Private ruling: PAYG withholding
Date of advice: 1 March 2019
Published: May 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you required to register as an employer of a working holiday maker and withhold 15% tax on pocket money paid to a live in Au Pair? | A1: Yes

Relevant facts and circumstances: You have engaged an au pair in 2018 and the au pair will remain with you until April 2019. You engaged the au pair as your spouse passed away. You have two children. You have engaged the au pair so that the children will have a beneficial interaction with another person from a different culture, as they do not have any other family members around. The au pair will in return get acquainted with the language, customs and culture of Australia as authentically as possible. Your children go to after school care most days and you finish work early so you are home most of the time. You sourced your au pair through an agency. Your au pair is being paid pocket money of $XXXX per week. This is the standard amount that is recommended to be paid by the industry and that is how you calculated the amount to pay. Your au pair will still be paid the weekly pocket money even if they are away for short periods. Your au pair was away for a week and was paid for that period. You do not have a written contract between yourself and the au pair. You do have a written agreement with the au pair agency. You do not have a written description of the expected duties of the au pair. Your au pair will be responsible for getting the children ready for school in the mornings. The au pair will also collect them from after school care each afternoon four days per week. Your au pair will not be required to work Saturdays or Sundays. Your au pair has no set hours that they are expected to work. But if the au pair is available they may watch the children while you run errands. You expect the au pair to keep their bedroom and bathroom clean and tidy. You do not have an expectation for the au pair to complete specific household chores. However, they are able to complete household chores as they see fit as if they are part of the family. For example, if they are washing their clothes, they may also wash the children’s clothes at the same time to make up a full load. There is no notice required in order to terminate the arrangement with the au pair. If either party is unhappy, they are free to leave the arrangement at any time.

Relevant legislative provisions: Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision: Summary: Where an au pair is on a genuine cultural experience, being treated as a member of the family, while providing only incidental domestic services (minimal hours), it would be less likely they would have entered into a legally enforceable contract and be employed by the host family. The prime motivation for the family in such a case is to provide a cultural experience and the family may not obtain the degree of benefit from the arrangement that the au pair does. It is also likely that, the more informal the arrangement, the more likely that one or other of the parties is not obliged to fulfil its obligations under an informal arrangement such as this. This would particularly be the case if payment of the au pair’s expenses is discretionary, varies, or is not directly related to work performed by the au pair. In contrast, and as is outlined in your situation, an au pair working and being remunerated for significant hours of service, with distinct responsibilities and duties would more likely be a party to a legally enforceable, express or implied contract and would be considered to be employed by their host family. | Detailed Reasoning - Detailed reasoning: From 1 January 2017, employers of working holiday makers are required to withhold tax from amounts they pay to their workers under the pay-as-you-go (PAYG) system. A working holiday maker is an individual who holds a Subclass 417 (Working Holiday) visa, a subclass 462 (Work and Holiday) visa or certain related bridging visas which are issued by the Department of Immigration and Border Protection. The visas allow young adults aged 18 to 30 from eligible partner countries to work in Australia while having an extended holiday. Work in Australia must not be the main purpose of the visa holder's visit. The amended legislation requires employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers. An employer needs to register with the ATO before employing a working holiday maker. Once registered, an employer will be able to withhold a flat rate of 15% up to $37,000 in total payments made to each individual working holiday maker within an income year. Where total payments exceed $37,000, different rates apply. Traditionally, au pairs came to Australia on a cultural experience and were treated like members of the family, helping out with incidental childcare in exchange for the Australian experience and some pocket money. At times, the au pair would be studying English while in Australia and immersing themselves in a local family would help enhance these language skills. They would not be expected to work during their study hours. This type of au pair were commonly referred to as ‘demi au pairs’ and it was expected that the au pair must enrol in an English language or other academic program in conjunction with their au pair arrangement. While this type of au pair still exists, the cultural exchange factors have diminished and the distinction between an au pair engaged as part of a cultural experience and an au pair employed purely for domestic and childcare assistance has blurred. In order to determine whether or not there is an employer/employee relationship between a host family and an au pair, it is necessary to establish whether their arrangement constitutes: ● a legally enforceable contract for the provision of the au pair’s services in return for accommodation, board and payment; or ● an informal arrangement primarily aimed at providing the au pair with a cultural experience. Intention to create legal relations In most jurisdictions contracts do not need to be represented in writing and oral contracts are as enforceable as written contracts. For a contract to exist, whether written or verbal, the parties to an agreement must intend to create legal relations. If the circumstances show that the parties ‘did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts’ then there is no contract. At common law, there are certain requirements that must be satisfied in order for a valid contract to exist: ● the need for one party’s offer of terms to correspond with the other’s acceptance, ● for the terms agreed to be certain and complete, ● the need to meet the necessary formalities, and ● an intention to create legal relations and consideration. Although the proposed duties are not formally described, the primary focus is the health and safety and care of your children. The au pair’s responsibilities include getting the children ready for school five days per week and collecting them from after school care four days per week. Your au pair will be provided remuneration consisting of board, meals, internet, the use of a vehicle, and ‘pocket money’ of $XXXX per week. You have engaged your au pair through an agency that requires applicants to have a certain level of experience in child care. Based on the above, it is concluded there is an implied contract entered between the parties. | Detailed Reasoning - Employer/employee: The expression ‘employee’ is not defined in income tax legislation. Therefore, it has its ordinary meaning. The Tax Office provides guidance to assist in determining whether an arrangement constitutes an employment arrangement in Taxation Ruling TR 2005/16 Income tax: Pay As You Go withholding from payments to employees. Paragraph 7 of TR 2005/16 states: 'Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered.' The ruling provides key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law. I have listed the key indicators from the ruling that are relevant to your situation: Control test - The degree of control which the host family can exercise over their au pair is a classic test for determining the nature of the relationship: Hollis v Vabu (2001) 207 CLR 21; 47 ATR 559. At common law employee is told not only what work is to be done, but how and where it is to be done. However, the mere fact that an agreement may specify how the services are to be performed does not necessarily imply an employment relationship. The Full Bench held in Swift Placements Pty Ltd v. WorkCover Authority of New South Wales [2000] NSWIR Comm 9 that control over a worker did not merely relate to the on-the-job situation, but rather the ultimate or legal control over the worker. It stated: … control by an employer over an employee is not to be viewed merely in the on-the-job situation in directing a person what to do and how to do it, but rather in the sense of the ultimate or legal control over the person to require him to properly and effectively exercise his skill in the performance of the work allocated … Ultimate control would, amongst other things, enable the relevant entity to withdraw the worker from an assignment and terminate the contract with the worker. However, specifying in detail how contracted services are to be performed does not of itself necessarily imply an employment relationship. A host family has a high degree of day-to-day control over their au pair. They usually set the working hours, what is to be done during that time, and when it needs to be done (for example, picking up kids from school, taking them to classes, providing food at specific times of the day). The host family provides the au pair with a verbal explanation of the weekly or daily routine in order to care for the children and complete light household duties. It is likely that the au pair has some input into these arrangements (such as which night they are available for babysitting or when they might decide to travel). However, it is also likely that the host family would have ultimate control to require the au pair to be available for a particular task. As we have discussed above, you have provided your au pair with your expectations in regards to their child minding responsibilities. They are required to get the children ready for school five days per week and collect them from after school care four days per week. As such you have a strong degree of control of which you can exercise over the au pair, which is demonstrated by the au pair’s duties and days they are required to work. Integration – Unlike a typical commercial arrangement, an au pair is not engaged in a business enterprise of the host family. However, they provide direct services to the host family. From the perspective of a third party, they would be seen to be part of the family (particularly as they live with them) and providing services that are integral to the running of the family. They use the family’s car and equipment (rather than their own) and do not project themselves as operating independently such as through advertising or business cards. In your case the au pair will be providing direct services to your family as outlined in the proposed duties. As such the au pair will work directly for and will be integrated into your family. Results – Although they receive a weekly amount, au pairs usually are paid for hours worked, not for a result. The rate paid to an au pair is usually negotiated between the host family and the au pair. Your au pair will be given pocket money of $XXXX for up to 20-25 hours of child minding assistance during the week. This is the standard amount that is recommended to be paid by the industry and that is how you calculated the amount to pay. This indicates that your au pair will be paid for hours worked, and not for a specific result. Other - Other indications suggesting an employer/employee relationship include: ● the right to suspend or dismiss the person engaged; and ● the right to the exclusive services of the person engaged. | Detailed Reasoning - Conclusion: When weighing up the indicators, it can be seen that as a host family you will be exercising a great deal of control in the arrangements you will have with your au pair. You will determine which au pair is suitable, how much you will pay, the working conditions and their duties. Your au pair is likely to have some input into the detail of these arrangements but we consider that you will have ultimate control and would be able to direct the au pair to undertake a particular task. The au pair will be paid by an amount to provide a personal service that is not likely to be delegated to a third party. While the au pair will have some reasonable upfront costs, your family will cover all costs associated with the au pair’s duties while working for you. These factors indicate an employment relationship.