Independent contractors ’employees’ for SG purposes

The AAT has held that a trust carrying on a commercial and residential plumbing business (called ‘Hall Plumbing’) did not meet its superannuation guarantee (SG) obligations in respect of five of its plumbers that it had treated as independent contractors. Facts The taxpayer contended that the five plumbers were independent contractors and not employees, based on contractual documentation, as well as the fact that each of the ‘contractors’:

• provided their own vehicle, and their own tools and equipment (but where larger/ specialised work was required they would use the taxpayer’s vehicles and/or tools and equipment);
• had the right to delegate, but only with the consent of the taxpayer, and in any event, none of the ‘contractors’ actually delegated or subcontracted;
• set up their own businesses and did some work for others (although they worked almost exclusively for the taxpayer, and the scale of any business conducted by the ‘contractors’ for their own customers must necessarily have been very small, due to the hours they worked for the taxpayer);
• obtained tax benefits from having their own business;
• had their own insurance;
• refused some work;
• bore the costs of rectifying defective work;
• were paid an hourly rate in excess of that paid to the taxpayer’s employees who were subject to an award/enterprise bargaining agreement; and
• were not paid for sick, holiday or long service leave (although casual employees would also not be paid for leave, and would also be paid a higher rate than permanent employees).

Also, the taxpayer exercised “at best limited control” over the manner of the work done by the ‘contractors’, although the AAT stated this was “not surprising, given that each of the ‘contractors’ was a qualified and experienced plumber”. However, the AAT found the following factors went against the taxpayer’s contentions:

• plumbing supplies for work they carried out were purchased by the ‘contractors’ on credit cards provided by the taxpayer;
• generally, the ‘contractors’ did not refuse work allocated to them;
• they did not rectify any of their defective work at their own cost;
• the hourly rate charged by the ‘contractors’ for the work they did for customers was largely set by the taxpayer, and it was less than would ordinarily be charged by other plumbing contractors (although it was greater than a regular employee rate);
• a number of the ‘contractors’ worked largely 40 hour weeks, and the rest worked at least 25 hours per week, which is in keeping with employees, not independent contractors;
• although each of the ‘contractors’ had an ABN, they did not quote for jobs – they simply did the jobs at an hourly rate for their labour, and did not invoice on their own business letterheads;
• the ‘contractors’ wore clothing with the Hall Plumbing brand/logo on it – in doing so, they presented themselves as part of the taxpayer’s business; and
• in the case of time off, permission was sought from the taxpayer, at least by some of the ‘contractors’.

Reasons for Decision The AAT stated that, when establishing whether an employment relationship existed, “the totality of the relationship” must be considered, not just the degree of control exercised by the employer. In addition (quoting from the High Court case of Hollis v Vabu Pty Ltd [2001] HCA 44): “the distinction between an employee and an independent contractor is ‘rooted fundamentally’ in the fact that when personal services are provided to another business, an independent contractor provides those services whilst working in and for his or her own business, whereas an employee provides personal services whilst working in the employer’s business.” [Emphasis added] The AAT concluded that the workers did not present as independent contractors pursuing their own businesses independently from the taxpayer’s business, but were actually employees. Effectively, some ‘contractors’ were full time casuals, who were paid an hourly rate and accordingly were not eligible for holiday or sick leave. Note: It appears that the employer could not avoid this result even though the payments for at least some of the contractors were made to their family trusts. In addition, since the ‘contractors’ charged their clients at the rate of approximately $40 per hour (a rate largely set by the taxpayer), they were paid principally for their labour, despite the fact the hourly rate sometimes took into account the usage of their own motor vehicles, and some tools and equipment. Therefore, the ‘contractors’ would also come within the expanded definition of “employee” in S.12(3) of the Superannuation Guarantee (Administration) Act 1992 in any event.

Bottrell Group

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