Private ruling: Superannuation guarantee
Published: May 2014

Ruling: Q2: If the Worker is an employee is the superannuation guarantee retrospective to the commencement of the employment? Yes. Refer to "Reasons for decision The arrangement commenced: After 1 July 2006 Summary The facts and evidence lead to the conclusion that the Worker was your employee under the common law definition and therefore you did have an obligation to pay superannuation contributions on behalf of the Worker.

Relevant facts and circumstances: The advice is based on the facts stated in the description of the scheme that is set out below. If the 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 . You applied for a private ruling to determine whether the service provided by the worker, to you, is considered to be performed as employee or contractor and your obligations in respect of superannuation guarantee for the worker. You invite tenderers to provide a service in relation to the performance of specific tasks. You use tenders to allow you to provide these services for specific tasks at a tendered rate. The workers are engaged to perform the work on-site A Request for Tender is agreed to between parties and accepted by the Worker. This Tender agreement has been drafted in order to formalise the requirements for of the tasks agreed to by you and the worker. It is intended that it be implemented in all agreements going forward following the receipt of the advice.

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 Subsection 12(1) | Superannuation Guarantee Administration Act 1992 Subsection 12(3)

Reasons for decision: Summary: The worker is considered to be a common law employee. | 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 - 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. 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 the case:: The manner in which the Worker was engaged was by tender inviting both businesses and individuals to apply. In this case you advised that the Worker's tender was set up for an hourly rate for the tasks. You advised that the Worker should be available to you during working hours and on call by phone at all times during the 7 day week and that the site of the work was at the business. You would supply all the materials and the equipment for the tasks however the Worker would be expected to provide their own tools. No evidence was provided that provisions regarding benefits such as annual, sick and long service leave formed part of the terms negotiated. The Worker has signed a contract stating that he/she is not employing or intends to employ workers on the contract during the currency of the contract. Both the Worker and you could terminate the agreement with a 60 day notice. The Worker does not employ a subcontractor, he/she is to be available during the work area hours and is on call at all other times and is paid for his/her labour at an hourly rate, the hours being set by you. You also supply the work area and all materials and equipment for the Worker to complete the tasks All work is allocated on a priority basis and re-work is necessary as directed into the general work schedule. 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 Worker was one of employer and employee. | 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 Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? 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. | Detailed Reasoning - Application of the common law to the case:: As previously mentioned the Worker must be able to cover the normal hours and be available and also be available at all other times 7 days a week. The Worker could take time off but only by giving the manager timely notice. The manager allocated tasks according to your priority, and all quality assurance for the work done needed to be guaranteed by the 'signing of' of jobs on completion by the Supervisor. The Worker had the option to increase the rates per hour and did this during the period of the tender; however any work done at the higher rate was nevertheless completed during the ordinary hours or work. Although the Worker was required to provide their own tools and confirmed that they were in a position to source all necessary parts and components for the tasks if necessary, you provided the premises and all the equipment and all parts and components necessary for the tasks. Overall, the Commissioner is satisfied that the control test in isolation is more in favour of the notion that the relationship between you and the Worker is characterised as being that of employer and employee. | 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 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 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 you, this suggests an employer/employee relationship. It is therefore necessary to consider whether the worker is providing services as part of your 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 the case:: The Worker's ABN status, GST registration, and business name were active at the time the Worker accepted the tender. You have advised that the Worker appeared to be providing albeit in a minor capacity their services to others. The Worker was not provided with any benefits such as annual, sick and long service leave and the specific tasks the Worker had tendered could be performed using the Worker's assets and equipment, however you supplied the work area on site at your business and also supplied all the necessary materials, equipment and components for the completion of the work by the Worker. 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 skills or labour may imply that the contractor is able to make an independent career by selling that skill. In this case, although the Worker was engaged mainly by you the Worker had the skills that had enabled them to conduct their own business using those skills. In summary the Worker's business registrations and the lack of any benefits provided to the Worker could be indicative of a principal and independent contractor relationship, however the Worker is on site the majority of the time and makes himself available for work in the Principal's business the remainder of the time, suggests an employer and employee relationship. Overall, with regards to the integration test the evidence is inconclusive as to whether the arrangement is one of principal and independent contractor relationship or an employer and employee relationship. | 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) (Roy Morgan case) , 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 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 you, 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. | Detailed Reasoning - Application of the common law to the case: The tender was quoted on time for the labour and for materials by the Worker before the tasks commenced. The Worker also had the ability to increase the hourly rate. The contract encompasses both the hourly rate for the completion of tasks and lump sums payable to the Worker by you upon completion of the works. Generally, where a worker submits quotes or issues invoices for each job to you, this would be consistent with operating their own business. However the invoices are for an hourly rate, you sets the hours worked and the re-work on the tasks are to done in normal scheduled hours. Therefore the essence of the contract would be payment for an hourly rate rather than for a result. Overall, 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 employee. | 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 you, as you 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 [you] 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. | Detailed Reasoning - Application of the common law to your case: 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. Although the Worker was required to work within your set hours and be on call, the tender response and acceptance, gives the Worker the option to delegate and employ a sub-contractor. As such the Worker had the power to delegate but did not utilise it. Overall the delegation test in isolation is more in favour of the notion that the relationship between you and the Worker was one of principal and independent contractor. | 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 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. | Detailed Reasoning - Application of the common law to the case: In summary because of the nature of the work, although the Worker was obliged to take out public liability insurance and indemnify any employees he had, he did not employ anyone and performed the work himself. The manager allocated tasks according to your priority, and although the manager was not required to oversee the tasks completed by the Worker, all quality assurance for the work done was to be guaranteed by the 'signing of' of jobs on completion by the Supervisor. You supplied the work area and all the equipment and the parts and components for the Worker to complete the work. As such the majority of the risk is borne by the Principal. Overall the risk test in isolation was more in favour of the notion that the relationship between you and the worker is one of employer and employee. | 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 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 you. 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: Although the Worker provided their own tools, you provided the work area, equipment and materials for the necessary tasks. You did not charge rent for the use of the work area and the Worker relied solely on your business's assets to perform his tasks. Overall, we are satisfied that the capital test in isolation was more in favour of the notion that the relationship between you and the worker is one of employer and employee. | Detailed Reasoning - Our conclusion regarding the common law definition of employee: In considering the relationship between you and your Worker under 7 common law factors we have found that the factors in 5 of the tests were more in favour of the notion that the relationship between you and the Worker was one of employer and employee. We considered 1 test to be indicative of a principal and contractor relationship and the other 1 test to be neutral in our determination. Consequently we consider on balance that the result is that the relationship is one of employer and employee. | Detailed Reasoning - Question 2: If the Worker is an employee is the superannuation guarantee retrospective to the commencement of the employment? | Summary: As the Worker is considered an employee the superannuation guarantee is retrospective to the commencement of the employment. | Detailed Reasoning - Conclusion - overall: Upon considering of all the available facts and evidence, the Commissioner considers that with respect to work performed for you; the Worker does meet the definition of an employee under common law. Accordingly you do have an obligation to pay superannuation contributions for the benefit of the Worker including retrospective superannuation contributions from the commencement of the contract.

Question 1: Is the worker, when engaged by you under the Tender, considered to be a common law employee for the purposes of the Superannuation Guarantee Administration Act 1992 (SGAA)?