Private ruling: Status of the worker for superannuation guarantee purposes
Published: July 2014

Ruling: Q1: Are workers engaged in the manufacture of timber house frames, and described by you as 'sub-contractors' (the Workers) considered your common law employees as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period 1 July 2014 to 30 June 2015? | A1: Yes. Refer to 'why we have made this decision' | Q2: Were the Workers your employees by virtue of subsection 12(3) of the SGAA? | A2: Yes. Refer to 'why we have made this decision'

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 . In early May 2014 you requested a private ruling as to whether some of your workers are contractors or employees for the purposes of the SGAA and you provided the following documentation: • a copy of your contract (the Contract) • copies of business insurance policies (Insurance Policies) held by your workers In early June 2014 we received your completed principal questionnaire (the PQ) comprising responses to a number questions and additional comments. The PQ responses and telephone conversations of significance are as follows: • The Principal has advised at questions 3 to 6 of the PQ that he/she has known the Workers for some years and invited them to work for his/her company. The Workers have more skills and responsibility than his/her employee and they are engaged indefinitely subject to 12 monthly reviews. • The Principal confirmed at questions 7-9 of the PQ that the Workers generally perform the work at their own discretion, are subject to some quality checks, and work to meet delivery dates for particular jobs. • The Principal advised at question 9 of the PQ that there is no requirement for the Workers to maintain dress standards, use uniforms or display signage. • You advised at question 8 in the PQ that the Workers form part of a team and at question 16 that you engage the Workers for 35-37 hours per week. • You advised at question 13 of the PQ that the Workers were expected to carry out work personally but at question 14 of the PQ you advised that other workers could be engaged to either substitute or assist after obtaining your approval. • You also advised at question 15 of the PQ that if a replacement worker was engaged to perform the work, the Worker would be responsible for paying the worker engaged and for any rectification work required. • You advised at question 24 of the PQ that the Workers used vehicles only to get to work. The vehicles were not used to carry equipment, were not integral to carry out the framing services required and no reimbursements were made to cover the vehicle running expenses. You clarified that the Workers were expected to complete their scheduled work rather than accepting other work and that delegation may occur but hadn't yet because the agreement was only recent. You confirmed that no framing materials are supplied by the Workers. Further you advised that deductions shown on Worker invoices related to Worker tax invoices are for labour only with deductions made for absenteeism, back charges and general expenses. The team constructs the framing in accordance with computerised plans and specifications which are provided by a third party. You confirmed that the factory was owned by a third party. The Workers had Australian Business Numbers (ABNs) but no evidence was provided that they have an internet presence or advertise their services to the general public.

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 12(1) | Superannuation Guarantee Administration Act 1992 subsection 12(3) Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

Reasons for decision: Summary: The facts and evidence suggest that the Workers meet the definition of an employee for the purposes of the SGAA under both the common law definition and the expanded definition as set out in subsection 12(3) of the SGAA. You therefore have an obligation to pay superannuation contributions on behalf of the Workers. | Detailed Reasoning - Detailed reasoning: The SGAA states that an employer must provide the required minimum level of superannuation support for its employees (unless the employees are exempt employees) or pay the Superannuation Guarantee Charge (SGC). While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) from a 'contract for service' which is typically a contractor and principal type of relationship and does not attract an SGC liability. Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the expanded definition of 'employee' in subsection 12(3) of the SGAA applies. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation. The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be difficult and will depend on the facts of each case. Accordingly it is necessary to determine the true nature of the whole relationship between the principal and the workers, as to whether there was a common law employer and employee relationship, or whether the workers meet the expanded definition of employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Common law employee: The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to produce the contracted result in return for an agreed payment, whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result). The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts. As a result, a substantial and well-established body of case law has developed on the issue. Consideration should be given to the various indicators identified in judicial decisions. No list of factors is to be regarded as exhaustive and the weight to be given to particular facts will vary according to the circumstances. The totality of the relationship between the parties must be considered to determine whether, on balance, the worker is an employee or independent contractor. In deciding whether an individual is a common law employee, there are a number of common law factors to consider The common law factors we have considered are discussed below. | Detailed Reasoning - Ordinary meaning of employee under subsection 12(1) of the SGAA: The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to produce the contracted result in return for an agreed payment, whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result). SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of the SGAA. The question of whether someone is an employee is one of fact, and is determined by examining the terms and circumstances of the contract, in conjunction with the key indicators expressed in common law. The totality of the relationship must be considered to determine whether, on balance, the worker is an employee. No one indicator is in itself determinative of the relationship. These indicators are discussed below. | Detailed Reasoning - 1. Terms of engagement: The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. For this test, we must determine the nature of the contract between the parties. We will consider whether the contract is written or verbal and whether the terms and conditions are express or implied. These factors are important in characterising the relationship 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. In Hollis v. Vabu Pty Ltd (2001) 207 CLR 21 ( Hollis v. Vabu Pty Ltd ) it was noted that although no payments of annual leave or sick leave were given, and no superannuation deductions were made by Vabu in respect of the bicycle couriers, the relationship between the parties was found not merely from these contractual terms. The system which was operated under and the work practices imposed by Vabu went to establishing 'the totality of the relationship' between the parties and it is this which is to be considered. | Detailed Reasoning - Application of the common law to your case:: You have provided a copy of the Contract under which the Principal engages the workers. On the basis of the contract provisions it is clear that that an executed agreement represents an intention of the parties to form a principal/contractor relationship; with the Workers being responsible for the provision of salary and wages and other employment benefits. The Principal holds a contract with a third party for the manufacture of timber house frames and has engaged the Workers as sub-contractors. The Principal has advised at questions 3 to 6 of the PQ that he has known the Workers for some years and invited them to work for his/her company. The Workers have more skills and responsibility than his/her employee and they are engaged indefinitely subject to 12 monthly reviews. Although both contractors and employees may be engaged on the basis of personal associations, the engagement was conducted on the basis of a written contract which had express term around the Workers being engaged as independent contractors. Overall, we are satisfied that the terms of engagement test in isolation is more in favour of the notion that the relationship between you and the Workers was one of principal and independent contractors. | Detailed Reasoning - 2. Control: The extent to which the employer 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 lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it. 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. A high degree of direction and control is common in contracts for services because the payer has the right to specify in the contract how the services are to be performed. Similarly, the right to supervise how the work is to be performed does not constitute a contract of service where the essence is one of independent contractor. Paragraphs 36 and 37 of SGR 2005/1 provides that while control is important, it is not the sole indicator of whether or not a relationship is one of employment. The approach of the Courts has been to regard it as one of a number of indicia which must be considered in determination of that question. Even though the modern approach to defining the contractual relationship is to have regard to the totality of the relationship between the parties, control is still an important factor to be considered. This was recognised by Wilson and Dawson JJ in Stevens v. Brodribb ((1986) 160 CLR 16 at 36) ( Stevens v. Brodribb) , where they state: In many, if not most cases, it is still appropriate to apply the control test in the first instance because it remains the surest guide to whether a person is contracting independently or serving as an employee. Paragraph 35 of SGR 2005/1 states: 35. 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. In fact, a high degree of direction and control is not uncommon in contracts for services. The payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract; otherwise the contractor is free to exercise their discretion (subject to any terms implied by law). This is because the contractor is working for themselves. | Detailed Reasoning - Application of the common law to your case:: Under the Contract , the Workers are free to complete the work in a manner that they see fit., The Contract may be terminated for a number of reasons, inclusive of failing to provide the services within times specified. These subclauses are indicative of a principal and independent contractor relationship. . The Principal confirmed at questions 7-9 of the PQ that the Workers generally perform the work at their own discretion, are subject to some quality checks, and work to meet delivery dates for particular jobs. They work as part of a team and in that sense there is control exercised by the Principal. You advised that the Workers form part of a team of four which is made up of the two Workers, your single employee and yourself as Principal. Further you advised that deductions shown on Worker invoices related to back charges and general expenses such as tape measures, and that in the event of a Worker being absent, deductions were made to reflect the fact that payment for some jobs was to be shared between a reduced number of workers. The team constructs the framing in accordance with computerised plans and specifications which are provided by a third party, with which the Principal has formed a contract for manufacture of the frames. Notwithstanding the discretion as expressed in the Contract, the operational circumstances diminish the Worker's ability to complete the services without being subject to the control of the Principal. It is incongruous to consider that the Principal, working in a team environment with the Workers, operating in a factory setting, following computerised plans, and planning to meet timeframes relevant to his/her own contract with a third party, would not have the inclination and the right to give orders and directions to the Workers. Workers are engaged to manufacture timber house frames in a factory and perform rectification work relevant to such production. Control in the form of how the services are to be performed is not specifically written into the Contract and as such the Workers appear to be free to exercise their discretion as referred to under paragraph 35 of SGR 2005/1. However, their discretion is curtailed as detailed above. Overall, we are satisfied that the control test in isolation is more in favour of the notion that the relationship between you and the worker was one of employer and employees. | Detailed Reasoning - 3. Integration: 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 known as the 'integration' test. If the worker's services are an integral and essential part of the employer's business that engages them, they are considered by the courts to be a common law employee. If the worker is providing services as an individual carrying on their own business, they are an independent contractor. It is necessary to keep in mind the distinction between a worker operating their own business and a worker operating in the business of the payer. The worker needs to be running their own business or enterprise and have independence in the conduct of their operations. 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 an 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 professional skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skills or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills. This was highlighted in Hollis v. Vabu Pty Ltd 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… Consideration may also be given to whether the worker could be expected to generate goodwill in their own right. If the benefits from the creation of goodwill flow to the worker then this would indicate that they are an independent contractor. Alternatively, if goodwill flows to the principal, this suggests an employer/employee relationship. It is therefore necessary to consider whether the worker is providing services as part of the principal's business (under a contract of service as an employee) or providing services as part of their own business (under a contract for services as an independent contractor). | Detailed Reasoning - Application of the common law to your case:: The Principal advised at question 9 of the PQ that there is no requirement for the Workers to maintain dress standards, use uniforms or display signage. You advised that the Workers have the ability to work for others but this had not occurred as the contract was only seven weeks old. The Workers usual place of work is the Principal's factory. You advised at question 8 in the PQ that the Workers form part of a team and at question 16 that you engage the Workers for 35-37 hours per week. In these circumstances there is little indication that the Workers are operating in their own business or are able to generate any goodwill. Overall, we are satisfied that the integration test in isolation is more in favour of the notion that the relationship between you and the worker was one of employer and employees. | Detailed Reasoning - 4. 'Results' test: 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. The essence of the contract has to be to achieve a result and not to do work. Satisfactory completion of the specified services is the result for which the parties have bargained. That is, a payment becomes payable when, and only when, the contractual conditions have been fulfilled. Where the substance of a contract is to achieve a specified result, there is a strong indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FC of T 92 ATC 4327 ( World Book (Australia) Pty Ltd v. FC of T) 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. While the notion of 'payment for a result' is expected in a contract for services, it is not necessarily inconsistent with a contract of service. For example, the Full Court of the Supreme Court of South Australia in the decision of Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd (2004) SASC 288 ( Commissioner of State Taxation v. Roy Morgan Research Centre Pty Ltd) , found that interviewers who were only paid on the completion of each assignment not on an hourly basis, were employees and not independent contractors. It was found that the workers were paid for their time spent and labour, and not to produce a result. Having regard to the true essence of the contract, the manner in which payment is structured will not of itself exclude genuine result based contracts. For example, there are results based contracts where the contract price is based on an estimate of the time and labour cost that is necessary to complete the task, or may even be calculated on that basis, subject to reasonable completion times. Generally, where a worker submits quotes or issues invoices for each job to the principal, this would be consistent with operating their own business. Nonetheless, the issuing of invoices is not necessarily determinative of the nature of the relationship. Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties. Paragraph 43 of SGR 2005/1 states: 43. The phrase 'the production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as 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. | Detailed Reasoning - Application of the common law to your case:: You confirmed that although the tax invoices are mainly based on lineal metres of framing used for each framing house lot, no framing materials are supplied by the Workers. Effectively the lineal meter pricing is a means for the Workers to charge for their labour, with deductions shown for back charges and general expenses such as tape measures. You added that in the event of a Worker being absent, deductions were made to the sub totals invoiced. This is indicative of an employer and employee relationship. The contractually specified outcomes are the framing services. The information provided show that the framing services actually constitute the Workers operating out of factory owned by a third party and completing a series of frames in a team environment inclusive of the Principal. The services are delivered on the basis of the Workers using a substantial combination of assets owned or controlled by the Principal and the third party, in the form of a factory and a computerised framing system. As advised in Question 16 of the PQ the Workers will normally work a 35-37 hour week. Currently the Workers do not engage third parties to complete the framing services. The Workers are not currently using third parties to achieve the specified outcomes nor are they substantially using their own plant and equipment. In effect the Workers are team members being paid on a weekly basis for completion of a series of framing house lots, by using a combination of Worker/Principal means in achieving a result as detailed in paragraph 43 of SGR 2005/1. Overall, we are satisfied that the results test in isolation is more in favour of the notion that the relationship between you and the worker was one of employer and employees. | Detailed Reasoning - 5. 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. If the contract does not expressly require the worker to personally perform the services, an independent contractor has the capacity to delegate or subcontract all (or some) of the work to others. Where the worker delegates, they are responsible for remunerating that worker. In the case of Neale (DFC of T) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 at 425; 6 AITR 201 at 202, the High Court interpreted the words 'a contract which is wholly or substantially for the labour of the person to whom the payments are made' to decide that if a contract leaves a person completely free, if he or she chooses, to engage others to perform the work on his or her behalf means that the payments are not payments under a contract for labour. That is so even if the contractor actually does perform the work personally and had no intention of doing otherwise. If the contract leaves the contractor free to do the work himself or employ other persons to carry it out the contractual remuneration when paid is not a payment made wholly or at all for the labour of the person to whom the payments are made. It is a payment made under a contract whereby the contractor has undertaken to produce a result... When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker; rather the employee has merely substituted or shared the workload. However, a clause in the contract may permit the worker to delegate the task to another worker subject to approval of the principal, as the principal may not want an unknown worker to be working on their site or who may not be suitably qualified. In the case of Bowerman v. Sinclair Halvorsen Pty Ltd [1999] NSWIRComm 21, Bishop J said: The fact that any substitute driver had to be approved by the company does not give the respondent [the principal] control over that delegation… the company surely had the right to be confident that any substitute driver was competent to do the job and maintain the "integrity" of the company as Mr Coomb put it. Therefore, 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. Paragraphs 48-50 of SGR 2005/1 discuss the delegation of work as follows: 48. 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. 49. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this 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 these circumstances, the contractor is the party responsible for remunerating the replacement worker. 50. A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor. | Detailed Reasoning - Application of the common law to your case:: You advised at questions three and four of the PQ that you have known the Workers for some years, they have more skills than your employee and you had invited them to work with your newly established company. You advised at question 13 of the PQ that the Workers were expected to carry out work personally but at question 14 of the PQ you advised that other workers could be engaged to either substitute or assist after obtaining your approval. You clarified that the Workers were expected to complete their scheduled work rather than accepting other work and that delegation may occur but hadn't yet because the agreement was only seven weeks old. You also advised at question 15 of the PQ that if a replacement worker was engaged to perform the work, the Worker would be responsible for paying the worker engaged and for any rectification work required. Under subclause 3.4 of the Contract, the Workers have a right to delegate work. On the other hand, the Workers appear to have been specifically engaged for their personal skills and there was an expectation that they would personally complete their scheduled work. Overall, we consider that the delegation test in isolation is inconclusive. | Detailed Reasoning - 6. Risk: Generally speaking, employers are vicariously liable for negligence and injury caused by their employees. However a principal will not be liable for negligence or injury caused by an independent contractor. The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance of commercial profit), the more they are likely to be regarded as being independent. Typically, a worker who derives piece rate payments and sustains large outgoings would be so exposed. The higher the proportion of the gross income of the worker which is required to be expended in deriving that income, and the more substantial the assets which the worker brings to the tasks, the more likely that the contract is for service, or a contract with an independent contractor. As stated by McKenna J in Ready Mixed Concrete (South East) Limited v. Minister Pensions and National Insurance [1968] 2 QB 497 at 526: …the owner of assets, the chance of profit and risk of loss in the business of carriage are his/her and not the company's. Another consideration of risk is the liability for the cost of rectifying faulty work. That is, the key underlying consideration is whether the individual is exposed to commercial risk in terms of a liability to cover the cost of rectifying defective work. This is consistent with the focus on the chance of profit and the risk of loss as a traditional indicator that a worker is an independent contractor conducting their own business. Carrying their own insurance and indemnity policies is an indicator that a worker is engaged as an independent contractor. Paragraph 51 of SGR 2005/1 states: 51. Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. On the other hand, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries their own insurance and indemnity policies | Detailed Reasoning - Application of the common law to your case:: The Contract requires the Workers to maintain worker's compensation and public liability insurances. In your original application you provided certificates of currency for broadform liability (public and product) and personal accident insurances taken out by the Workers. The Workers did not incur expenses relating to the timber and accessories to be used in providing the framing service. This lessens the commercial risk of the Workers However, the Contract makes it clear that Workers will be subject to losses and expenses associated with acts, errors, omissions and rectification. Overall, we are satisfied that the risk test in isolation was more in favour of the notion that the relationship between you and the workers is one of principal and independent contractor. | Detailed Reasoning - 7. Capital - Provision of tools and equipment and payment of business expenses.: 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 his/her work by the employer. Furthermore, the employer is often also responsible for the business expenses incurred by the worker, since the worker has been integrated into the employer's business. Independent contractors carrying on their own business often provide and pay for their own assets, tools, equipment, maintenance costs and other expenses. Usually, they will have factored these costs in their overall fee or will seek separate payment for such expenses from the principal. In Stevens v. Brodribb at 36-37, the High Court observed that working on one's own account (as an independent contractor) often involves: The provision of him by his own place of work or of his equipment, the creation of him of goodwill or saleable assets in the course of his work, the payment by him from his remuneration of business expenses of any significant proportion… | Detailed Reasoning - Application of the common law to your case:: As advised in paragraphs 18-23 of the PQ and the services are delivered on the basis of the Workers using a substantial combination of assets owned or controlled by the Principal and a third party, in the form of framing timber, a factory and a computerised framing system. The delivery of the framing is peripheral to the services contract but it removes the need for the Workers to fund crane equipped trucks which are provided by the third party. In comparison the Workers only provide some power tools. You advised that the Workers paid for their own tools via means of deducting amounts from their tax invoice sub totals. At question 24 of the PQ you advised that the Workers used vehicles only to get to work. The vehicles were not used to carry equipment, were not integral to carry out the framing services required and no reimbursements were made to cover the vehicle running expenses. No evidence was presented to indicate that the Workers invested capital of any significance. The Workers were able to provide their services with minimal outlays, in comparison to the more substantial capital investment required by Principal and the third party. Overall, we are satisfied that the capital test in isolation is more in favour of the notion that the relationship between you and the workers was one of employer and employees. | Detailed Reasoning - Summary - common law: The Principal engaged the Workers under a written contract for the purpose of manufacturing timber house frames and the Worker's services formed an integral part of the Principal's business. Although the Contract contained express terms in respect of delegation and control it appears that the operational circumstances meant that the Workers were subject to Principal's orders and directions as team members. The Workers were known to the Principal prior to their engagement and they were engaged on the basis of their personal skills. Although a right to delegate exists under the Contract, the Principal acknowledges that the right has not yet been exercised, but may be exercised in the future. The Workers were found to use means other than their own to complete house lots of framing as scheduled, were normally working standard hours, did not purchase the framing timber required and had not invested in capital equipment of any significance. In summary and under subsection 12(1) of the SGAA, when looking at the relationship as a whole, the facts and evidence provided indicate that the relationship between the Principal and the Workers was one of employer and employees. | Detailed Reasoning - Our conclusion regarding the common law definition of employee: With respect to the relationship between you and the Workers, the facts and evidence provided point to the conclusion that the Workers were common law employees of the Principal. Of the seven indicators considered, two were considered to be more in favour of the relationship between the Principal and the Workers being one of principal and independent contractor, four favoured an employer and employee relationship and one was inconclusive. As the facts and evidence indicate that the Workers were your employees under common law, we are not required to consider the extended definition in subsection 12(3) of the SGAA. However, the extended definition has been considered and is discussed below. | Detailed Reasoning - Question 2: Were the workers your employees by virtue of subsection 12(3) of the SGAA? | Detailed Reasoning - Expanded definition of employee for SGAA purposes: The expanded definition of employee within subsection 12(3) of the SGAA, which states: If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA. Paragraph 78 of SGR 2005/1 states that where the terms of the contract, in light of the subsequent conduct of the parties, indicate that: • the individual is remunerated (either wholly or principally) for their personal labour and skills; • the individual must perform the contractual work personally (there is no right to delegate); and • the individual is not paid to achieve a result the contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Wholly or principally for labour: In this context, the word "principally" assumes its commonly understood meaning, that is chiefly or mainly, and labour includes mental and artistic effort as well as physical toil. A contract may be partly for labour and partly for something else, such as the supply of goods, materials or hire of plant or machinery. Subsection 12(3) of the SGAA only applies if the contract is wholly or principally for labour. Based on the available facts and evidence, we consider that the Workers were paid primarily for their own labour and skills. Payments were made by the Principal on the basis of tax invoices issued by the Workers. The Workers were not required to supply any materials and had no significant ongoing expenses. You confirmed that although the tax invoices are mainly based on lineal metres of framing used for each framing house lot, no framing materials are supplied by the Workers. Effectively the lineal meter pricing is a means for the Workers to charge for their labour. | Detailed Reasoning - The individual must perform the duties themselves: As discussed earlier, on consideration of the facts and evidence a decision as to whether the workers did have the right to delegate was inconclusive. | Detailed Reasoning - Not paid to achieve a result: As discussed earlier, we consider that the facts and evidence indicate that the Workers were not paid for a result. | Detailed Reasoning - Our conclusion regarding the expanded definition of employee: Accordingly, as your relationship with the Workers is predominantly for their labour; their right to delegate in practice has yet to be tested; and as they work in a team and are not paid for a specific result, they satisfy the three components of the expanded definition and we consider they are your employees under subsection 12(3) of the SGAA. | Detailed Reasoning - Conclusion - overall: Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the Principal, the Workers meet the definition of an employee for the purposes of the SGAA under both the common law definition and expanded definition as set out in subsection 12(3) of the SGAA. Therefore you did have an obligation to provide superannuation support to the Workers in accordance with the SGAA for the period under review.