Private ruling: Administratively Binding Advice - Employee/contractor
Published: July 2012
Ruling period: 1 June 2011 to 30 June 2013 | The arrangement commenced on | After 1 June 2011

Ruling: Q1: Is the relationship between the principal/payer and the worker one of employee/employer or independent contractor for the purposes of section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? Advice Based on the information provided the relationship is one of principal/contractor. Please see our 'Reasons for 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 . · The Commissioner received a request for administratively binding advice from the principal/payer with respect to superannuation guarantee obligations for the worker, engaged on a contract basis. · We sent the principal/payer a principal/payer questionnaire to complete. · We receive the following information from the principal/payer: · A copy of the Contractors Agreement (the Agreement) between the principal/payer and the worker. · Samples of invoices submitted to the principal/payer by the worker · A copy of the business liability insurance for the worker · The completed principal/payer questionnaire which contained the following information: Terms of the contract · The worker approached the principal/payer to see if they could work out of their premises. · The worker had their own clients. · There was a written contract · The worker and the principal/payer negotiated the financial agreement - ie rate of pay · Either party had the right to terminate as per agreement · No other workers are engaged on same basis. Control · The worker was shown how the principal/payer's business operates and how they do things there · The worker worked when their clients were booked in or when they chose to work · The worker scheduled their tasks - ie clients would phone for an appointment in the hours the worker chose to work · The worker directed the principal/payer as to the days and times they wanted client's appointments to be scheduled. · The worker was not supervised · The worker could refuse a job · The worker provided prior notice as to when they could and could not work Integration · The worker worked for other businesses as a contractor · The worker worked alone · The worker did not train or supervise any other workers · All staff wear a uniform, and the worker had the option to wear the uniform which they chose to do · The worker did not have to wear /have any name badge, clothing, business cards, stationery etc promoting their business · Neither the principal/payer or the worker advertised their business on any assets/equipment/tools of the worker Results · The principal/payer paid on invoices provided by the worker as per the Agreement · The principal/payer set the fees and the rate of pay was never changed · The worker billed the principal/payer for their completed client's. If the client cancelled, the worker did not bill for that payment · The worker's clients were billed from principal/payer's computer system. They produced a report generated from amounts charged to their clients. · The worker was paid into their bank account · No allowances, holiday or sick pay, workers compensation or superannuation were provided by the principal/payer · No income tax, superannuation or other deductions were deducted from the worker by the principal/payer Delegation · The worker provided services for only their own clients and only got paid when the job was completed. · No one did the work if the worker was sick or on holidays · The worker could not organise for tasks to be completed by another employee or engage another person to complete the tasks. Risk · The worker paid for their own workers compensation, private accident insurance and public liability insurance · The worker never made a claim against these policies · The worker was not required to guarantee work for a period of time · If worker made a mistake, they would correct in their own time, but use the materials provided by the principal/payer Provision of tools and equipment · Worker was not provided with any assets, tools or equipment · The worker was not reimbursed for their assets, equipment or tools · The principal/payer supplied some products as part of the agreement · No protective gear was required · Further information was provided on request: Did they bring their own clients with them? Yes, they brought their own clients. How did they get new clients? They rarely got new clients as they were already at their maximum capacity. Their clients were regulars and went to them only. What would happen if they were sick - did they ring/the principal/payer ring their clients? Either they would ring and cancel, as they have all their client's numbers, or the principal/payer would ring and reschedule. If they were sick, would someone else in the premises to do the job? No, no one else would do their jobs because they wanted only the worker to provide the service. If they were free and a client of the principal/payer walked in, could they take the job? They could ask them if they wanted to take the job but they could refuse if they wanted to. Did they have responsibilities of other staff like cleaning, reception, ordering? No, they had none of these responsibilities, they just came in worked with their clients and left Did they attend staff meetings? No they didn't, they were welcome to if they wanted to but were not required to. If they had time off did they have to seek permission, give prior notice or notify the principal/payer? No, they would just advise that they weren't working on those particular dates If their book was full and one of their clients walked in, what happened? They would have to schedule them in when they were available. The original letter states that they don't work anywhere else? No, they only work at the principal/payer's premises. In the agreement it states that the worker will agree to follow the policies and procedures set by the principal/payer - what does that involve? Workplace health and safety, service to clients. Were they required to wear the uniform? No, they wore the uniform by choice

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

Reasons for decision: Summary: The engagement of the worker by the principal/payer does not satisfy the common law definition of employee pursuant to section 12 of the SGAA, or the extended definition of employee under subsection 12(3) of the SGAA. Accordingly, the principal/payer does have not 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. 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: In the Agreement the worker agrees to pay a percentage of their gross earnings minus GST to the principal/payer. Other key points of the agreement are that the worker will: · invoice the principal/payer fortnightly · comply with all relevant GST laws when submitting invoices · receive a percentage of all retail products sold to clients (minus GST) · provide a copy of their Professional Indemnity and Liability insurance to the principal/payer · provide an ABN · provide a copy of their qualifications · provide a copy of any professional associations/affiliations · provide their availability to work one month in advance to enable them to take bookings · agree that there is no guarantee of work and they will only receive payment for work performed by them · the hours the worker agrees to be available to work are specified The Agreement also provides that: · the principal/payer will provide certain products necessary for the worker to carry out their duties and the worker will provide their own equipment in professional condition. · the principal/payer will provide full customer service including booking and confirmation of appointments to customers · the worker agrees that the agreement is not an employment agreement and that they are responsible for taking out and maintaining workers compensation insurance and professional negligence and/or public liability insurance · the worker agrees to responsible for such things as - all employment related benefits and payments such as leave entitlements, superannuation and PAYG relating to any work that is performed by them for the principal/payer. · the worker will not solicit or poach the principal/payer's clients · either party can terminate the agreement on two weeks notice · the worker will follow the policies and procedures set by the principal/payer The principal/payer questionnaire confirms that the worker and principal/payer negotiated the financial agreement but that the principal/payer set the fees and that this rate was never changed. The following features of the contract are generally indicative of a payee/principal relationship: · the provision of public and products liability insurance by the worker · the use of an ABN by the worker · the fact that the worker does not get paid if they do not perform the work · no employment related benefits such as leave entitlements, superannuation and PAYG provided by the principal/payer The following features of the contract are associated with an employee/employer relationship: · advising the principal/payer of availability one month in advance · providing one type of product for the worker to use · principal/payer set the fees The cost for the provision of products and the provision of a booking service for the worker could reasonably be considered to be met from the percentage of the gross earnings paid to the principal/payer by the worker. Similarly, while the fees charged for the service were set by the principal/payer, suggesting an employer/employee relationship, the percentage of the fees paid to the worker was negotiated by both parties, thus indicating that the worker had control over the amount of remuneration they received. The Commissioner considers that on balance, the facts and evidence in regard to the terms of engagement support the notion that the relationship between the principal/payer 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: The principal/payer stated in the questionnaire that the worker was: · provided with induction on commencement; · permitted to determine their own hours of work; · not subject to the scheduling or direction of tasks by the principal/payer; · not supervised by the principal/payer; and · could refuse jobs. Furthermore, the questionnaire confirmed that the worker directed the principal/payer as to the days and times they could work. In the phone conversation between a tax officer and the principal/payer the principal/payer stated that: · if the worker was sick they would either call their clients themselves or the principal/payer would call them to reschedule · if the worker was sick no one else would do their job for them, as the clients only wanted this worker to provide the service · if there was a walk-in and the principal/payer's staff were busy but the worker was free, the principal/payer may ask the worker to do the job, but they were able to refuse if they wished · the worker did not have to seek the permission of the principal/payer to have time off, they just would advise the principal/payer of the dates they were not available. The factors as described suggest that the worker has ultimate control over whether they accept work or not which is indicative of a principal and contractor relationship. | 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: The factors detailed by the principal/payer below are indicative of a principal and independent contractor relationship" · The worker was able to (but did not) work for other principal/payers and did not train or supervise any other staff of the principal/payer. · The worker was not prohibited from working for other parties by the principal/payer · The worker was not obliged to attend staff meetings. · The worker did not have other responsibilities that the employees had. · The worker did not advertise either their own business or the business of the principal/payer on any of their own or the principal/payer's assets, tools and equipment. However, the factors below are characteristics of an employee/employer relationship: · worker used the principal/payer's computer system to generate a report for amounts charged from the clients that they worked on. · there was no requirement for the worker to wear the uniform of the principal/payer by but the worker did have an option to wear it and chose to wear the uniform. By wearing the principal/payer's uniform, clients would have identified the worker as representing the business of the principal/payer. Whether the worker operates on their own account or as part of a business of the principal 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. Whilst the fact that the worker wears the uniform of the principal/payer could mean that a third party would consider that the worker was carrying in their own enterprise, the worker is unquestionably generating goodwill in their own right. This is evidenced by the fact that their clients will not choose to use the services of the principal/payer or their employees if the worker is unavailable. Unlike the couriers in Hollis v Vabu this worker is able to make an independent career in this profession and does generate their own goodwill. Overall, the Commissioner is satisfied that the integration test is in favour of the notion that the relationship between the principal/payer and the worker was one of principal and independent contractor. | 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, irrespective of the manner in which the amount is calculated. must be on whether the remuneration was paid on the completion of a specific result or results. | Detailed Reasoning - Application of the tests to the facts provided: The worker is paid by the client on completion of the service and is not paid if the work is not done, ie. if the client does not show up. The worker submits invoices to the principal/payer, itemised by each service provided to a client. Payments are made directly into the workers bank account. As explained above the worker in this case is clearly 'producing a result' where they are free to employ their own means to achieve the contractually specified outcome. Satisfactory completion of the specified services is the result for which the parties have bargained and the payment becomes payable when, and only when, the contractual conditions have been fulfilled. Consequently there is clearly a contract for service between the principal/payer and the worker, indicating that the relationship between principal/payer and the worker is one of principal/independent 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 worker worked only with their own clients and only gets paid for the work they perform. If the worker was sick or on holidays, the worker was not paid as the clients did not receive the service. The questionnaire states that the worker could not organise for tasks to be completed by another employee or engage another person to complete the tasks. However, the principal/payer confirmed by telephone, that the worker's clients did not want the service provided by anyone else. Its not that the worker is unable to, or prohibited from, delegating their tasks, they are simply not in a position to do so, because the clients do not want a substitute worker to complete the job. Whilst there is no evidence to confirm that the worker is prohibited from delegating their tasks, there is also no evidence to suggest that the worker could not or would not delegate their tasks to others as the situation has not arisen. Therefore the Commissioner considers the outcome of the delegation test to be inconclusive. | 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 Contractors Agreement specifies that the worker agrees to provide their own Public and Products Liability insurance and provide a copy of same to the principal/payer. The worker was not required by the principal/payer to guarantee their work for a period of time. The worker would correct a mistake in their own time, but would use the materials provided by the principal/payer. 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/payer 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 highly indicative of a principal and contractor. | Detailed Reasoning - 7. Provision of 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 his 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 a business for themselves often pay and provide for their own assets, tools, equipment, maintenance costs and other expenses. As stated by McKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance (1968) 2 QB 497 at 526: …the ownership of assets, the chance of profit and risk of loss in the business of carriage are his and not the company's The investment of capital, the maintenance of capital and risk of loss of capital in the event of an unsuccessful venture must be of a significant nature to deem a worker not an employee. | Detailed Reasoning - Application of the test to the facts provided: The principal/payer stated that they did not provide the worker with or reimburse the worker for, any equipment or tools to complete their work. The principal/payer provided a product as part of the Agreement. Given that the only item provided by the principal/payer is the product and that the worker pays an amount of their gross earnings to the principal/payer, it not unreasonable to conclude that the cost of the product would have been incorporated within this Agreement. The Commissioner therefore considers that with regard to the provision of tools and equipment, the relationship is one of principal and independent contractor. | Detailed Reasoning - Conclusion - Common law - subsection 12(1) of the SGAA: All of the tests except the delegation test which is inconclusive, indicate that the worker would not be considered an employee of the employer under subsection 12(1) of the SGAA. The Commissioner is satisfied that the facts and evidence under the common law are on balance, indicative of a principal/independent contractor relationship. 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. The extended definition has been considered and is discussed below. | 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 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. In this case, it is considered that the worker was engaged principally for their labour. Payments made to the worker 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 the worker had the discretion to refuse tasks from the principal/payer but was not able to delegate their tasks, not because the principal/payer prohibited the worker from doing so, but because the worker's clients did not wish to use the services of a substitute. As discussed above, the test regarding the worker's ability to delegate is inconclusive. | 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 worker is paid to complete each task. They are not paid unless the task is completed. This in conjunction with other relevant facts support the view that the worker is being paid for a result. | Detailed Reasoning - Conclusion - subsection 12(3) of the SGAA: 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 worker was remunerated principally for their labour but the condition requiring the worker to perform the work personally is inconclusive. The conditions for the results test however, are not satisfied. The worker does 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 worker is not an employee of the principal/payer for the purposes of the SGAA under either the common law meaning or the extended definition under subsection 12(3) of the SGAA. Accordingly, the principal/payer has no obligation under the SGAA to provide superannuation contributions on behalf of the worker.

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