Private ruling: Employee or contractor
Date of advice: 23 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Are the guides considered to be employees of the entity for the purposes of subsection 10-5(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)? | A1: No.

Relevant facts and circumstances: You operate a tour business. The business model relies on tips for income and generally you do not charge an attendance or booking fee. On occasion however, you will organise a special tour for large groups which will be arranged for a specific price to the group. As a result, there are two ways in which tour guides can be paid. The most common way is that the tour guides will collect all the tips themselves and you will send them an invoice which is calculated as a fixed charge per person who attends the tour. The other way that a tour guide can be paid is for conducting special group tours on an ad hoc basis. In these cases they are paid a predetermined amount for running the tour. This is normally determined based on the number of tour attendees. Tour guides are rostered on for specific tours advertised by the business. Guides wear shirts that identify them as tour guides. Tour times are negotiated with the guides as to when they are available and are then advertised by you. The workers are free to engage in other business activities if they choose. You do not allow them to carry on a similar operation but other tourism/tour related work that they engage in is encouraged. The tour content and route is determined by you, which the guides are required to follow while they are training. However as they develop the guides can vary the route and content to personalise the tour. The workers are required to personally perform the tour and do not have the ability to delegate/subcontract their duties. If a guide is unable to complete a tour they are instructed to contact fellow guides to arrange a shift swap. Tour guides are expected to provide their own additional equipment for tour attendees, however they wear a t-shirt with your business name and colours on them for identification purposes. You encourage the guides to arrange for an appropriate level of insurance however you do not police this.

Relevant legislative provisions: Taxation Administration Act 1953 section 12-40 of Schedule 1

Reasons for decision: Detailed Reasoning - Employee vs contractor: Section 12-35 of Schedule 1 to the TAA 1953 provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee. A determination of whether an individual under a specific arrangement is an employee must be made by a consideration of the total factual circumstances in light of all of the indicators determining the status of that individual. It is the totality of the relationship that needs to be considered. Paragraph 10 of Taxation Ruling TR 2005/16 Income Tax: Pay As You Go – withholding from payments to employees (TR 2005/16) states section 12-35 of schedule 1 of the TAA applies to payments made to individuals in their capacity as employees. TR 2005/16 considers the various indicators the courts have considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term. These indicators include: ● The control test: The degree of control which the payer can exercise over the payee. ● The organisation or integration test: Whether the worker operates on their own account or in the business of the payer. ● The results test: Whether the worker is free to employ their own means and is paid to achieve the contractually specified outcome. ● The delegation test: Whether the work can be delegated or subcontracted (with or without the approval or consent of the principal). ● The risk test: Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance. ● Which party provides tools, equipment and payment of business expenses? | Detailed Reasoning - Control: The test for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. The importance of control lays not so much in its actual exercise as in the right of the employer to exercise it. A high degree of discretion or latitude in the manner in which a task is performed does not, of itself, indicate a contract for services. Further, although it is not uncommon for a contract to specify how the contracted services are to be performed, this does not necessarily imply an employment relationship. A high degree of direction and control is not uncommon in contracts of service. In contractual arrangements any control or direction must be expressed in terms of the contract only, so that outside the contractor is free to exercise their own discretion, because they work for themselves. In this case, while you set the tour content and route, the guides are expected to make their own modifications and personalise the tour. As workers have the ability to vary the tours this indicates that they have control over how the work is performed which is indicative of a contractor relationship. | Detailed Reasoning - Organisation or integration: In an employment relationship, tasks are performed at the request of the employer and the employee is said to be working in the business of the employer. An independent contractor carries on a trade or business of their own. An independent contractor enters into a contract to perform specific tasks and has a high level of discretion and flexibility about how the work is to be performed, even if the contract contains precise terms about methods of performance. An employee works in the business of the employer and the work performed may be said to be integral to that business. An independent contractor works for the payers business but the work is not integrated into the business rather is an accessory to it. In this case, the tour times are negotiated with the guides as to when they are available and are then advertised. Additionally, the guides can organise their routes. This indicates the relationship is more aligned to that of a contractor. | Detailed Reasoning - Results: Where the substance of a contract is for the production of a given result, there is a strong indication that the contract is one for services. 'The production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result. In this case, it appears that the basis of the contract is to achieve a specified result, that is, the completion of tour and the guides are able to alter the tour to personalise it. Therefore it appears that the guides are free to employ their own means to achieve a contractually specified outcome, which is a further indication of a contractor relationship. | Detailed Reasoning - Delegation: The power to delegate or subcontract is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee. Whereas if an individual has unfettered power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is engaged as an independent contractor. The contractor is free to arrange for their employees to perform all or some of the work or may subcontract all or some of the work to another service provider. In these circumstances, the contractor is the party responsible for remunerating the replacement worker. A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor. In this case, the tour guides are required to personally perform the tour, they do not have the ability to delegate or subcontract their duties however if a guide is unable to perform the tour they are instructed to contact another guide to arrange a shift swap. As the worker is not contractually required to personally perform the work, this is an indication that the worker is not an employee. | Detailed Reasoning - Risk: An employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. An independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor is usually expected to take out their own insurance and indemnity policies. Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for the rectification of faulty or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor. Commonly, an independent contractor or entity would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense. An employee on the other hand, would bear no such responsibility and the liability for any defective work of the employee, either to a third party or otherwise, would fall to the employer in terms of the burden of cost or time for rectification. In this case, workers are unable to influence the tour attendees to tip for the tour. Additionally, they are encouraged to arrange for an appropriate level of insurance. These factors indicate that a worker is an independent contractor. | Detailed Reasoning - Provision of tools and equipment and payment of business expenses: The provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor. However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. The provision and maintenance of tools and equipment and payment of business expenses should be significant for the individual to be considered an independent contractor. There are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work. Further, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment; including for the use of their own assets such as a car. In this case, tour guides are expected to provide their own additional equipment for tour attendees and they wear an identifying shirt. The worker providing their own tools and equipment is generally not consistent with an employee/employer relationship. | Detailed Reasoning - Conclusion: After assessing the facts against the indicators in TR 2005/16, it is considered that the guides are contractors, and there is no obligation on the entity to withhold from payments made to the guides.