Private ruling: Status of the worker
Date of advice: 15 November 2018
Published: April 2019

Ruling: Q2: Are the Workers, who invoice and are paid by the Principal the End user, considered employees of the Principal by virtue of subsection 12(3) of the SGAA for the period? Advice Yes. Please 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 .

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

Reasons for decision: Summary: 1. The facts and evidence suggest that the Workers, who invoice and are paid by the Principal, are employees of the Principal 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 SG contributions on behalf of these Workers. | Detailed Reasoning - Detailed reasoning: 2. 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). 3. 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. 4. 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. 5. 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. 6. 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 - Is there a legal relationship between the Principal and the Workers?: 7. The arrangement involves a Principal, referred to in this case as a ‘labour hire agency’, to supply Workers to the End-user in the arrangement. This type of arrangement is referred to as a ‘tripartite employment arrangement’ in Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries (SGR 2005/2). 8. There is also a verbal contract between the Principal and the Workers, and the payments are made weekly by the Principal to the Workers. The End-user reimburses the End user based on invoices issued to the End user for the work performed. 9. Paragraph 32 of SGR 2005/2 provides that when considering a tripartite employment arrangement, it is first necessary to determine whether a legal relationship exists for the performance of work and with whom it exists. Only after this has been established can consideration be given to the issue of whether the relationship is one of employment or of some other kind. 10. While the terms and conditions of the agreements assist in determining the character of the relationship between the parties, as per paragraph 33 of SGR 2005/2, ‘it is necessary to look beyond the form of the contractual relationships and the labels attached to the relationships by the parties to establish the true nature of the relationships of the parties involved’. 11. Paragraph 36 of SGR 2005/2 outlines the ordinary principles of contract law, being that a legally enforceable contract between the parties consists of three elements: ● the parties must intend to be legally bound by their agreement; ● there must be an offer by one party and its acceptance by the other; and ● the promises which constitute the agreement must be supported by consideration (unless the agreement is in the form of a deed). 12. Paragraph 37 of SGR 2005/2 states that another way to ask this question is: ● whom could the End user sue for breach of contract (as distinct from negligence) if the worker failed to appear or failed to work at an acceptable standard; and ● equally, whom could the worker sue for breach of contract if they performed their work but their remuneration was not paid to them? 13. There is a consideration supporting the agreement between the Principal and the Workers as you have advised that you are liable for all payments to the Workers, based on invoices issued by the Workers to the Principal for the work performed. 14. In the Full Federal Court case of Building Workers' Industrial Union of Australia and Others v. Odco Pty Ltd 20 (1991) 29 FCR 104 ( Odco ) at 114, it was held that ‘the element of consideration which is essential to a contract of employment is the promise by the presumptive employer to pay for service as and when the service is rendered’. 15. The invoices issued by the Workers to the Principal and paid by the Principal, show an hourly rate of payment referrable to the times worked on the End user’s sites and a calculation using a ‘cents per kilometre’ rate for travel expenses, at rates specified by you and agreed to by the End user. 16. These invoices therefore constitute the legal relationship between you and the Workers, for the purpose of making payment in consideration for the work performed as a XXX. 17. The Principal is therefore the relevant entity for considering whether there is an employment relationship between the Principal and the Workers. | Detailed Reasoning - Question 1: Are the Workers considered the common law employees of the Principal defined by subsection 12(1) of the SGAA for the period? | Detailed Reasoning - Common law employee: 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 - Terms and circumstances of the formation of the contract: 18. The fundamental task with respect to the terms of engagement test is to determine the nature of the contract between the parties. We must determine the nature of the contract between the parties, consider whether the contract is written or verbal, and whether the terms and conditions are expressed or implied. These factors are important in characterising the relationship between the parties. 19. When considering the intentions of the parties in forming the contract, it must be determined what each party could reasonably conclude from the actions of the other. 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. Control 20. The extent to which the engaging entity has the right to control the manner in which the work is performed is the classic test for determining the nature of a working relationship. A common law employee is told not only what work is to be done, but how and where it is to be done. With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lays not so much in its actual exercise, but in the right of the employer to exercise it. 21. 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 - Does the worker operate on his or her own account or in the business of the payer?: 22. If the worker’s services are an integral and essential part of the business that engages them (under a contract of service), 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 (under a contract for services), 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. 23. 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. 24. Consideration may also be given to whether the worker could be expected to generate goodwill in their own right. | Detailed Reasoning - ‘Results’ contracts: 25. 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. 26. 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. | Detailed Reasoning - Whether the work can be delegated or subcontracted: 27. 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. 28. 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. 29. 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. 30. Therefore, 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. | Detailed Reasoning - Risk: 31. Generally speaking, employers are vicariously liable for negligence and injury caused by their employees, whereas a principal will not be liable for negligence or injury caused by an independent contractor. 32. 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. 33. 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. | Detailed Reasoning - Provision of tools and equipment and payment of business expenses: 34. A worker/payee who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required to complete their 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. 35. 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 they will seek separate payment for such expenses from the principal. | Detailed Reasoning - In your case: 36. The Workers are XXX who are engaged by the End user through the Principal to perform work at the End users’ mining sites. 37. The Workers advised that they provide their own personal tools for the work to be done however some expensive or specific tools could be provided by the End user or the Principal. 38. The Workers advised that the End user at times provided a fuel card to use with the End user’s supplied work utility. 39. As the specific tools provided that are necessary to perform their duties by the End user or the Principal, this is generally an indicator that the Worker is a common law employee. The information provided also indicates the Workers are remunerated for certain expenses which also is indicative of an employee. 40. The copies of invoices received issued by one Worker to the Principal for payment and charged to the End user indicate each of the invoices state the ABN of the Worker invoicing as an individual/sole trader; each of the invoices demonstrate an hourly rate of payment referrable to the times worked on the End user’s site, and a calculation using a ‘cents per kilometre’ rate for travel expenses. Hours and kilometres are paid by the Principal and noted by the Principal on the invoice for payment by the End user. 41. In addition, completed Worker/Payee questionnaires provided information that the Workers advised the Principal is liable for all payments to the Workers, as per the invoices issued by the Workers to the Principal. The Principal received invoices from the Workers and paid them weekly. 42. The Workers are paid an hourly rate and paid weekly indicating they aren’t engaged to produce a given result. They may be engaged for a specific period with the End user but are simply paid for the hours they work during that engagement. 43. The information provided indicates that the Workers are operating on the various sites in the business of the Principal and the rates for the labour are negotiated by the Principal and the End user. 44. The Workers did not renegotiate rates of pay or terms and conditions, however rates offered would differ between jobs. The Workers sought approval or made notification to take time off from either the Principal or the End user, and a replacement was organised between these parties if required. The Principal received and acted on feedback from the End user, monitored attendance and assigned the work. This all indicates the Principal had control in the relationship which is more indicative of the Workers being employees. 45. All the above information is an indicator that these Workers operate within the business of the Principal. 46. The Workers advised that they were provided with, and wore, the Principal’s t-shirts and the End users’ t-shirts when on the End users’ sites. 47. These factors indicate that although the Workers may appear to be employees of the End user while they are performing the work; they are integrated into the business of the Principal. 48. The Workers have advised that they have the right to refuse work with the End user and have a choice whether to accept an engagement with the End user through the Principal but only for safety concerns. The Workers advised that they can offer their services for work on other sites once their work for the End user is completed but this is unusual as the work for the End user is constant. 49. The Workers advised that if they fail to attend work with the Principal, the Principal will contact the Principal and the Principal will provide the End user with another Worker. 50. This indicates that the Workers do not have a true right of delegation, and that the Workers are paid to perform the work personally through use of their specialised skills. 51. The Principal has also advised that the Worker is subject to the direction and control of the End user but only when on the End user’s site where the work is performed. 52. Paragraph 33 of SGR 2005/1 states that ‘a common law employee is told not only what work is to be done, but how and where it is to be done’. In accordance with paragraph 33 of SGR 2005/1, and based on the information above, the Workers would be considered under the control of the Principal. 53. The Principal has advised that the Workers are required to hold their own professional indemnity insurance, and that this forms part of the arrangement between the Principal and the Workers. 54. The Workers advised that the Principal has workers compensation insurance; however the Workers were further advised by the Principal that they should have public liability insurance. 55. Paragraph 51 of SGR 2005/1 states that an independent contractor will often carry their own insurance and indemnity policies. This indicates that the Worker bears the primary risk for any costs that arise from carrying out their services. 56. Paragraph 25 of SGR 2005/1 provides that the totality of the relationship between the parties must be considered to determine whether, on balance, a Worker is an independent contractor or an employee of the Principal. 57. In this situation, there are strong indicators, such as the integration of the Workers into the Principal’s business while they are engaged to work, the control the Principal has over the Workers, and the fact they are not engaged to produce a given result and cannot delegate, that mean, on balance, the Workers would be considered employees. | Detailed Reasoning - Our conclusion regarding the common law definition of employee: 58. The facts and evidence provided point to the conclusion that Workers who invoice and are paid by the Principal and engaged by the End user, are common law employees of the Principal. 59. As the facts and evidence indicate that these Workers are your employees under common law, we are not required to consider the extended definition in subsection 12(3) of the SGAA. However, in order to leave no doubt as to the Commissioner’s view of this matter, the extended definition has been considered and is discussed below. | Detailed Reasoning - Question 2: Are the Workers considered employees of the Principal by virtue of subsection 12(3) of the SGAA for the period 1 July 2017 to 30 June 2019 inclusive? | Detailed Reasoning - Expanded definition of employee for SGAA purposes: 60. The expanded definition of employee within 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. 61. As per our advice at common law, the invoices issued by the Workers to the Principal constitute the legal relationship between the Workers and the Principal, for the purpose of making payment in consideration for the work performed for the end user. 62. SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA. 63. 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: 64. 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. 65. 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. 66. Based on the available facts and evidence, we consider that the Workers were paid primarily for their own labour and skills as locum pharmacists. | Detailed Reasoning - The individual must perform the duties themselves: 67. As discussed earlier, the facts indicate that Workers do not have a true right of delegation, and that the Workers are paid to perform the work personally through use of their specialised skills. The Workers are unable to delegate work to a replacement locum themselves. | Detailed Reasoning - Not paid to achieve a result: 68. As discussed earlier, the copies of six invoices indicate that the Workers are not paid for a result, as they show a calculation of the amount payable based on an hourly rate and for travel expenses calculated on a ‘cents per kilometre’ basis. | Detailed Reasoning - Our conclusion regarding the expanded definition of employee: 69. Accordingly, the facts and evidence indicate that Workers also meet the extended definition of employee as set out under subsection 12(3) of the SGAA. | Detailed Reasoning - Conclusion – overall: 70. Upon considering of all the available facts and evidence, the Commissioner is satisfied that with respect to work performed for the End user, Workers who invoice and are paid by the Principal and engaged by the End user, meet the definition of an employee for the purposes of the SGAA under both the common law definition and the expanded definition provided under subsection 12(3) of the SGAA. 71. Accordingly, the Principal has an obligation to pay superannuation contributions for the benefit of these Workers under the SGAA. 72. The Principal has indicated that some Workers are also partnerships, companies or trusts. 73. As per paragraph 13 of SGR 2005/1, where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. 74. Paragraph 14 of SGR 2005/1 provides that if a partnership has contracted to provide services, then the person who actually does the work is not the employee of the other party to the contract. This is so even if the worker is a partner and even if the contract requires the partner to do the work. 75. Paragraph 16 of SGR 2005/1 provides that a person who holds an ABN may still be an employee for the purposes of the SGAA. However, any Worker who has invoiced the Principal through a company, partnership or trust is not an employee of the Principal for the purposes of the SGAA.

Are the Workers, who invoice and are paid by the Principal and engaged by the End user, common law employees of the Principal as defined by subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA) for the period? | We considered these to be relevant facts: You (the Principal) lodged a private ruling application, requesting advice as to your superannuation guarantee (‘SG’) obligations in respect to the Workers. | You provided further information by email regarding the arrangement between the Principal and the Workers, including the following attachments: | ● a completed Principal/Payer Status of the Worker questionnaire together with copies of insurance cover by the Principal, as well as invoices from the worker to the Principal. | ● Copies of invoices issued by the workers to the Principal and paid by the Principal. | ● Further information in completed Worker/Payee questionnaires from Workers provided by the Principal as labour hire for the End user. | ● Further information which provided confirmation that the invoices were paid by the Principal as well as the instructions from the Principal to the Worker with all the details of the position, including start date, time work hours, pay details and insurance responsibilities | ● The Principal has verbal agreements with all the Workers, sends an email with all the terms and conditions of the job and the Worker is given the relevant information regarding the project, including the start date, the period required as well as the End user’s site contact. | ● There are no written contracts with the End users. The End user has a verbal agreement with the Principal by way of the verbal agreement and emails which provides Workers to the End user as required, and as per the requirements of the verbal agreement. | ● There is no formal contract drawn up but an agreement is documented on the provision of the labour. The rate for the labour is agreed upon between the Principal and the End user. | ● The Principal deals with different people on the different sites with different agreements in place. | ● The Principal provided further information by email regarding the nature of the role of the Workers and the arrangement between the Principal and the Workers. | ● The information provided indicates the terms of the verbal agreement between the End user and the Principal are: | ● The Principal locates and provides XXX. | ● The End-user requests Workers for use on several job sites at the same time for the End user | ● Once the Workers are on the site, the End user has full control over the day to day operations of the Workers and directs the work required until the project is completed. | ● The Workers have control of when and what sites they agree to work on and the Workers are interchangeable on each project. The Worker has the ability to decline the project or the site but once engaged and on site, the Workers are not able to delegate the work or subcontract the work. | ● The Workers have advised that the Principal is liable for all payments to the Workers, as per the invoices issued by the Workers to the Principal. | ● The Workers advised that they were paid the hourly rate as per the contract agreed to between the Principal and the End user. | ● If the Workers were sick or on holidays the Principal arranged for the work to be done. | ● The Workers advised that if they fail to attend work with the End user will contact the Principal and the Principal will provide the Principal with another Worker. | ● The Workers advised that they wore the Principal’s T shirts and the End users’ T shirts when on the End users’ sites. | ● The Workers are required to hold their own professional indemnity insurance, and this forms part of the arrangement between the Principal and the Workers