Editors --- "Age pension: employee or self-employed; waiver" [2011] SocSecRpr 5; (2011) 13(1) Social Security Reporter, Article 5

• GATES and SECRETARY TO THE DFHCSIA
• Background
• The issues
• Consideration
• Formal decision

---

Age pension: employee or self-employed; waiver

GATES and SECRETARY TO THE DFHCSIA

(2011/34)

Decided: 21st January 2011 by C. Walsh

Background

Gates was in receipt of an age pension (AP). On 1 March 2006, he commenced part-time work at a boat building company (Vikal) and began reporting his income to Centrelink fortnightly. Between 1 March 2006 and 28 January 2010, Centrelink calculated his AP on the basis that he was an ‘employee’ rather than ‘self-employed’ with the effect that his gross (rather than net) income was taken into account.

On 9 November 2009, Centrelink began a review of his AP and he indicated on the form submitted that he was employed on a part-time basis and was not self-employed.

On 9 February 2010 a Centrelink officer decided to cancel Gates’ AP from 29 January 2010 due to his level of income and raised a debt. He requested a review of these decisions and provided fresh information to Centrelink. On 17 February 2010, Centrelink made a decision that Gates was self-employed, from 29 January 2010, allowing hisincome to be reduced by various business expenses. This had the effect of increasing his rate of AP from 29 January 2010 and caused his debt to be extinguished.

On 3 March 2010 Gates requested a review of this decision and argued that he should have been paid AP at the higher (self-employed) rate from 1 March 2006. On 12 March 2010, an authorised review officer (ARO) affirmed the decision to assess Gates as being self-employed from 29 January 2010. Gates applied to the Social Security Appeals Tribunal (SSAT) for a review of the ARO’s decision and on 9 April 2010, the SSAT decided that Gates was an employee at all times and therefore his rate of AP from 29 January 2010 was to be reassessed on this basis.

Consequently, on 5 May 2010, Centrelink decided that Gates had been paid $2684.90 more AP than he was entitled to in the period 28 February 2008 to 22 April 2010 and raised a debt. The decision was reviewed by an ARO and affirmed. On 1 September 2010 the SSAT set aside the second ARO decision and substituted for it a decision that there was a debt arising from overpayment of AP in the period 1 March 2006 to 28 January 2010 which was to be recalculated and recovered from Gates. Centrelink subsequently recalculated the amount of the overpayment as being $2249.92.

Gates sought a review of both SSAT decisions.

The issues

The issues for the Tribunal to decide were:

• Was Gates an employee of Vikal for the purposes of determining the amount of age pension payable to him under theSocial Security Act 1991 (the Act)?

• Had he been overpaid and if so should any debt be waived?

Consideration

The Tribunal noted that a person’s AP rate is worked out using the Pension Rate Calculator A at the end of section 1064 of Part 3.2 of the Act. The amount of pension payable is subject to an ordinary income test and an assets test. The actual rate of pension will be the lower of the rates produced by these 2 tests and in this case the income test was relevant.

The Tribunal noted that for social security purposes, income from employment is understood to mean the person’s ‘gross’ income whereas if a person is ‘self-employed’ the person’s ‘income’ is arrived at after allowance has been made for the cost of running the business, but before income tax and other personal deductions.

Consequently, the income amount derived by Gates and the rate of AP payable to him depended on whether he was an ‘employee’ or was a ‘self-employed’ person.

As the term ‘employee’ was not defined in the Act it took its ordinary meaning.

The Tribunal discussed the fact that courts had considered the ordinary meaning of ‘employee’ in a variety of legislative contexts and cited various cases as authority for the following overarching propositions: whatever the facts of a particular case there is no single feature which is determinative of the contractual relationship; the totality of the relationship between the parties must be considered to determine whether the worker is an employee or an independent contractor; consideration should be given to the various factors identified in judicial decisions which have considered the employee/independent contractor distinction; however, no list of factors is exhaustive and the weight to be given to particular facts will vary according to the circumstances.

The Tribunal then considered the features that had been regarded by the courts as the key indicators of whether an individual was an employee or an independent contractor at common law. These were:

(1) what degree of control the payer could exercise over the person engaged;

(2) whether the person operates on their own account or in the business of the payer;

(3) whether the substance of a contract was to achieve a specified result (a strong but not conclusive indication that the contract is one for services);

(4) whether the worker carried any commercial risk;

(5) whether the person provided their own tools and equipment and paid business expenses;

(6) whether the person received paid leave and Christmas bonuses; and

(7) whether or not a person has an ABN.

The Tribunal considered Gates’ evidence about each matter which included:

• he didn’t advertise his services and did not tender for his work at Vikal;

• he never signed a contract with Vikal;

• he worked three days a week and didn’t like to work longer hours because of his age;

• he trained other workers, mainly apprentices, who were employed by Vikal and not by him;

• he had freedom in the way he performed his work and would occasionally call on other workers to assist him with physical tasks;

• there were two main supervisors at Vikal who did not do any manual work and did not supervise him;

• he had not worked anywhere else during the period;

• he was paid an hourly rate and not a fixed price per job or for a ‘result’;

• he received pay rises on an arbitrary basis and at the same time as other employees and also received three Christmas bonuses;

• he did not receive any sick, annual/recreation or long-service leave;

• he had no access to company profit and did not bear any risk for work that was defective;

• he had no insurance of his own and was covered by Vikal’s workers’ compensation insurance;

• he supplied some of his own tools (such as manual and power hand tools) but Vikal supplied the plant and equipment and other materials.

Despite having an ABN he was not paid on a GST-inclusive basis, and he never lodged any business activity statements with the ATO or remitted any GST to the ATO. The Tribunal noted that the fact that he made a declaration to the ATO that he was self-employed for income tax purposes was not sufficient to establish that he was self-employed under social security law.

Having considered the various indicators the Tribunal found that Gates had been an ‘employee’ since commencing work with Vikal and the income he earned should be reported to Centrelink on a ‘gross’ basis, without any deductions, in accordance with s. 1072 of the Act.

The Tribunal considered whether any of the debt should be waived under s.1237AAD of the Act which provides that the Secretary has a discretion to waive the right to recover all or part of a debt if satisfied that:

(i) the debt did not arise wholly or partly as a consequence of the person ‘knowingly’ making a false statement or representation; or

(ii) failing or omitting to comply with the Act and there are ‘special circumstances’ (other than financial hardship alone) that make it desirable to do so and it is more appropriate to waive than write-off all or part of the debt.

The Tribunal decided that write-off was not appropriate.

It was accepted that Gates had not ‘knowingly’ made any false representations or statements to Centrelink or failed or omitted to comply with the Act.

The Tribunal noted that the expression ‘special circumstances’ was not defined in the Act but that it had been judicially considered on numerous occasions and set out some of these decisions that describe how the exercise of the discretion should be approached, namely by considering all the person’s circumstances, all the matters relevant to the case, the wider scheme of the overall administration of the Act and the wider public interest in recovering moneys to which the person was not entitled.

Gates told the Tribunal:

• •If Centrelink had told him that employees and self-employed persons were treated differently for the purposes of calculating a person’s AP he would have told Centrelink he was self-employed and reported his income accordingly from the commencement of his work at Vikal;

• He had been under considerable strain since the debt was first raised and had suffered additional ‘stress and trauma’ through Centrelink initially advising him that his debt was approximately $6000 more than the final calculation of $2,249.92. He had spent many hours examining documents forwarded to him and his wife by Centrelink in order to ‘untangle the many anomalies and errors in Centrelink’s calculations’;

• The review process was protracted and very stressful;

• Despite his various health conditions and his age (72 years), he had to work part-time to supplement his AP as he still had a mortgage of $66,000 to repay;

• He had no savings and he and his wife had money withheld from their payments to repay the debt causing them hardship.

The Secretary submitted that no ‘special circumstances’ existed and sought to distinguish cases which had decided that administrative errors by a government department could constitute a ‘special circumstance’ on the basis that they dealt with departmental errors occurring prior to the debt being raised whereas in Gates’ case the errors occurred after the debt had been raised.

The Tribunal rejected this submission. It found that administrative errors by government departments can be a ‘special circumstance’ and was satisfied that there were ‘special circumstances’ that justified the waiver of all of Gates'debt. The Tribunal considered relevant the administrative errors and the stress and strain caused by dealing with them as well as the time required to attempt to resolve them and the drawn out review process Gates had endured. The Tribunal accepted that he suffered from poor health and had limited financial means. When considered as a whole, these facts took his case out of the ordinary and were sufficient to categorise his case as unusual or uncommon so that a failure to exercise the discretion would produce an unjust or unreasonable result.

Formal decision

The first decision that Gates was to be considered as an employee from 1 March 2006 was affirmed.

The second decision dated 1 September 2010 was varied and a decision that the recalculated overpayment amount should be waived in full was substituted.

[C.E.]