. A power to delegate involves the assignment of tasks by the worker directly for others to complete. Where this occurs, the party delegating the work assumes responsibility for the remuneration of the worker actually undertaking the work. It is important to distinguish delegation from the substitution of one worker with another for the purposes of completing the original worker's tasks. In a substitution arrangement, the sourcing of a replacement worker is arranged by the principal, with the replacement worker's remuneration paid by the principal. The distinction between substitution and delegation arrangements was made clear by Brombrg J in On Call (see paragraphs 103 to 109). Paragraph 49 of SGR 2005/1 reiterates the notion that under a contract for services, the emphasis is on the completion of an identifiable task or result. Paragraph 49 of SGR 2005/1 goes on to specify that in these situations, unless the contract requires the worker to perform the work personally, it follows that as the focus of the contract is the completion of a certain result, not for the labour of a specific person, the worker is free to engage others to perform the work. | Detailed Reasoning - Application of the tests to the facts provided: The principal has advised that the workers do not have the power to delegate tasks to others and cannot organise for their work/tasks to be completed b y another employee of the principal or another employee of the worker. Only the principal can organise another worker to complete any task required. The Commissioner is satisfied that the delegation test indicates that the relationship between the principal and the workers was one of employee/employer. | Detailed Reasoning - 6. Risk: A worker who bears little or no risk of the costs arising out of injury or defect in carrying out their work is more likely to be classified as an employee. On the other hand, an independent contractor generally bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries his or her own insurance and indemnity policies. 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 his or her own business. | Detailed Reasoning - Application of the tests to the facts provided: The Contractor Agreement specifies that the worker is responsible for the quality of their work and will undertake to correct any substandard work at their own expense. The Contractor Agreement specifies that the worker agrees to provide their own Public and Products Liability insurance. The Client agreement specifies that the Client is responsible for providing workers compensation for the worker. The worker is paid directly by the client on completion of their allocated time having completed tasks as agreed to in the prioritised list. The principal has stated that the cleaner does not get paid if the client does not pay them. The above indicates that the majority of the financial risk inherent in the performance of the work resides with the worker. The risk borne by the principal would appear to be minimal. This is strongly indicative of the existence of a contract for services. Accordingly, with respect to the risk test, the Commissioner considers the facts and evidence are indicative of a principal and contractor. | Detailed Reasoning - Conclusion - Common law - subsection 12(1) of the SGAA: The terms of engagement, control, integration, and risk tests all indicate that the worker would not be employees of the principal. However the results and delegation tests are indicative of an employee/employer relationship or are inconclusive. On consideration of the case the Commissioner is satisfied that the facts and evidence indicate that the relationship is one of principal/contractor. However even though the common law tests indicate that the relationship is one of principal/contractor the worker may still be classified as an employee under the extended definition in subsection 12(3) of the SGAA. | Detailed Reasoning - Extended definition of employee under subsection 12(3) of the SGAA: The extended definition of employees under 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. Subsection 12(3) of the SGAA requires the individual to be working wholly or principally for the labour of the person to meet the extended definition. The SGR 2005/1 provides further guidance on this issue and states at paragraph 11 that: Where the terms of the contract 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 of delegation); and the individual is not paid to achieve a result, the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection. Each of the three conditions must be met to consider a contract to be wholly or principally for the labour of the individual. | Detailed Reasoning - Is the Worker remunerated wholly or principally for labour?: In assessing whether a person has been remunerated wholly or principally for labour and skills the ATO view is that, in the context of subsection 12(3) of the SGAA the word 'principally' assumes its commonly understood meaning that is, chiefly or mainly. Whilst the contractor is required to provide some tools, equipment, and materials for some jobs that are necessary to perform the work, the Commissioner considers that only a small portion of the contractor's remuneration would relate to these costs. Payments made to the workers are therefore considered to be principally for the worker's labour and skills. | Detailed Reasoning - Is the Worker required to perform the work personally?: The second requirement of subsection 12(3) of the SGAA is that it requires the labour of the individual personally. That is, the worker does not have the right to delegate or subcontract the work to another party. Even if the contractor has no intention to delegate or subcontract the work and actually performs the work personally, the contract itself is still not for the labour of the person if there is a possibility of delegating the work to another person. Paragraph 49 of SGR 2005/1 states that where a worker is engaged under contract: If an individual power to delegate the work to others (with or without the approval or consent of the principal), there is a strong indication that the person is being engaged as an independent contractor. Under a contract for services, the emphasis is on the performance of the agreed services (achievement of the result).Unless the contract expressly requires the service provider to personally perform the contracted services, the contractor is free to arrange for his or her employees to perform all or some of the work or may subcontract all or some of the work to another service provider. In this case, as previously discussed, the workers are not able to delegate their work to others. | Detailed Reasoning - Is the Worker paid to achieve a result?: The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the production of a given result, but instead should be for their labour. As previously discussed, the workers are paid to complete a set list of tasks within a set period of time. This, in conjunction with other relevant facts support a view that the worker is working for a result. | Detailed Reasoning - Conclusion - subsection 12(3) of the SGAA: As stated above, each of the three conditions mentioned in paragraph 11 of SGR 2005/1 must be met before subsection 12(3) of the SGAA can be satisfied. In this case the conditions for the results test are not satisfied. The workers do not, therefore, meet the extended definition of employee provided in subsection 12(3) of the SGAA. | Detailed Reasoning - Conclusion - overall: Upon consideration of the relationship as a whole, the Commissioner is satisfied that the workers contracted to the principal are not employees of the principal for the purposes of the SGAA under the extended definition under subsection 12(3) of the SGAA. Accordingly, the principal has no obligation under the SGAA to provide superannuation contributions on behalf of the workers.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | This advice applies for the following period: 1 July 2011 to 30 June 2013