The recent Administrative Appeals Tribunal of Australia (AAT) decision in the case of Associated Translators and Linguists Pty Limited and Commission of Taxation  AATA 260 has again highlighted the distinction between employees and independent contractors and the cost to business if the incorrect characterisation is made.
The Company had treated Mr Sani as an independent contractor. The Commissioner of Taxation initially ruled that Mr Sani was an employee of the Company’s for the purposes of the Superannuation Guarantee Act and thus the Company was forced to make superannuation contributions on Mr Sani’s behalf. The Company appealed this decision to the AAT.
The AAT found that the Commissioner’s characterisation of Mr Sani was correct in declaring him to be an employee as opposed to an independent contractor.
How did the AAT reach its decision?
By way of background, the Company offers interpreting services and translator services (“the services”) to customers. The Company engages both full time employees and independent contractors to provide the services to the customers. On 24 February 2003, the Company engaged Mr Sani as an independent contractor and placed him on its panel of interpreters. He signed terms of engagement which specified him to be an independent contractor.
The following factors indicate that Mr Sani was an independent contractor:
There were no controls over Mr Sani’s performance of his assignments. The only control exercised by the Company was limited to administrative functions
Mr Sani received no leave entitlements
Mr Sani could work if and when he chose
Mr Sani’s work assignments were conducted without supervision by the Company
Mr Sani could establish his own client base and was free to work for other entities
Mr Sani was providing a service that required special skills
The following factors indicate that Mr Sani was an employee:
The requirement for Mr Sani to carry a business card issued by the Company
The restriction on Mr Sani soliciting the Company’s customers while attending an assignment
Customer complaints went to the Company, not Mr Sani, because performance of each assignment affected the Company’s goodwill (not Mr Sani’s)
The power to delegate was not available. If Mr Sani became unavailable to perform the assignment, he could suggest an alternative person to undertake it, but the Company had to agree to the proposed alternative person. If the Company did agree, then the Company allocated the work to the alternative person, not Mr Sani
The contractor panel members undertook an assignment in the same way as the full time employees would. The only difference between the two was that panel members attended work for an assignment whereas full time employees were expected to remain at work for the duration of the standard working day.
Payment to Mr Sani was a percentage of hours worked (as opposed to a result)
The AAT ultimately decided that:
Mr Sani was not paid for a result but rather he was engaged to render interpretation or translation services which involved an expenditure of his effort and time and it was for that he was paid.
The Company could not operate its business without the contractor panel members. The contractor panel members do not merely provide an input to the service that the Company eventually provides to its customers, it is the entire service.
The implications of this decision for the Company are far reaching. The Company has a panel consisting of over 1000 interpreters and translators.
Back pay for superannuation for a large number of employees over many years could cause severe financial hardship for a business.
Treating persons as independent contractors when they are in fact employees will affect entitlements such as annual leave, personal leave, minimum pay rates, Award entitlements, superannuation and workers compensation.
It seems from the evidence in this case that the business couldn’t have done much more to put it in a winning position against the Tax Office… the worker was clearly an employee. However, there are many situations where the true nature of the relationship is not clear and a well crafted Contractor Agreement supported by conduct consistent with the Agreement, could result in the Court concluding that a worker was a Contractor.