Private ruling: Superannuation Guarantee
Published: November 2012

Ruling: Q1: Is the worker an employee of the payer under section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? Advice No, please refer to the Explanation

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 . · You applied for administrative binding advice on whether the contractor (worker) would be considered a common law employee as defined in subsection 12(1) of the Superannuation Guarantee Administration Act 1992 (SGAA). · We provided you with a copy of the Superannuation Guarantee Status of the worker questionnaire - Principal/Payer which you returned to us with the following information Terms and the circumstances of the formation of the contract 1. How did your business first establish the working relationship with the worker/payee? By word of mouth 2. Did you enter into a written agreement with the worker/payee? No, The worker is called when the payer has extra work or needs assistance on a job. The worker also runs his own business and call on the payer to come and work for at times. Therefore they both contract to each other Control Test - the lawful right to command 3. Was the worker/payee able to renegotiate their rate of pay or terms and conditions? No. Recently they mutually agreed to increase the hourly rate which they pay each other 4. Did you have the right to dismiss or terminate the services of the worker/payee No, the worker would just not be called again. There is no agreement or contract to terminate. 5. Were any other workers payees engaged on the same or a similar bases as the worker/payee No 6. Did you provide the worker/payee with any training? No 7. How were the worker/payee's hours of work determined? If the worker has time, they come and does some work for the payer if needed. 8. Did you require the worker/payee to attend meetings within your business and/or with your clients? No 9. Was the worker/payee entitled to paid breaks? No 10. Did you schedule the jobs/tasks to be carried out by the worker/payee? Yes, the payer advises where and what day/time the jobs are. It is not on a daily basis though. 11. Did you direct where the jobs/tasks were to be performed? Yes, they are always at a client's premises. 12. Was the worker/payee supervised? No, the payer and worker work together on jobs so the payer can always see the work 13. Could the worker/payee refuse to do a particular job or task? Yes, the worker has 100% of control of they want to come and do a job or not 14. If the worker/payee wanted to take time off, was the worker/payee required to: Seek your permission? No Provide prior notice? No The worker doesn't have work for the payer if they do not want to. Out of courtesy they advise each other if they were going to be unavailable, Integration Test - did the worker/payee work for themselves or in the business of the principal/payer? 15. Could the worker/payee provide their services to other individuals or businesses? Yes, they run their own with their own clientele. They also hire the payer to help when needed in this business. 16. Did the worker/payee work alone? Yes, They work alone and with the payer. 17. Did the worker/payee train, supervise or assess the work of other employees/workers (including apprentices) of your business? No 18. Was the worker/payee required to wear or use a name badge, clothing, business card, stationery (for example, pens, notepads, letterhead) or any other item promoting your business name or logo? Provided, but not required to wear/use. The payer decided to get tops printed, and gave a couple to the worker, but they are not required to wear them 19. Did the worker/payee have their own name badge, clothing, business cards, stationery or any other items promoting their business/services? Yes, has own business cards 20. Did you advertise your business on any of the assets/equipment/tools used by the worker/payee? No 21. Did the worker/payee advertise their business on any of the assets/equipment/tools they used? No Results Test - was the worker/payee paid to achieve a specified result? 22. Did the worker/payee submit quotes, invoices or any other type of document to you? Yes 23. Did the worker/payee set their own fees for the work/tasks done, or did you set the rates of pay? You set the fees. Worker/payee sets fees. Both set the rate of pay and pay each other the same rate. If a particular job is completed early they will halve the profits after they have taken hourly payments and materials out. 24. Was their rate of pay ever changed? Yes, the payer and worker agreed to increase the hourly. This is the same rate which the payer receives when they work for the worker. 25. Was the worker/payee's payment dependent on the completion of the task/job? No, it is an hourly rate 26. Did you do any checks to confirm that the worker/payee had completed their work before you paid them? Yes, the payer is at the site also working 27. How was the worker/payee paid? By cheque 28. Did the worker/payee receive payment/reimbursement for anything other than the work they completed? - Car allowance No - Tool allowance No - Travel allowance No - Away from home allowance No - Payment of expenses such as No petrol, tools, materials, stationery, phone etc. - Holiday pay No - Sick pay No - Workers compensation No - Superannuation No - Training No - Other No 29. Did you deduct any amounts from the worker/payee for: - Income tax No - Superannuation No - Any other deduction No Delegation/Substitution Test - was the worker/payee expected to complete the work personally? 30. Did you give specific instructions (either in writing or verbally) about whether the worker/payee was to complete their work personally? Yes, ….there is a relationship where they where they work in each others' businesses. They understand the business and the requirements and level of quality expected. The payer would call another contractor himself if the payee couldn't work. The worker did have an apprentice that would perform work. 31. If the worker/payee was sick or went on holidays, who arranged for their work to be done while they were absent? You, the payer would do the work or find another painter and pay them himself 32. Could the worker/payee organise their work or tasks to be completed by: - an employee of your business? No - another person engaged by the worker/payee (with or without your Yes approval)? The worker had an assistant that they would direct. Risk Test - did the worker/payee bear any commercial or personal risk? 33. In relation to work performed by the worker, who was responsible for paying: - workers compensation insurance Worker/payee - private accident insurance Worker/payee - public liability insurance You - any other types of insurance Worker/payee 34. Did you or the worker/payee ever make a claim against any of these policies? No 35. Was the worker/payee required to guarantee their work for any period of time? No 36. If the worker/payee made a mistake or broke something when doing their work, would they: - have to correct the work in their own time? No - pay for the materials used to correct the mistake? Yes - pay for the breakage? Yes They would work together to fix any errors Provision of tools and equipment and payment of business expenses 37. Did you supply the worker/payee with any assets, equipment or tools to complete their work? No, the worker provides their own equipment. 38. Did you reimburse the worker/payee for their assets, equipment or tools? No 39. Who supplied materials for a job? You, the payer supplies materials for each job. If the payer was to work in the worker's business, the worker would provide the materials. 40. Who arranged delivery of materials to a job? You 41. Was the worker required to wear protective work gear? Yes, they use dust masks, wear work boots and overalls. 42. Who supplied the protective work gear? Worker/payee · Attached to the questionnaire where samples of the tax invoices issued to you from the worker. These tax invoices indicate that the worker charges you an hourly rate plus GST for their services. · Attached to the questionnaire where samples of the tax invoices issued by you to the worker. These tax invoices indicate that you charge the worker an hourly rate plus GST for your services. · We provided the worker with a copy of the Superannuation Guarantee Status of the worker questionnaire - Worker/Payee and the following information was provided: Terms and the circumstances of the formation of the contract 1. How did you secure the work? Other, payee and payer contract each other when they need each other's sources 2. Did you enter into a written agreement with the principal/payer? No 3. Were you able to renegotiate your rate of pay or terms and conditions? No, both the payee and payer have the same hourly rate when engaging each other 4. Did the principal/payer have the right to dismiss or terminate your services? Not sure Control Test - the lawful right to command 5. Did you complete any training with the principal/payer? No . 6. How were your hours of work determined? Hours worked as required. No set hours. 7. Were you required to attend meetings within the principal/payer's business and/or with their clients? No 8. Were you entitled to paid breaks? No 9. Did the principal/payer schedule the jobs/tasks to be carried out? Yes, advised where to go and what task was required. This is done on a job basis 10. Were you directed where the jobs/tasks were to be performed? Yes, all work conducted on premises of customer. 11. Were you supervised? No, payee and payer check each others work as they are working on the same premises. They trust the quality of the other's box 12. Could you refuse to do a particular job or task? Yes, 13. If you wanted to take time off, were you required to: a. Seek your permission? No b. Provide prior notice? No Integration Test - did the worker/payee work for themselves or in the business of the principal/payer? 14. During the period you worked for the principal/payer, did you advertise your services? Yes 15. Could you provide your services to other individuals or businesses independently of the principal/payer/ Yes occurred on several occasions; 16. Did you work alone? Yes. 17. Did you train, supervise or assess the work of other employees/workers (including apprentices) of the principal/payer's business? No 18. Were you required to wear or use a name badge, clothing, business card, stationery (for example, pens, notepads, letterhead) or any other item promoting principal/payer's business name or logo? Provided, but not required to wear/use 19. Did you have your own name badge, clothing, business cards, stationery or any other items promoting their business/services? Own business cards and other stationary 20. Did the principal/payer advertise your business on any of the assets/equipment/tools used by you? No 21. Did you advertise your business on any of the assets/equipment/tools you used? No Results Test - was the worker/payee paid to achieve a specified result? 22. Did you submit quotes, invoices or any other type of document to the principal/payer? No 23. Did you set their own fees for the work/tasks done, or did you set the rates of pay? Both payee and payer have an agreed hourly rate that they pay each other 24. Was your rate of pay ever changed? Yes - see above. Both rates are the same amount. Payee and payer pay each other when engaged for their services. 25. Was your payment dependent on the completion of the task/job? No 26. How were you paid? By cheque 27. Did you receive payment/reimbursement for anything other than the work you completed? - Car allowance No - Tool allowance No - Travel allowance No - Away from home allowance No - Payment of expenses such as No i. petrol, tools, materials, stationery, ii. phone etc. - Holiday pay No - Sick pay No - Workers compensation No - Superannuation No - Training No - Other No Delegation/Substitution Test - was the worker/payee expected to complete the work personally? 28. Did the principal/payer give specific instructions (either in writing or verbally) about whether you were to complete your work personally? Yes - verbal instructions of what is to be done 29. If you were sick or went on holidays, who arranged for your work to be done while you were away? Principal/payer 30. Could you organise their work or tasks to be completed by: - an employee of principal/payers business? No - another person engaged by the - worker/payee (with or without your approval)? Yes - any other person No Payee had an apprentice who they would 'charge out' to the payer Risk Test - did the worker/payee bear any commercial or personal risk? 31. In relation to work performed by you, who was responsible for paying: - workers compensation insurance You /Principal/payer - private accident insurance You - public liability insurance You /Principal/payer 32. Did you or the principal/payer ever make a claim against any of these policies? No . 33. Were you required to guarantee their work for any period of time? Yes 34. If you made a mistake or broke something when doing your work, would you: - have to correct the work in your own time? Yes - pay for the materials used to correct the mistake? Yes - pay for the breakage? Yes Provision of tools and equipment and payment of business expenses 35. Did you supply your own assets, equipment or tools? Yes- Value approximately $45,000 36. Were you reimbursed by the principal/payer for any of your assets, equipment or tools? No 37. Who supplied materials for a job? You and the principal/payer. Whoever is the 'payer; for the job provides the materials 38. Who arranged delivery of materials to a job? Not applicable, payer on each job provides materials and decisions 39. Were you required to wear protective work gear? Yes - overalls, boots, masks 40. Who supplied the protective work gear? You

Relevant legislative provisions: Superannuation Guarantee Administration Act subsection 12(3).

Reasons for decision: Summary: The facts and evidence indicate that the worker is not your employee for the purposes of the SGAA under either the common law definition or the expanded definition as set out in subsection 12(3) of the SGAA and therefore you do not have an obligation to pay superannuation contributions on behalf of the worker. | Detailed Reasoning - Detailed reasoning: The SGAA states that an employer must provide the required minimum level of superannuation support for its employees (unless the employees are exempt employees) or pay the SGC. While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) from a 'contract for service which is typically a contractor and principal type of relationship and does not attract an SGC liability. Therefore, it is necessary to consider not only whether there is a common law relationship of employer/employee between the parties, but also, if the common law test is not met or is inconclusive, whether the 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. Accordingly it is 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). In deciding whether the workers are common law employees of the principal/payer there are a number of factors to consider. These factors are considered below. | Detailed Reasoning - 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 expressed or implied, in the light of the circumstances surrounding the making of the contract 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 be persuasive factors. For example: · provision of benefits such as annual or sick leave · provision of benefits prescribed under an award · payer prescribed times and locations for the performance of the work · remuneration in the form of salary and wages · the worker uses assets and materials provided by the payer or is reimbursed for expenses incurred in respect of use of their own assets and materials · payer discretion 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 a 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 at 25: 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. In Hollis v. Vabu (2001) 207 CLR 21 ( Hollis ) the High Court determined that an indicator of an employer/employee relationship was that the workers were presented to the public and to those using the courier service as representatives of Vabu, as they wore uniforms bearing Vabu's logo. Additionally in Hollis it was noted that although no payments of annual leave or sick leave were given, and no superannuation deductions were made in respect of the bicycle couriers, the relationship between the parties is to be found not merely from these contractual terms. The system which was operated there under and the work practices imposed by Vabu go to establishing the 'totality of the relationship' between the parties and it is this which is to be considered. Application of the test to the facts provided The circumstances surrounding the formation of the contract may assist in determining the true character of the contract. However, the questionnaire responses to the question regarding the terms and circumstances of the formation of the contract merely indicate that both parties agree that it is an arrangement to the mutual benefit of both parties. In determining the intention of the workers, the Commissioner must decide what could reasonably be concluded from their actions. Typically, an individual will only register for an ABN if it is their intention to establish a business enterprise, but this of itself will not establish that this was the intention. Observing business related deductions and the declaration of Personal services income (PSI), among other things, may be viewed by the Commissioner as confirmation of an individual's intention. However, having a worker acknowledge that their status is one of independent contractor cannot alter the true substance of the relationship if the underlying reality is one of employment. All parties agree that there was no written agreement entered into. Therefore we are unable to draw any conclusions as to your relationship as principal and worker through an examination of a written agreement. In their responses to the questionnaire, the worker confirmed that you have established the working relationship by word of mouth and the decision whether to accept the job was decided on the basis of their work schedules and commitments in relation to other clients. Moreover, all parties agree that there was no capacity for you to dismiss/terminate the services of the workers and that any renegotiation of the pay and/or conditions was jointly agreed upon. On weighing up each of the factors in this test it has been determined that the relationship between yourself and the worker is one of principal and contractor. | Detailed Reasoning - Control Test: A prominent factor in determining the nature of the relationship between 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. 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 ( Zuijs ) 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. Additionally, Dixon J in Humberstone v. Northern Timber Mills (1949) 79 CLR 389 stated : 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. The right to control versus actual control is particularly relevant where the nature of the employment requires a considerable degree of experience, knowledge or skill. In these circumstances, it is to be expected that the employer will leave the performance of the activity up to the employee. In Hollis , where the decision was that bicycle couriers were considered to be employees, Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ observed that: Vabu's whole business consisted of the delivery of documents and parcels by means of couriers. Vabu retained control of the allocation and direction of the various deliveries…Their work was allocated by Vabu's fleet controller. They were to deliver goods in the manner in which Vabu directed. In this way, Vabu's business involved the marshalling and direction of the labour of the couriers, whose efforts comprised the very essence of the public manifestation of Vabu's business. In consideration of the type of work performed by the workers and the skills they possessed, the Commissioner believes that telling the workers what was required to be done is a basic minimum of information required for them to determine whether they could/would accept the job, and does not amount to an exercise of control over how they are to perform the work. Due to 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 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 an individual in the performance of their work resided in the employer so that they were subject to your orders and directions. A payer has a right to specify how the contracted services are to be performed, but such control must be expressed in the terms of the contract. However, the mere fact that a contract may specify in detail where 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. While it is traditionally more indicative of an employer/employee relationship, the issue of seeking permission or providing prior notice for taking time off, is not especially conclusive in determining the true nature of the relationship. In an ongoing relationship between an independent contractor and principal, it is reasonable to conclude that a worker would need to provide adequate notice to the payer to organise a replacement if the work needed to continue. Application of the test to the facts provided In the responses to the questionnaires, both parties are unanimous that training was not conducted and the worker has confirmed that they were not required to attend meetings and was not entitled to paid breaks. Both parties agreed that there were no set hours, and that they were not entitled to any benefits such as annual, sick or long service leave. However, they also stated that the payer for the specific job was able to direct where the work was performed (generally by providing the client's address), what was to be done. Neither party were required to provide notice before taking time off and only notified the other party of days they were unavailable as a courtesy. In the event of the worker being absent, either because of sickness or holidays, the payer was responsible for arranging for the work to be completed in their absence. The most important question to focus on is whether the principal/payer had the ultimate authority to control the workers, rather than who exercised control on a day-to-day basis. Based on the above factors, the Commissioner considers that the worker held the ultimate authority to control when and if, the scheduled tasks were completed. Consequently, the Commissioner has determined that you did not posses sufficient authority over the worker in the performance of their work. Therefore, upon weighing up each of the factors in this test it has been determined that the relationship between yourself and the worker is one of principal and contractor. | Detailed Reasoning - Integration Test - 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 an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it. The Full Bench of the High Court in Hollis 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. This factor was given significant prominence by the High Court as an aid to determining the common law contractual relationship between the parties to the dispute in the context of vicarious liability. In arriving at the conclusion that the bicycle courier was a common law employee of the courier company (which then became vicariously liable for the bicycle courier's negligence), Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ stated that, 'Viewed as a practical matter, the bicycle couriers were not running their own business or enterprise, nor did they have independence in the conduct of their operations.' 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 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… Application of the test to the facts provided The responses from the parties indicate that the worker was able to advertise their services to other customers independently of the principal/payer. The parties stated that the payer provided tops but that neither party was required to wear them. Moreover, both parties confirmed that they each conducted their own advertising and had their own advertising materials. While the work was always performed at the premises directed by the principal/payer, this was more down to the practicalities of the work itself, rather than any restriction that you imposed on the worker. Consequently, an evaluation of each of the factors in this test it has determined that the relationship between yourself and the worker is one of principal and contractor. | Detailed Reasoning - 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. The production of a given result is considered to be a mark of independent contractor status ( World Book (Australia) Pty Ltd v. FC of T (1992) ATC 4327). '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 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. Accordingly, the contractual relationship as a whole must still be considered to determine the true character of the relationship between the parties and what the worker was hired to do. Generally where a worker is paid a set amount per task, this is a clear indicator of a contract for result, typical of a principal and independent contractor relationship. However, it should be also noted at this point that payment for result it is not necessarily inconsistent with a contract of service . Conversely, giving the nature of the industry a payment per completed file may be a convenient or natural way to measure and remunerate work performed by agents/workers (a piece rate basis). This is similar in nature to Hollis where bicycle couriers sole purpose is to perform deliveries. These types of arrangements are more common when engaging employees to perform work on a casual, non-full-time, basis. Additionally, a contract to achieve a specified result would generally be formulated on an individual basis. Application of the test to the facts provided In the responses to the questionnaire, both parties stated that they submitted quotes, invoices or any other type of documents to the payer and provided copies of the invoices. The invoices indicate that the worker would charge the payer an hourly rate and GST. The evidence you have provided, when combined with the questionnaire responses by the worker indicated that payment at an hourly rate rather than for achieving a result. Payment was by cheque paid directly to the workers, and the rate of pay was set by both parties. No payments or reimbursements were made to workers for anything other than the work they completed. You have not deducted any amounts for income tax, superannuation, or workers' compensation, though both parties made provisions regarding public liability insurance. Consequently, an evaluation of each of the factors in this test it has determined that the relationship between yourself and the worker is one of principal and contractor. | Detailed Reasoning - Delegation Test - whether the work can be delegated or subcontracted: The unlimited power to delegate or subcontract work is an important factor in deciding whether the worker is an employee or independent contractor. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the Principal), this is a strong indication that the person is being engaged as an independent contractor. Delegation is generally implied in a contract for services where the emphasis is on result rather than person. However, delegation clauses are considered in the context of the contract as a whole to determine if they are consistent with the apparent essence of the contract or if they are merely self-serving statements. Delegation is not simply the delegation of tasks from one employee to another or the ability to swap shifts or request a fellow employee to perform some duties; it is the ability to freely subcontract or employ others to perform the work. Generally the right to delegate is assumed to exist unless it is expressly forbidden in a contract. In this case the information provided by you and the absence of any evidence fail to conclusively determine whether or not delegation did actually exist Application of the test to the facts provided The responses to the questionnaire indicate that no specific instructions were given to the workers that required them to complete the work personally. Moreover, the responses also indicate that if the worker was unavailable, due to sickness or holidays, they could arrange for another party to complete the job. This is evidenced by the fact that on occasion the worker's apprentice was involved in completing the task. The Commissioner considers that the workers did have the right to delegate work to others, given that they arranged for others to complete the work in their absence. Therefore, the Commissioner considers that, with respect to the delegation test, the relationship between yourself and the workers is one of principal and contractor. | Detailed Reasoning - 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 services, or a contract with an independent contractor. 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. Application of the test to the facts provided Both parties advised that they were responsible for paying workers' compensation insurance, and public liability insurance, however the worker were responsible for any private accident insurance. In their responses to the questionnaire, the parties differed in relation to whether they were responsible for correcting mistakes in their own time; however they did confirm that they would fix the mistakes and bore the expense of materials used to do this. As such, the worker appear to bear the risk to their reputation, as well as the commercial risk as they have an obligation to clients to ensure that the work was completed to a high standard and within a set timeframe and were ultimately responsible for the rectification of any mistakes or breakages, which in turn would affect their profit margin. On balance, with respect to the risk test, the Commissioner is satisfied that the facts and evidence suggest that the relationship between yourself and the worker was one of principal and contractor. | Detailed Reasoning - 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 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. Independent contractors carrying on their own business 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. Application of the test to the facts provided In their responses to the questionnaire, the parties advised that they would supply all of their own equipment, tools and materials and no reimbursements were made to the workers for the expenses incurred in acquiring their equipment. The parties also advised that they supplied any protective gear they may have required to complete particular jobs in accordance with the industry standards. On balance, the Commissioner is satisfied that the facts and evidence suggest that the relationship between yourself and the worker was one of principal and contractor. | Detailed Reasoning - Conclusion - Common Law: With respect to work completed by the workers for you, the Commissioner is satisfied that the facts and evidence are indicative that the worker is not a common law employees. As the facts and evidence indicate that the workers were not employees under common law, we are required to consider the extended definition in subsection 12(3) of the SGAA. | Detailed Reasoning - Extended definition of employee under subsection 12(3) of the SGAA: Subsection 12(3) of the SGAA provides that 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 of the contract. Subsection 12(3) was intended to extend the scope of the SGAA beyond traditional employment relationships to take into account some independent contractors who principally provide their own labour to meet obligations under a contract. SGR 2005/1 provides further guidance on this issue and at paragraph 11 states where the terms of the contract indicate that: o the individual is remunerated (either wholly or principally) for their personal labour and skills; and o the individual must perform the contractual work personally (there is no right of delegation); and o 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 before subsection 12(3) of the SGAA can be satisfied. | Detailed Reasoning - Were the workers remunerated wholly or principally for labour?: In assessing whether a person has been remunerated wholly or principally for labour and skills the ATO view is that, in the context of subsection 12(3) of the SGAA the word 'principally' assumes its commonly understood meaning that is, chiefly or mainly. Generally the value of various parts of a contract are specified in the contract (that is, the labour and non-labour components of the contract are clearly expressed). In this case, based on the evidence provided, the worker provided their skills and labour to provide painting services on behalf of your business. The evidence provided does not suggest that the worker had any significant expenditure with respect to equipment or materials and was remunerated principally for their labour and skills. | Detailed Reasoning - Were the workers required to perform the work personally?: The second requirement of subsection 12(3) of the SGAA is that it requires the individual to carry out the work 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 work to another person. Nevertheless, the Commissioner considers that, with respect to the delegation test, the facts and evidence are indicative of a contract relationship as the worker was not required to perform the work personally and was able to delegate to a third party if required. | Detailed Reasoning - Were the workers 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. An evaluation of each of the factors in this test indicates that the workers were not paid to achieve a result. | Detailed Reasoning - Conclusion - extended definition of employee: As stated above, each of the three conditions in paragraph 11 of SGR 2005/1 must be met before subsection 12(3) of the SGAA can be satisfied. In this case all three conditions have not been satisfied therefore it is considered that the workers do not meet the extended definition of employee as set out in subsection 12(3) of the SGAA. | Detailed Reasoning - Conclusion - overall: After considering all available facts and evidence relating to the working relationship between you and the worker, the Commissioner concludes the worker does not meet either the common law definition of employee for the purposes of the SGAA or the extended definition. Therefore you do not have any superannuation obligations in relation to this arrangement.

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