Private ruling: Status of the worker
Date of advice: 9 February 2022
Published: 8 May 2023
Ruling period: 1 July 20XX to 30 June 20XX

Ruling: Q1: Was the worker considered your common law employee under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? | A1: No. Refer to 'why we have made this decision' | Q2: Was the worker your employee under subsection 12(3) of the SGAA by virtue of working under a contract that was wholly or principally for their labour? | A2: No. Refer to 'why we have made this decision'

Relevant facts and circumstances: You state there was a consulting arrangement in place and the worker was paid $XX per hour for providing bookkeeping services. No PAYG withholding was applied to the worker's payments and no Group Certificate was ever issued. No Separation certificate was issued by you to the worker when the arrangement ended. You state that the worker only declared income as business income and not salary and wages on the worker's Income Tax Return. The worker only issued invoices under their business name and not individual name. The worker provided bookkeeping services to you and a number of unrelated businesses. The worker had the option to delegate their services to others. The worker chose what hours would be allocated to perform bookkeeping tasks.

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

Reasons for decision: Summary: The facts and evidence suggest that the worker was not your employee for the purposes of the SGAA under either the common law test or the extended definition as set out in subsection 12(3) of the SGAA. You therefore did not have an obligation to pay superannuation contributions on behalf of the workers. | Detailed Reasoning - Detailed reasoning: The SGAA requires that an employer must provide the required minimum level of superannuation support for its employees (unless the employees are exempt employees) or pay the Superannuation Guarantee Charge (SGC). While the term 'employee' which is defined in section 12 of the SGAA, includes common law employees, it also extends to include workers who are engaged under a contract wholly or principally for their labour. This employment relationship is often referred to as a 'contract of service'. This relationship is distinguished in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? 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. If a worker is not an employee under subsections 12(1) or 12(3) of the SGAA, their status is described as an independent contractor and there is no SG obligation. The task of defining the characteristics of the contract of service - the employment relationship - has been the subject of much judicial consideration. As a result, some general tests have been developed by the courts to assist in the determination of the nature of the relationship. However, defining the contractual relationship between the employer and employee can be difficult and will depend on the facts of each case. Accordingly it is necessary to determine the true nature of the whole relationship between the principal and the workers, as to whether there was a common law employer and employee relationship, or whether the workers meet the extended definition of employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Question 1: Was the worker your common law employee under subsection 12(1) of the SGAA? | 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: 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. 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. | Detailed Reasoning - Control: 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. 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?: 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. 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. Consideration may also be given to whether the worker could be expected to generate goodwill in their own right, | Detailed Reasoning - Results' contracts: 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. | Detailed Reasoning - Whether the work can be delegated or subcontracted: 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. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker; rather the employee has merely substituted or shared the workload. However, a clause in the contract may permit the worker to delegate the task to another worker subject to approval of the principal, as the principal may not want an unknown worker to be working on their site or who may not be suitably qualified. 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: 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. 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. | Detailed Reasoning - Provision of tools and equipment and payment of business expenses: 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. 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: With respect to the common law tests mentioned above we have considered the relevant facts in the relationship between you and the worker. You and the worker entered an arrangement for service and not employment. Both parties acknowledge the worker maintained their own ABN. The worker was paid a set rate of $40.00 per hour for provision of bookkeeping services. You have stated that no PAYG withholding was applied to the payments made to the worker. Neither was a Group Certificate issued to the worker. In addition, no separation certificate was issued by you to the worker on termination of the arrangement. The worker issued invoices for work completed in the name of the worker's business. The worker set their working hours and determined how and when work would be completed. The worker was free to accept outside work. The worker had the ability to delegate as evidenced by you. | Detailed Reasoning - Our conclusion regarding the common law definition of employee: With respect to the relationship between you and the workers, the facts and evidence provided points to the conclusion that the worker was not common law employees. | Detailed Reasoning - Question 2: Was the worker your employee under subsection 12(3) of the SGAA? | Detailed Reasoning - Extended definition of employee for SGAA purposes: The extended 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. SGR 2005/1 explains when an individual is considered to be an 'employee' under section 12 of SGAA. Paragraph 78 of SGR 2005/1 states that where the terms of the contract, in light of the subsequent conduct of the parties, indicate that: The contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Wholly or principally for labour: In this context, the word "principally" assumes its commonly understood meaning, that is chiefly or mainly, and labour includes mental and artistic effort as well as physical toil. A contract may be partly for labour and partly for something else, such as the supply of goods, materials or hire of plant or machinery. Subsection 12(3) of the SGAA only applies if the contract is wholly or principally for labour. Based on the available facts and evidence, we consider that the worker was not paid primarily for their own labour and skills. | Detailed Reasoning - The individual must perform the duties themselves: As discussed earlier, we consider that the facts and evidence indicate that the worker did have the right to delegate work to others. | Detailed Reasoning - Not paid to achieve a result: As discussed earlier, we consider that the facts and evidence indicate that the worker was paid for a result. | Detailed Reasoning - Our conclusion regarding the extended definition of employee: Accordingly, as the worker does not satisfy all three components of the extended definition under subsection 12(3) of the SGAA, they do not meet the extended definition of employee as set out under 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 that the worker does not meet the definition of employees for the purposes of the SGAA under both the common law test and extended definition as set out in subsection 12(3) of the SGAA. Therefore, you do not have an obligation to provide superannuation support to workers in accordance with the SGAA for the period under review.

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.