Private ruling: Employee or contractor?
Published: January 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Are your models engaged as independent contractors? | A1: Yes

Relevant facts and circumstances: You are a model agency, with full-time staff members. You take bookings from clients, such as major retailers, advertising agencies and the fashion industry, to use the services of fashion models for photography, runway and commercials. You represent a number of models. The numbers vary weekly as models are not contracted, travel, change agencies and move in and out of the industry. Most models work elsewhere in other capacities and with other agents, interstate and overseas. When they are in town, you let potential clients know that a particular model is available. If a client rings through a booking for the model, you pass on the details to the model. Often you don't even see the models. It is done via computer or phone call. Once a job is completed, you invoice the client. Up until this year, you invoiced the client for the negotiated fee plus commission plus GST on the commission. You pay models after they have completed the job, irrespective of whether you have received payment from the client. You pay the model the negotiated fee minus a commission. On most occasions, your clients will choose the models they want. However, occasionally, due to availability, you may give an alternate recommendation. The model attends a job as he/she is. The client, rather than the model or you, provides the make up, clothing and any necessities for the job. A typical job will be for one or two hours. The model is paid on an hourly basis. However, not each model is paid the same. Each model establishes the rate of pay they expect to receive, which you pass on to a client. The model is liable for unsatisfactory performance, which may occur at times. If a model is late for a job, does not deliver, performs poorly or even ruins a gig, the client will generally reduce the payment to you, or not pay at all, and you will, in turn, adjust your payment to the model. Your models are under no obligation to accept a job and may turn down a job, which they often do. The models advise you of their availability, which determines whether you can place them for a job. Although you naturally charge a commission, you also provide a service for the models, particularly the overseas models, as their booking agent. In other words, you believe you provide a service role to the models for their modelling careers. You have a website, which contains a variety of photographs, a profile and, where necessary, an icon noting an interest or overseas model.

Relevant legislative provisions: Taxation Administration Act 1953 Section 12-35

Reasons for decision: Summary: Section 12-35 of the Taxation Administration Act 1953 states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee. The Commissioner's view on whether a person is engaged as an employee or an independent contractor is outlined in Taxation Ruling TR 2005/16. The ruling lists features which have been regarded by the courts as key indicators of whether an individual is an employee or independent contractor at common law. These indicators include: 1. The control test: the degree of control which the payer can exercise over the payee, i.e., the extent of the master-servant relationship. A common law employee is told not only what work is to be done, but how and where it is to be done. 2. The organisation or integration test: whether the worker operates on their own account or in the business of the payer. This includes whether the workers would be viewed by a third party as carrying on their own enterprises and whether they could be expected to generate goodwill in their own right. 3. The results test: whether the worker is free to employ their own means and is paid to achieve a contractually specified outcome. A worker paid on an hourly basis, particularly under an industrial or workplace award, is an indicator siding with an employment relationship. In general, the contractual relationship as a whole must be considered, to determine the true character of the relationship between the parties. 4. The delegation test: whether the work can be delegated or subcontracted (with or without the approval or consent of the principal). 5. The risk test: whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance. 6. Which party provides tools, equipment and payment of business expenses. In your case, the models you act as agent for are independent contractors. You do not control how or where they perform their work. Their availability is determined by themselves. You act as a mere booking agent. Although your organisation generates goodwill as an agency, the models also generate their own goodwill, where they are personally demanded for their services. The models do not work for a result and are paid on an hourly basis. However, the models individually establish the rate of pay they expect to receive. The models cannot delegate or sub-contract their work. The models bear liability and responsibility in the case of unsatisfactory performance. In summary, of the six tests listed above, the control, organisation and risk tests weigh heavily on the side of a contractor relationship. The delegation test weighs heavily on the side of an employee relationship. The remaining two tests are neutral, bearing no significant weighting (as the models are not paid under an industrial award and as neither party provides items such as make up or clothing). This leads to the conclusion that the relevant parties have engaged each other as independent contractors.

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