Private ruling: Superannuation Guarantee - employee versus contractor
Published: August 2011
Ruling period: Income year ended 30 June 2012 | Income year ended 30 June 2013 | Income year ended 30 June 2014 | Income year ended 30 June 2015 | Income year ended 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Is a person engaged under the standard 'Contractor Agreement' (the Agreement) considered to be an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)? Advice No. Persons engaged under the Agreement are not considered to be employees for the purposes of the SGAA under either the ordinary meaning of 'employee' under subsection 12(1) of the SGAA or the extended definition of 'employee' provided in subsection 12(3) of the SGAA.

Relevant facts and circumstances: This 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 Tax Office advice . Your advice is based on the following facts. We received a letter from you requesting administratively binding advice in relation to Superannuation Guarantee obligations for contractors engaged by franchisees of your company. Statements made by you Franchisees of the Taxpayer engage independent contractors to provide services to their customers. Franchisees of the Taxpayer (the Principal/s) use a pro-forma contractor agreement (the Agreement) to engage contractors wishing to provide services as natural persons (the Contractor/s). The Contractors are only engaged by the Principal to provide specific services. The Contractors widely advertise their services and are not required to provide services to the Principal exclusively, or even primarily. The Contractors have the ability to carry out work for others during the time they work for the Principal. If the Contractor is not available, it could be because they are providing services to someone else. Once a job is completed, the Principal is under no obligation to provide further work to the Contractor and the Contractor will generally work for other clients and businesses until they contract to work with the Principal again. There is no promise of ongoing work. If the Contractor chooses to refuse a job, the Principal does not have authority to require the Contractor to complete the job. If the Contractor is unable to do the agreed work, the Principal arranges for another contractor to do the work and in such circumstances the Contractor will not receive any payment. The Principal does not withhold tax on payments for the job the Contractor has performed where an ABN is provided. It is not a requirement for contractors to maintain a dress standard, use uniforms or display signage. The Contractors perform work on the sites of the Principal's clients. Work is never performed on the premises of the Principal or the Taxpayer. The Contractors are not paid under an award or workplace agreement. The Principal does not reimburse the Contractor for any expenses incurred in relation to the assigned work. A copy of the Agreement was provided. Your contentions The Taxpayer and the Contractors have concluded that the Contractors are independent contractors, evidenced by: · the substance of the contracting arrangements · all contractors having an Australian business number (ABN) · all contractors are regarded as being in business for taxation and other purposes. The Contractors do not consider themselves to be working within the Taxpayer's business. You also provided contentions relating to why you consider the arrangement to be that of a principal and contractor relationship rather than an employer and employee relationship. We have not listed these contentions as the Commissioner agrees with them.

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

Reasons for decision: Summary: A person engaged by the Principal under the Agreement is not considered to be an employee for the purposes the SGAA. The Contractor is not an employee of the Principal under the ordinary meaning of 'employee' under subsection 12(1) of the SGAA and does not meet the extended definition of 'employee' provided in subsection 12(3) of the SGAA. The Contractor is not, therefore, an employee of the Principal for the purposes of the SGAA. | Detailed Reasoning - General: The SGAA contains provisions designed to encourage employers to provide employees with a minimum level of superannuation support. If an employer fails to provide the minimum level of superannuation support for an employee, as stipulated in the SGAA, the employer may have a superannuation guarantee shortfall. Under section 12 of the SGAA, the term 'employee' is defined, for the purposes of the SGAA, as having its ordinary meaning (that is, its meaning under common law) and an extended meaning as provided in that section. Where a worker's engagement is not such that the worker meets the common law meaning of an employee, it is necessary to consider whether that person meets the extended definition of 'employee' provided in the SGAA. As stated in paragraph 24 of Superannuation Guarantee Ruling SGR 2005/1 (SGR 2005/1), the relationship between an employer and an 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/principal relationship that, at law, is referred to as a contract for services . An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result). Generally, if the person is considered to be an independent contractor, then there is no common law employment relationship. However, subsection 12(3) of the SGAA extends the common law meaning of employee for the purposes of that statute, to include a person engaged under a contract that is wholly or principally for the person's labour. This means that a contractor can be an employee under the SGAA. Accordingly it is necessary to determine the true nature of the relationship between the Principal and the Contractors, as to whether there is a common law employer/employee relationship, or whether the Contractors meet the extended definition of employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Factors we consider when deciding whether workers are employees or contractors for the purposes of the SGAA: In coming to our decision we have taken into consideration the concepts explained, and the Commissioner's view as expressed, in SGR 2005/1. This ruling explains when an individual is considered to be an 'employee' under section 12 of the SGAA, and lists key indicators of whether an individual is an employee or an independent contractor. | Detailed Reasoning - How courts define a 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 that 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 take a balanced approach, after considering all of 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 ..., and ... the question is one of degree for which there is no exclusive measure... Therefore 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 their own behalf (as an independent contractor). Importantly though, a clause in a contract that purports to characterise the relationship between the parties as that of principal and independent contractor and not that of employer and employee must be considered with all the other terms of the contract. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole. That is, the parties cannot deem the relationship between themselves to be something that is not. Though the terms of the contract need to be examined the subsequent conduct of the parties may demonstrate that the relationship has a character contrary to the terms of the contract. | Detailed Reasoning - Terms of engagement: The terms and conditions of a contract will always be of considerable importance to the proper characterisation of 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. Some conditions of engagement are closely associated with employment and may, therefore, be persuasive indicators. For example: · provision of benefits such as annual, sick, and long service leave; · provision of other benefits prescribed under an award for employees; · payer prescribed times and location for the performance of work; · remuneration in the form of a salary or wage; · the worker uses assets and materials provided by the payer or is reimbursed, or paid a compensatory allowance, for expenses incurred in respect of use of own assets and materials; and · payer discretion (within the constraints of industrial relations laws) in respect of task allocation and termination of engagement. However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor. | Detailed Reasoning - Application to your circumstances: The Agreement indicates that it is the intention of the parties to the Agreement that the relationship be a principal and independent contractor relationship, rather than a joint venture, a partnership or an employment relationship. However, as stated above, it is necessary to consider all of the terms of a contract, and (where possible) any action taken, in order to determine what type of relationship exists between the parties. It is not possible to alter the character of a relationship simply by labelling it as, or deeming it to be, a principal and independent contractor relationship in a contract if other terms of the contract indicate that an employer and employee relationship exists. We must, therefore, refer to other clauses in the Agreement when considering what type of relationship is indicated by the terms of engagement. Under the Agreement, Contractors are not entitled to annual leave, personal/carer's leave, leave loading, long service leave, notice or payment in lieu of notice, or severance pay. Such terms are consistent with both casual employment and a principal and independent contractor relationship. Under the Agreement, Contractors are also not entitled to wages, salary, superannuation, or workers compensation benefits. These terms are consistent with a principal and independent contractor relationship. In your letter you advised that the Contractors are not paid under an award or workplace agreement. This also is consistent with a principal and independent contractor relationship. Under the Agreement, the Principal and the Contractor agree on a price for each individual work request made by the Principal. Under the Agreement, the Contractor must issue the Principal with an invoice after the completion of each Engagement. Under the Agreement, payment by the Principal is subject to the provision of the Services to the satisfaction of the Principal. This type of remuneration arrangement is consistent with a principal and independent contractor relationship. Under the Agreement the Contractor must have an ABN and must maintain their registration for GST purposes (if needed). Employees are generally not required to have an ABN or register for GST purposes under employment contracts. The terms of engagement in the Agreement that relate to having an ABN and GST registration therefore indicate that the relationship formed is that of a principal and independent contractor. Under the Agreement, the Contractor must maintain public liability and indemnity insurance. The Agreement requires the Contractor to provide his or her own materials, plant and equipment necessary to provide the Services. The Principal only provides the relevant product needed to provide the Services. In some instances employees may be required to provide their own materials, plant and equipment, but employees are generally entitled to a reimbursement or allowance from their employer to cover the costs incurred. Employees are generally not required to provide their own public liability insurance. There is no clause in the Agreement that entitles the Contractor to any reimbursement of expenses. These facts indicate that the relationship is that of a principal and independent contractor. The Agreement requires the Contractor to be available to provide the Services until the Agreement is terminated. The Agreement states: Each separate work request made by the Principal and accepted by the contractor will form a separate engagement (Engagement)… The use of the phrase 'accepted by the Contractor' in relation to each separate work request indicates that the Contractor has the choice of whether or not to accept each separate work request. Where an employee is engaged as a casual employee, that employee would generally be expected to be available to work, but may be able to choose whether or not they accept a shift offered by their employer. An individual engaged as a casual employee generally would not have the ability to pick and choose what jobs / work activities they undertake. As the Agreement allows the Contractor to accept (and therefore reject) each separate work order, it is considered that this term is more indicative of a principal and independent contractor relationship than an employer and employee relationship. Employee and employer relationships are generally long term relationships, but it is also possible for a principal and independent contractor relationship to span over a longer period of time. The fact that the Agreement requires the Contractor to be available to provide the Services until the Agreement is terminated indicates that a long term relationship is possible. It is not possible, however, to ascertain the longevity of the relationship established under the Agreement from the clauses in the Agreement. One matter that may be of relevance to the longevity of the Agreement is if there is any expectation of regular work arising from the Agreement. Employment contracts generally specify a minimum and/or a maximum number of hours that an individual is required to work in a period. The Agreement does not contain any clauses that specify a minimum or maximum number of hours that the Contractor can expect to work in a period, nor are there any clauses that guarantee the Contractor work. As the longevity of the relationship could be variable under the Agreement and there is no guarantee of work under the Agreement, it is considered that the terms of the Agreement are more indicative of a principal and independent contractor relationship. The majority of the terms of engagement mentioned above indicate that the relationship between the parties to the Agreement is that of a principal and independent contractor. | Detailed Reasoning - Control: The classic test for determining whether the relationship of employer and employee existed was the exercise of control over the manner work was performed in. With increasing usage of skilled labour and consequential reduction in supervisory functions, the focus of the control test has changed from the actual exercise of control to the right of control. Moreover, while control is important, it is not the sole indicator of whether or not a relationship is one of employment. In Humberstone v Northern Timber Mills (1949) 79 CLR 389, Dixon J stated that: 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 the 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. | Detailed Reasoning - Application to your circumstances: As discussed earlier, the Contractor can, under the Agreement, choose whether or not to accept each separate work request from the Principal. So, while the Principal has the ability to choose what work is offered to the Contractor, the Contractor can control what work he or she actually accepts. The ability to accept or reject work requests under the Agreement is considered to be more indicative of a principal and independent contractor relationship than an employer and employee relationship. No specific clause in the Agreement requires the Contractor to work regular hours. The Agreement requires the Contractor to provide the Services in a timeframe 'reasonably determined by the Principal'. The Agreement requires the Contractor to provide the Services in a: …timely and professional manner…to the reasonable satisfaction of the Principal… The Agreement does not provide any further elaboration on what would be considered a 'timely manner' or to the 'reasonable satisfaction' of the Principal. All that can be concluded from this is that the Principal would have a degree of control over the timeframe in which the Services are provided. This is more indicative of the sort of arrangement that would exist between the parties in a principal and independent contractor relationship. The Agreement allows the Contractor to complete his or her work without direct supervision and in a manner of his or her own choosing (but subject to legislative requirements, relevant standards, the Principal's policies and procedures, and all applicable requirements arising from the Franchise Agreement). The work must be done in a timely and professional manner and with all due care, skill and diligence to the 'reasonable satisfaction of the Principal'. The Agreement effectively removes the right of the Principal to exercise control over how the work is performed. The principal can only review the quality of the final result of the work and can have some input on how quickly the job is done. Removal of the Principal's right to control how the work is performed is a strong indicator that the relationship between the parties to the Agreement is one of a principal and independent contractor relationship. In your letter you advised that the Contractor performs work on the sites of the Principal's clients and that work is never performed on the premises of the Principal or the Taxpayer. The Commissioner acknowledges that, due to the nature of the work undertaken, it is necessary for the Contractors to perform the work on the premises of the Principal's clients. Consideration of control in terms of where the work is performed is, therefore, irrelevant. It would, however, make it more difficult for direct supervision of the Contractor to occur. After considering all of the available facts and evidence relating to the control test, the Commissioner considers the relationship more likely to be one of a principal and independent contractor. | Detailed Reasoning - Integration: The integration test is primarily concerned with establishing whether the individual providing the service does so as an individual carrying on a business of their own or as an integral part of another's business organisation. In Montreal v. Montreal Locomotive Works 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. 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), in Hollis v. Vabu (2001) 207 CLR 21, 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 or not a person is carrying on their own business. The provision of professional skill or skilled labour may imply that the contractor is able to make an independent career and conduct their own business by selling that skill. Activities or requirements of the worker that may indicate their integration into the business include: · wearing a company uniform · the provision of protective equipment by the principal for the worker · an ongoing relationship between the principal and worker, and · the worker is effectively restricted to providing services for the one principal. | Detailed Reasoning - Application to your circumstances: In your letter you advised that it is not a requirement for contractors to maintain a dress standard, use uniforms or display signage. The contractor could, therefore, wear uniforms displaying their business name and have signage, for example signage on their vehicle that advertises their own business. This would generally not be acceptable in an employee and employer relationship. This, therefore, is more consistent with a principal and independent contractor relationship. The Agreement, the Contractor must maintain public liability and indemnity insurance. Clause 4 of the Agreement requires the Contractor to provide his or her own materials, plant and equipment necessary to provide the Services. The Principal only provides the relevant product needed to provide the Services. In some employee/employer relationships, there may be a requirement for employees to provide their own materials, plant and equipment, but they are generally entitled to a reimbursement or allowance from their employer to cover the costs incurred. Employees are generally not required to provide their own public liability insurance. There is no clause in the Agreement that entitles the Contractor to any reimbursement of expenses. The Contractor is also responsible for ensuring that he or she has obtained all licences, permissions and authorisations necessary to provide the Services. These facts are indicative of the Contractor carrying on his or her own business and point towards the relationship between the parties being that of a principal and independent contractor. In your letter you advised that the Contractor performs work on the sites of the Principal's clients and that work is never performed on the premises of the Principal or the Taxpayer. As stated earlier, the Commissioner acknowledges that, due to the nature of the work undertaken, it is necessary for the Contractors to perform the work on the premises of the Principal's clients. It is considered that the location where the work is performed would be the same regardless of whether it was being completed by an employee or an independent contractor. In this instance this matter does not, therefore, assist in determining the type of relationship that exists between the parties to the Agreement. In your letter you also advised that the Contractors widely advertise their services and are not required to provide services to the Principal exclusively, or even primarily. The Agreement supports this assertion - it states: During the term of this Agreement, the Contractor may provide services to any other entity which do not conflict with the provision of the Services to the Principal, including any relevant requirements arising from the Franchise Agreement. You also advised that, once a job is completed, the Principal is under no obligation to provide further work to the Contractor and the Contractor will generally work for other clients and businesses until they contract to work with the Principal again. This suggests that the skills that the Contractor has and the services that the Contractor is able to provide are such that the Contractor could have an independent career by selling those skills and services to businesses other than the Principal. It is therefore considered that the Contractor is able to conduct their own business using those skills. These factors are indicative of a principal and independent contractor relationship. The requirement that the Contractor hold an ABN and, where necessary, register for GST also indicates that the Contractor is expected to be providing the Services as an independent contractor rather than as an employee. The majority of the factors mentioned above indicate that the Contractor is not integrated within the Principal's business. This indicates that the relationship between the parties is that of a principal and independent contractor. | Detailed Reasoning - Results: 'Results' contracts describe traditional principal and independent contractor arrangements where a specific identifiable task is performed, for example the sale of encyclopaedias. 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. However, payment for a result is also consistent with employees who are paid on a commission only basis. Under a contract of service, payment is not necessarily dependent on, or referable to, the completion of the specified services. While the notion of 'payment for result' is expected to be a contract for services, it is not necessarily inconsistent with a contract of service. For example, payment for a result is consistent with employees who are paid on a commission only basis. The High Court in Hollis v. Vabu (2001) 207 CLR 21 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 was to perform deliveries. Accordingly, the true 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. | Detailed Reasoning - Application to your circumstances: Under the Agreement the Contractor is engaged to complete a specific work request and each individual work request accepted by the Contractor is considered a separate engagement. This indicates that the Contractor is engaged to achieve a particular result and is consistent with a principal and independent contractor relationship. Under the Agreement, the Principal and the Contractor agree on a price for each individual work request made by the Principal. Under the Agreement, the Contractor must issue the Principal with an invoice after the completion of each Engagement. Under the Agreement, payment by the Principal is subject to the provision of the Services to the satisfaction of the Principal. This remuneration arrangement indicates that the Contractor is paid to achieve a result and is consistent with a principal and independent contractor relationship. It should be noted, however, that, as stated earlier, remuneration arrangements based on a particular result being achieved can also be indicative of an employment relationship. Under the Agreement, the Contractor may assign or subcontract his or her duties or obligations under the Agreement. This suggests that the Contractor is engaged to achieve a result rather than to provide his or her personal labour. This is consistent with a principal and independent contractor relationship. On balance, the factors mentioned above indicate that Contractor is engaged under a 'results' contract, indicating that the relationship between the parties is that of a principal and independent contractor. | Detailed Reasoning - Delegation: The power to delegate or subcontract work is an important factor in deciding whether a worker is an employee or independent contractor. If an individual has unlimited power to delegate 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 not simply the delegation of a task 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. | Detailed Reasoning - Application to your circumstances: The Agreement states: The Contractor may assign, or sub-contract his or her duties or obligations under, this Agreement in whole or part to any third party with the prior written consent of the Principal, which will not be unreasonably withheld. It is clear from the wording of this clause that the Agreement gives the Contractor the ability to subcontract or employ others to perform the Services. Whilst the Contractor cannot freely subcontract or employ others to perform the Services under the Agreement, the fact remains that: · the Principal's consent cannot be 'unreasonably withheld', and · the Contractor has the ability to do more than just swap shifts or request a fellow employee to perform some duties. The Commissioner considers that the powers of delegation given to the Contractor under the Agreement are more consistent with a principal and independent contractor relationship. | Detailed Reasoning - Risk: Under the risk test, the Commissioner considers three main types of risk: · the risk of liability for negligence and injury cased by a worker · the risk of liability for the cost of rectifying faulty work · the risk of commercial loss (or chance of commercial profit). 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 likely they are to be regarded as being an independent contractor. 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 that 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 who assumes the liability for the cost of rectifying faulty 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 - Application to your circumstances: The Agreement states: The Contractor must effect and maintain on and from the date he or she commences providing the Services, the following insurances in a form and with an insurer approved by the Principal and the Taxpayer (if necessary): (a) public liability insurance with a limit of indemnity of not less than [ten million dollars] (and with the interests of the Principal and the Taxpayer noted on the insurance policy); and (b) such other insurances as may reasonably be required by the Principal and/or the Taxpayer. The Agreement states: The Contractor indemnifies and will keep indemnified the Principal, the Taxpayer, and each of their officers, employees and agents against: (a) all damage, liability, claims and/or costs (including but not limited to GST and reasonable legal fees and costs of defence) (Loss) which is related to, or arises out of, or is in any way associated with, any poor workmanship, negligent, wilful or wrongful act or omission of the Contractor in providing the Services under the is Agreement. However, this indemnity does not apply to the extent that any Loss arises from any matters which are finally determined to have resulted from the Principal's or the Taxpayer's negligent, wilful or wrongful acts or omissions… | Detailed Reasoning - The Agreement states:: The requirement under clause X.1 for the Contractor to effect and maintain insurances does not in anyway limit the Contractor's liability under this clause X. The above clauses of the Agreement make it clear that the Contractor takes on the risk of liability for any negligence and injury that he or she may cause in addition to the liability for the cost of rectifying any faulty work. The level of the Contractor's liability is not limited to the level of insurance cover that he or she has. These facts indicate that the relationship between the parties is that of a principal and independent contractor. In addition to the risk of being liable for any Loss related to poor workmanship, the Agreement causes the Contractor to assume the risk of not being paid if his or her work is not done to a standard of quality that is to the satisfaction of the Principal. This is consistent with a principal and independent contractor arrangement. There are, however, no clauses in the Agreement that put the Contractor at the risk of a financial loss resulting from the client failing to pay the Principal. In other words, if the Contractor performs the work to the satisfaction of the Principal but the Principal's client fails to pay for the work, the Contractor would still be paid under the Agreement. That is, the Principal assumes the commercial risk in such a scenario. This is more indicative of an employer and employee relationship where an employer would bear the financial risk of a loss resulting from the failure of clients to pay for work completed. On balance, with respect to the risk test, the Commissioner is satisfied that the facts support the notion that the relationship between the parties is one of a principal and independent contractor. | Detailed Reasoning - Conclusion on consideration of all common law factors: After considering all of the information provided, the Commissioner considers that the facts indicate the Contractor would not be a common law employee. Although the Commissioner has determined that the Contractor is not an employee under common law, it is necessary to consider whether the Contractor is an employee under the extended definition of 'employee' in subsection 12(3) of the SGAA. Extended definition of employee under subsection 12(3) of the SGAA The extended definition of employee under 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 to the contract. Paragraph 11 of SGR 2005/1 states: For the purposes of subsection 12(3), 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 of delegation); and · the individual is not paid to achieve a result, the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection. The Commissioner considers that each of these conditions must be met before subsection 12(3) of the SGAA can be satisfied. Is the worker remunerated (either wholly or principally) for his or her labour? In order to assess whether a person has been remunerated wholly or principally for their labour and skills it is necessary to understand the meaning of the words 'principally' and 'labour'. Paragraph 65 of SGR 2005/1 states: In the context of subsection 12(3), the word 'principally' assumes its commonly understood meaning, that is, 'chiefly' or 'mainly'. Paragraph 66 of SGR 2005/1 states: 'Labour' includes mental and artistic effort as well as physical toil. In this case, the Contractor is engaged to provide services that rely on their professional skill. As stated by you in your letter, the Contractor is not paid an hourly rate. Whilst the Contractor is required to provide tools, equipment, and materials (other than the product provided by the Principal) that are necessary to perform the work, the Commissioner considers that only a small portion of the Contractor's remuneration would relate to these costs. Payments made to the Contractor are therefore considered to be principally for the Contractor's labour and skills. Is the worker 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. As previously discussed, the Agreement gives the Contractor the ability to subcontract or employ others to perform the Services. The second requirement of subsection 12(3) of the SGAA is, therefore, not satisfied. Is the worker paid to achieve a result? The third and last requirement of subsection 12(3) of the SGAA is that the payments received by the worker must not be in relation to the achievement of a given result, but instead should be for their labour. As previously discussed, the Commissioner considers that the Contractor is paid for achieving a given result. The third requirement of subsection 12(3) of the SGAA is, therefore, not satisfied. | Detailed Reasoning - Conclusion - extended definition: As stated above, each of the three conditions mentioned in paragraph 11 of SGR 2005/1 must be met before subsection 12(3) of the SGAA can be satisfied. In this case only one of the three conditions can be satisfied. The Contractor does not, therefore, meet the extended definition of employee provided in subsection 12(3) of the SGAA. | Detailed Reasoning - Conclusion - overall: Based on all of the facts and evidence provided, the Commissioner has concluded that the Contractors are not, under common law or under the extended definition provided in subsection 12(3) of the SGAA, employees of the Principal. The Principal is not, therefore, required to provide superannuation support to the Contractors under the SGAA.

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