Private ruling: Status of the worker
Date of advice: 6 December 2021
Published: March 2022

Ruling: Q1: Are the workers considered your common law employees under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) for the period 1 July 2013 to 30 June 2023? | A1: No. Refer to 'why we have made this decision' | Q2: Are the workers considered your common law employees under subsection 12(3) of the SGAA for the period 1 July 2013 to 30 June 2023? | A2: No. Refer to 'why we have made this decision' | Q3: Are the workers considered your common law employees under subsection 12(8) of the SGAA for the period 1 July 2013 to 30 June 2023? | A3: No. Refer to 'why we have made this decision' This advice is for the following period: 1 July 2013 to 30 June 2023 This arrangement commenced on: 1 July 2013.

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 . The Trust operates a school which has students that request the opportunity to participate in a teaching program with a Consultant. The Trust advises the Consultants that there are a number of students available for these lessons and allow the Consultants to determine whether they are able to accommodate those students in that particular year. While there is a contract in place between the Trust and the Consultants, the necessity to communicate with the Trust in relation to sick leave, annual leave, or any other inability to attend on a particular occasion are addressed between the Trust and the Consultants as a matter or courtesy. In each instance, students are either taken out of a particular class to attend a Consultants' tuition, or a specific time is allocated for the students to meet with a Consultant. The Trust is under an obligation to ensure that the student is adequately supervised and therefore any arrangements about a Consultants' availability needs to be communicated with the Trust so the Trust can always ensure that the student's position is protected. Consultants with different types of musical instruments bring their own equipment as necessary and most of the Consultants provide their own musical teaching resources. The Trust provides facilities to accommodate Consultants where needed. An example of this is where Consultants who teach piano are not able to physically bring a piano to each session which requires it; therefore, the Trust provides that Consultant with the provision of a suitable studio with piano facilities available. The Consultants are paid on an hourly rate and paid in terms of the students they teach. In the event that Consultants wish to take time off or are unable to attend on a particular occasion, the usual procedure is for that Consultant to communicate with the Trust to advise Where a Consultant is unable to find a replacement, the tuition classes are more often cancelled as it does not have sufficient replacement teachers on its own staff to assist the Consultant in these particular instances. Any requirements by way of dress code are only necessary for Work, Health and Safety issues that apply to all attendees at the Trust. We formed our view on the facts by relying on this information The application for administratively binding advice, including evidence of the agreements that the Consultant and Trust enters into.

Relevant legislative provisions: Superannuation Guarantee Administration Act 1992 subsection 12(1) | Superannuation Guarantee Administration Act 1992 subsection 12(3) | Superannuation Guarantee Administration Act 1992 subsection 12(8) Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee | ATO View Documents | This ruling applies for the following periods 1 July 2013 to 30 June 2023.

Reasons for decision: Summary: The facts and evidence suggest that the workers are not your employees for the purposes of the SGAA under either the common law test or the extended definition as set out in subsection 12(3) and 12(8) 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: Are the workers your common law employees under subsection 12(1) of the SGAA for the period 1 July 2013 to 30 June 2023? | 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: The Consultants have the opportunity to advise the Trust of their requirements for that year, i.e. how many days they are available; what days in particular, what hours they are able to allocate per week. The Consultants exerted control by virtue of their ability to advise the days and times they were available to work. The Trust arranges lessons accordingly. The Consultants are not subject to direction or control with respect to their tuition plans or the methods in which they chose to complete the tuition. The Trust also exerts limited control by virtue of the fact that lessons are performed at their premises within a bandwidth of hours set by them. The Trust set the rate charged per lesson in that they used an industry association approved schedule of fees. The Trust also has control over the number of lessons and students allocated to each Consultant. In addition, the fact that the Trust exerted little control over the Consultants with respect to lesson plans and teaching methods could be seen as a reflection of the specialist nature of the work performed, rather than a reflection of the relationship between the parties. The Trust contends that there is a contract in place between the Trust and the Consultants. The necessity for the Consultants to communicate with the Trust in relation to sick leave, annual leave, or any other inability to attend on a particular occasion are addressed as a matter or courtesy. Accordingly, the Commissioner considers that with respect to the control test, the facts indicate that a principal/contractor relationship existed. The Trust contends that most Consultants are able to carry out music lessons to clients outside of the school environment and school hours where requested by the parents of the students. The Trust also contends that the Consultants are able to teach at other schools. Accordingly, with respect to the organisation test, the Commissioner considers that the Contractors' right to carry on their own business did exist, and therefore the facts support the existence of a principal/contractor relationship. Based on information supplied by the Trust, the Consultants had the right to subcontract or delegate work to others. In practice, the Consultants would not arrange a replacement unless they would be absent for a considerable length of time, and it is the Trust which takes responsibility for paying the replacement, however the contract is quite clear that the workers could delegate to an appropriately qualified teacher. The Trust contends that some Consultants are able to provide an alternative replacement that is available subject to being appropriately qualified. Where a Consultant is unable to find a replacement, the tuition classes are more often cancelled as it does not have sufficient replacement teachers on its own staff to assist the workers in these particular instances. Generally, a true right to delegate would require the individual contractor to source and pay the replacement worker, as well as take responsibility for any defective work completed by the replacement worker. Accordingly, with respect to the delegation test, the Commissioner considers that a right to delegate did exist, and therefore the facts support the existence of a principal/contractor relationship. The consultants must hold their own personal liability cover. The contract between the Consultant and the Trust states that the Consultant must provide the Trust with a current public liability insurance certificate prior to commencing services at the Trust. Generally, a public liability insurance certificate is designed to mitigate costs and claims against the holder of the certificate originating from damage caused to a third party or property during the course of business activities. Accordingly, the Commissioner considers that with respect to the risk test, the facts indicate that a principal/contractor relationship existed. | Detailed Reasoning - Our conclusion regarding the common law definition of employee: With respect to the relationship between you and the Consultants, the facts and evidence provided points to the conclusion that the Consultants are not common law employees of the Trust. | Detailed Reasoning - Question 2: Are the workers your employees 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 individual is remunerated (either wholly or principally) for their personal labour and skills; • the individual must perform the contractual work personally (there is no right to delegate); and • the individual is not paid to achieve a result. The contract is considered to be wholly and principally for the labour of the individual engaged, and he or she will be an employee under subsection 12(3) of the SGAA. | Detailed Reasoning - Wholly or principally for labour: 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 is 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 does have the right to delegate work to others. | Detailed Reasoning - Paid to achieve a result: As discussed earlier, we consider that the facts and evidence indicate that the worker is paid for a result. | Detailed Reasoning - Our conclusion regarding the extended definition of employee: Accordingly, the facts and evidence indicate that the workers do not meet the extended definition of employee as set out under subsection 12(3) of the SGAA. | Detailed Reasoning - Question 3: Are the workers your employees under subsection 12(8) of the SGAA | Detailed Reasoning - Definition of Employee under Subsection 12 (8) of the SGAA: Subsection 11(1) of the SGAA provides an inclusive definition of the term 'salary or wages'. Under paragraph 11(1)(d) payments to a person for work referred to in subsection 12(8) are specifically included in salary or wages. Paragraph 12(8)(a) of the SGAA includes as employees a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment. What is significant in the language of these provisions is the use of terms such as 'work' , '...to perform services in' , and '...in the making of... ' This is consistent with the common law interpretation of salary or wages which is normally uses terms such as services, labour, or work performed for an employer for reward. Therefore, for a payment made to an artist to be considered salary or wages, it must be for the work performed, services provided or labour provided ' in the performance or presentation ' of the music, otherwise the payment would not satisfy either the common law definition or the definition of salary or wages in the SGAA. From the evidence provided, the Consultants are not directly involved in the performance or presentation of the music; rather they were engaged for the purpose of completing lessons which contributed to the fulfilment of the Trust's obligations to its clients; particularly as the Trust has students that request the opportunity to participate in a teaching program with a Consultant. It is considered that the Consultants are not directly involved in the performance or presentation of the music; rather their primary purpose is the teaching students the performing arts; therefore, it is considered that subsection 12(8) of the SGAA is not applicable in this instance. | Detailed Reasoning - Conclusion - overall: Having considered the nature of the working relationship between principal and worker and the relevant case law, and putting in balance the relevant indicators it has been determined that a common law employment relationship does not exist between the principal and the Consultants. As the Consultants are able to delegate their services they are not considered to be employees under the extended definition of an employee in subsection 12(3) of the SGAA. Finally, it is considered that the Consultants are not directly involved in the performance or presentation of the music; rather their primary purpose is the teaching students the performing arts; consequently subsection 12(8) of the SGAA is not applicable in this instance.