Superannuation Guarantee Ruling

SGR 2005/2

Superannuation guarantee: work arranged by intermediaries

• Please note that the PDF version is the authorised version of this ruling.
  This Ruling is being reviewed in light of the decisions of the High Court in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.

What this Ruling is about

1. This Ruling explains the Commissioner's view of how the definitions of 'employer' and 'employee' in the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) apply to contractual and working arrangements involving three (or more) parties. These tripartite employment arrangements take different forms and are often labelled in different ways. They involve various relationships (whether contractual or otherwise) between the entity requiring the services or work of an individual (end-user), an intermediary firm, and the individual performing the work or services.

2. Apart from providing a definition of employer and employee, the SGAA 1992 does not make any particular provision about employment and contractual arrangements effected through intermediary firms. This Ruling provides the Commissioner's view as to how to analyse these situations in light of the principles of contract law and the relevant court decisions on these arrangements.

3. This Ruling does not consider in detail the circumstances in which a person is an employee as defined in the SGAA 1992. This subject is comprehensively covered in Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? The current Ruling does however give a summary of the principles that are relevant to that question.

4. Unless otherwise stated, all legislative references in this Ruling are to the SGAA 1992.

Date of effect

5. This Ruling applies from 30 November 2005, the date of its issue.

Previous Rulings

6. The issues dealt with in this Ruling were previously addressed in Superannuation Guarantee Ruling SGR 93/2 which was withdrawn on 1 June 2005.

Background

7. A characteristic of the labour market in Australia is that firms (the end-users of labour) often acquire the services or labour of individuals through an intermediary rather than engaging them directly. Many of these intermediaries specialise in the supply of the services or labour of workers to client firms. Such intermediaries are commonly, although not always, referred to as 'service firms', 'labour hire firms' and 'employment or recruitment agencies'.

8. In contrast to the conventional working relationship between an entity and worker in which a single contract is formed, a number of contracts are often present in these tripartite working arrangements. Accordingly, it can sometimes be difficult to tell whether the worker is an employee of the intermediary or end-user, or neither, when they are engaged through an intermediary.

9. Under some of these arrangements, a contract exists between the intermediary and the end-user (under which the intermediary agrees to supply the services of the worker) and another contract between the intermediary and the worker (under which the worker agrees to perform work for the end-user). A contract does not exist between the worker and the end-user. In other arrangements, the role of the intermediary is to bring the end-user and the worker together so that the end-user and the worker may enter into a contract with each other. In this case, neither an employer/employee nor principal/independent contract exists between the intermediary and the worker.

Ruling

10. The following principles apply in determining whether there is an employment relationship for the purposes of subsections 12(1) and (3) of the SGAA 1992.

11. Whatever the circumstances of a particular tripartite working arrangement, it is first necessary to determine whether a contract for the performance of work exists and with whom it exists. Only after this is established can the precise nature of the relationship (whether employee or otherwise) be determined.

12. If there is no contract between the worker and end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user. Similarly, if there is no contract between the worker and the intermediary, the worker cannot be an employee of the intermediary.

13. The manner in which the relationship between the parties to a tripartite working arrangement is labelled or described is not conclusive in determining the nature of the relationship involving the parties to the arrangement. Expressions such as 'employment agency' and 'labour hire firm' that are often used to describe the use of various forms of labour market intermediary have no precise legal meaning.

14. In tripartite working arrangements, it is the ultimate or legal control over the worker that is most relevant; not the day-to-day direction and control.

15. A contract between the intermediary and worker can still be a common law contract of employment even though the work is done for the immediate benefit of the end-user.

16. In certain arrangements involving an intermediary firm, worker and end-user, the intermediary may perform an agency role to bring about a contractual relationship between the worker and end-user. If an agency relationship does exist between the intermediary and either the end-user or worker, and the intermediary merely brings about a contractual relationship between the end-user and worker, the worker is not an employee of the intermediary firm.

17. If a worker is not contracted personally to perform work or services but via an interposed entity such as a company or trust, neither the end-user nor the intermediary is the employer of the worker, because any contract they have is with the interposed entity and not with the worker. The worker may be the employee of the interposed entity.

Explanation

Legislative context

18. Under the SGAA 1992, an employer is required to provide a minimum level of superannuation contributions for the benefit of their employees to a complying superannuation fund. If an employer does not provide the minimum level of contributions in respect of each of their employees, the employer will be liable to pay the superannuation guarantee charge (the SGC). The superannuation contributions necessary to avoid the SGC can also be made by persons other than the employer. The SGAA 1992 permits contributions to be made on behalf of the employer.^[1]

19. The SGAA 1992 defines 'employer' and 'employee' in section 12. Subsection 12(1) defines the terms as having their ordinary meaning - that is, their meaning under common law. For the purposes of the SGAA 1992, subsections 12(2) to (11) expand^[2] the ordinary meaning of employer and employee and make particular provision 'to avoid doubt as to the status of certain persons'.

20. The classification of a person as an employee for the purposes of the SGAA 1992 is not solely dependent upon the existence of a common law employment relationship. The definition extends to certain persons who would not be common law employees.

21. The extending provision that is the most important in the context of this Ruling is subsection 12(3). Under subsection 12(3), 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. Subsection 12(3) was designed to include a person who may not be an employee in the normal sense but who is in fact not very distinguishable from an employee.^[3]

22. Where workers are employed through intermediaries, the employer (if any) for SGAA 1992 purposes must be established as it is the employer who is required to satisfy the requirements of the SGAA 1992 in respect of these workers.

Common law employee - general principles

23. The relationship between an employer and an employee is contractual.^[4] It is often referred to as a contract of service. Such a relationship is usually contrasted with the principal/independent contractor relationship that is a contract for services.

24. Whether a person is an employee of another is a question of fact. The courts have, over time, devised a number of indicators for identifying the nature of the relationship. Defining the contractual relationship is often a process of examining a number of indicators and evaluating those indicators within the context of the relationship between the parties. No one indicator of itself is determinative of the relationship. The totality of the relationship between the parties must be considered.

25. In Stevens v. Brodribb Sawmilling Company Pty Ltd,^[5] the High Court stated that the extent to which one party was subject to the direction and control of the other party in the manner in which they did their work under the contract was a significant factor in determining the parties' relationship. However, there are a number of other relevant indicators that need to be considered in determining whether a particular relationship is one of employment. Some of these indicators are:^[6]

•

whether the contract is one to achieve a result;

•

whether the work can be delegated or subcontracted;

•

who bears the commercial risk arising out of injury or defect in the carrying out of the work;

•

whether the worker provides and maintains significant tools or equipment; and

•

whether the principal has the right to suspend or dismiss the worker engaged.

26. In determining the nature of the contract, the terms of the contract between the parties, whether express or implied, in 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.

27. In Hollis v. Vabu,^[7] the High Court endorsed the proposition expressed in Marshall v. Whittaker's Building Supply Co^[8] 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'.^[9] The majority of the High Court were of the view that 'as a practical matter', the workers in question 'were not running their own business or enterprise' with 'independence in the conduct of their operations'.^[10]

Subsection 12(3)

28. Under subsection 12(3) of the SGAA 1992, a person who works under a contract that is wholly or principally for the person's labour is an employee of the other party to the contract. Subsection 12(3) must be considered where there is no common law employment relationship or where there is some doubt as to the common law status of the person.

29. It is clear from the decisions in Neale v. Atlas Products (Vic) Pty Ltd^[11] and World Book (Australia) Pty Ltd v. FCT^[12] that a person who has a right to delegate work (whether or not that right is exercised) does not work under a contract wholly or principally for his or her labour and that a contract for labour must be distinguished from 'a contract to produce a given result'.

30. Where an individual who has been engaged under a contract is not a common law employee or there is some doubt as to the status of the individual at common law, that individual will be an employee under subsection 12(3) if:

•

the individual is remunerated wholly or principally for their personal labour and skills;

•

the individual performs the contractual work personally (there is no right of delegation); and

•

the individual is not paid to achieve a result.

Superannuation Guarantee Ruling SGR 2005/1

31. The above discussion of the law as to who is an employee is a brief summary of the underlying principles to be considered. This Ruling should be read in the context of Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee?

The SGAA 1992 and arrangements involving intermediaries

32. In employment arrangements involving an intermediary firm, a worker and an end-user, more than one contract is often formed. In these arrangements, it is first necessary to determine whether a legal relationship exists for the performance of work and with whom it exists. Only after this has been established can consideration be given to the issue of whether the relationship is one of employment or of some other kind.^[13] The question of whether the worker is an employee of the intermediary or of the end-user depends on the particular circumstances as disclosed by the facts found.^[14] The totality of the relationship between the parties must be considered.

33. The manner in which the relationship between the parties is labelled or described is not conclusive of the nature of the relationship involving an intermediary, worker and end-user. Expressions such as 'employment agency' and 'labour hire firms' are often used to describe the use of various forms of labour market intermediary. These terms have no precise legal meaning. In these tripartite working arrangements, it is necessary to look beyond the form of the contractual relationships and the labels attached to the relationships by the parties to establish the true nature of the relationships of the parties involved.^[15]

Contract necessary for employment

34. The relationship between an employer and an employee is contractual. An employment relationship cannot exist in the absence of a contract.^[16] The indicators listed by the courts in determining whether a contract is one of employment can only be applied once it is determined that a contract exists. They cannot be applied to determine whether a contract exists in the first place. The issue of whether a contract exists is a separate and distinct matter from the categorisation of a contract as one of employment or otherwise.

35. Therefore, to establish whether a worker is an employee of the intermediary firm or end-user under the SGAA 1992, it is first necessary to determine whether:

•

a contract (whether written, oral or implied) exists between the worker and the intermediary;

•

a contract (whether written, oral or implied) exists between the worker and end-user; and

•

a contract exists between the intermediary and end-user.

36. Determining whether a contract exists is a matter of applying the ordinary principles of contract law. An agreement between parties will not be given effect by the courts as a legally enforceable contract unless a number of elements are present.^[17] In particular:

•

the parties must intend to be legally bound by their agreement;

•

there must be an offer by one party and its acceptance by the other; and

•

the promises which constitute the agreement must be supported by consideration (unless the agreement is in the form of a deed).^[18]

37. Another way to ask the question is:

•

whom could the end-user sue for breach of contract (as distinct from negligence) if the worker failed to appear or failed to work at an acceptable standard; and

•

equally, whom could the worker sue for breach of contract if they performed their work but their remuneration was not paid to them?

38. The contract may be written, it may be partly written and partly oral, it may be wholly oral or it may even be implied from the parties' actions.^[19]

39. If, after applying the principles of contract law, it is found that there is no contract between the worker and the end-user in a tripartite working arrangement, the worker cannot be an employee of the end-user for the purposes of the SGAA 1992. Similarly, if there is no contract between the worker and intermediary, the worker cannot be an employee of the intermediary under the SGAA 1992.

Case law

40. The courts and various State Industrial Relations Commissions which have considered the nature of tripartite working arrangements in an industrial relations, workers compensation and pay-roll tax context have confirmed in a number of cases the principle that an employment relationship cannot exist unless a contract exists between the worker and either the end-user or intermediary. These cases also illustrate the importance of applying the principles of contract law to determine whether a contract exists.

41. In the frequently quoted decision of the Full Federal Court in Building Workers' Industrial Union of Australia and Others v. Odco Pty Ltd^[20] (Odco), Wilcox, Burchett and Ryan JJ in their joint judgment held that an employment relationship did not exist between the end-user (builder) and worker provided by the intermediary (Odco) because a contract did not exist between the worker and end-user. The Court found that there was a contract between the worker and the intermediary (but that this contract was not a contract of employment).

42. The element of consideration which is essential to the formation of a contract was a key factor in the Court's reasoning that there was no contract between the end-user builder and the workers. The Court stated that:

The element of consideration which is essential to a contract of employment is the promise by the presumptive employer to pay for service as and when the service is rendered....In this case, on the evidence, there was no promise of payment of periodical sums by the builder to the worker, and no agreement between the builder and the workers as to what those sums should be. The builder's only obligation was against Troubleshooters. The worker's only entitlement was against Troubleshooters, and in accordance with a different measure.^[21]

43. After stating that the payment of wages by an intermediary does not preclude the existence of a contract of employment between a worker and end-user, the Court further observed that:^[22]

The essential enquiry...is whether the presumptive employer remains liable to pay the worker if, for any reason, the intermediary fails to do so. We can discern no term of any contract between the builder and worker in the present case which imposes any such liability on the builder in the event of Troubleshooters' failing to make appropriate payment to the worker.^[23]

44. The Full Federal Court also rejected the submission by counsel for the appellants in Odco that when a man sent by the intermediary reports to and is allocated work by the builder end-users, he contracts with the builder to perform that work:

In our view, the correct analysis is that the agreement to perform work is concluded earlier when the worker accedes to Troubleshooter's request to attend at a particular site on a given day. At that time, the worker assumes an obligation to attend the site and perform such work...as may be allocated to him. Correspondingly, Troubleshooters assumes an obligation to pay him for his time.^[24]

45. In Drake Personnel Ltd & Ors v. Commissioner of State Revenue^[25] (Drake), the Victorian Supreme Court of Appeal examined the question of whether the intermediary firm (Drake), or its client (the end-user) was the employer for payroll tax purposes, of the workers (temporaries) provided by Drake.

46. The Court held that the temporaries were common law employees of Drake. In holding that Drake was the relevant employer in the tripartite working arrangement, both Ormiston JA and Phillips JA in their respective judgments placed emphasis on the fact that there was no contract between the clients of Drake and the temporaries.

47. In the course of his reasoning, Phillips JA stated that the contract between Drake and the workers arose only as and when work was accepted by the worker.^[26] In doing so, he cited with approval the Full Federal Court's conclusion in Odco that the agreement to perform work in the facts of that case was concluded when the worker acceded to the intermediary's request to attend at a particular site on a given day.

48. In a matter concerning occupational health and safety, the Full Bench of the NSW Industrial Relations Commission in Swift Placements Pty Limited v. WorkCover Authority of New South Wales^[27] (Swift Placements), considered the nature of the relationship established between the intermediary firm (Swift Placements) and a worker supplied by Swift Placements to perform work for a client of the intermediary. The issue for determination was whether the worker was a common law employee of Swift Placements within the meaning of the Occupational Health and Safety Act 1983 at the time he sustained injuries at the premises of the end-user client. It was held that the worker was employed by Swift Placements under a common law contract of employment.

49. Before establishing the nature of the relationship between Swift Placements and the worker, the Full Bench first looked at the circumstances of the arrangement to determine whether a legal relationship existed, either between the worker and the end-user client or between the worker and Swift Placements. By doing so, the Full Bench followed the process referred to in cases such as Dalgety Farmers Ltd t/as Grazcos v. Bruce^[28] which is:

In determining whether a contract of service has been entered into, and if so with whom, it is necessary to look at the circumstances of the engagement and to ascertain who it was that offered employment, and whether the worker accepted the offer. To determine whether what then ensued was indeed employment...it is necessary to look at the whole of the relationship.^[29]

References