Private ruling: PAYG withholding - Employee or Contractor
Date of advice: 12 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Q1: Are the workers engaged by the entity to provide services considered to be employees for the purposes of section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)? | A1: Yes

Relevant facts and circumstances: The arrangement that is the subject of this ruling is described below. The following documents have been relied upon to reach a decision: • your application for private ruling dated dd/mm/yyyy including: • Copy of Employee/Contractor tool from the ATO website • Email response to request for additional information received dd/mm/yyyy The entity operates a business in an industry where they offer a broad spectrum of treatments for various client needs. The entity engages workers to perform a particular service or treatment. The workers are engaged from 20 minutes to a few days treating various clients. Critical features of the engagement are as follows: • The worker is not provided with an induction course. • The worker is not given any written or verbal instructions on how to complete their tasks. • The worker is not provided with any manual guides specific to their work. • The worker is not provided with any ongoing training except for data systems usage. • The worker is required to work set hours or days depending on booking requirements. • The worker can choose their own hours as long as it coincides with the client's schedule. • The worker has their work checked from time to time in order to receive customer feedback. • The worker will report to the entity in order to confirm attendance so that they can be paid on the invoice supplied. • The entity conducts quality control checks from time to time in order to receive customer feedback. • The attendance of the worker is monitored in order to pay the invoice for the work completed. • The worker can refuse to do a particular job or task. • The worker can provide their services to other individuals or businesses. • The worker works independently of the business. • The worker can work as part of a team depending on the type of treatment required. • The worker may sometimes work with other employees or workers depending on the type of treatment. • The worker may wear a name badge, clothing or a uniform promoting the entities' business name or logo. The worker may wear a name badge so the client can identify the person treating them, unless their uniform is already embroidered with their name. • The worker submits quotes and invoices to the entity which prompts payments to the workers. • The entity keeps an internal record of the work completed by the workers. The worker may possibly complete timesheets. • The worker sets their own fees for the work/tasks done, which is also influenced by rebates. • The worker's payment is dependent on the completion of a task. • The worker is not paid if they went to see a client and the client is not home. • The worker is not paid if the job is cancelled at short notice. • The entity will possibly check to confirm that the worker has completed the task and inspect their work before they are paid. • The entity will sometimes contact the client to confirm their satisfaction. • The entity does not give any specific instructions as to whether has to complete the work personally. • The entity is responsible for paying Worker's Compensation insurance and Public Liability insurance. • The worker is responsible for paying private accident insurance. • The worker will supply all tools specific to their qualification and not supplied by the entity. • The entity will supply some items too big to transport. • The worker is not reimbursed for their assets, equipment or tools. This amount is factored into their initial quote. • The worker is not required to use a specific brand or supplier in relation to the materials to be used for a job. • The worker can choose their own brand or supplier for the materials to be used for a job. • The worker is responsible for fixing any problems, defects or damage they cause when doing the job, at their own cost.

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

Reasons for decision: Summary: Section 12-35 of Schedule 1 to the TAA 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. Taxation Ruling 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, the worker is required to work set hours or days depending upon booking requirements. The worker does have the ability to choose their own hours but it must coincide with their client's schedule. The entity provides the location of the task. The worker is required to report to the entity to confirm attendance, and their work is checked from time to time. The worker is free to conduct the task any way they see fit provided it is within the specifications. The worker is reliant on the entity to assign the work and pay them for it. Although the worker has some control over how they complete a task, they rely on the entity to organise the appointment and payment. The lack of control is indicative of an employer/employee 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 entity provides a location and the task specifications and how that task is done is up to the worker. They have full discretion as to how the work is done provided it is done within the specifications. They also have no obligation to work for the entity and are free to work for other organisations. They are also able to reject work offered to them by the entity. The workers may also wear name badges but are able to wear their own uniform with their names embroidered. | 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 the workers are paid for a given result i.e. completing a task. The worker supplies an invoice to the entity and the worker is paid only for the tasks performed. The rates between the worker and the entity are set by the worker and influenced by rebates. The workers are free to employ their own means to achieve the result, and no instructions have been given in relation to sub-contracting out the task. | 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 worker was not given specific instructions about whether the worker has to complete the work personally. However, the employee contractor tool supplied shows that the entity does not allow the worker to pay someone else to do this work. This indicates an employer employee relationship as the worker is unable to delegate the tasks. | 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, the entity bears the risk and is responsible for providing, their own Worker's Compensation insurance and public liability insurance. The worker is responsible for obtaining private accident insurance. The worker is paid based on the treatments performed and the completion of the treatment is checked by the entity prior to payment. The risk is predominantly borne by the entity rather than the worker which is indicative of an employer/employee relationship. | 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 the worker provides the majority of tools and equipment to the workers to enable them to complete a task. The larger items, such as beds, are provided by the entity. Specific items in relation to the treatments being provided are supplied by the worker and the worker is able to choose their own brand or supplier. | Detailed Reasoning - Conclusion: After assessing the facts against the indicators in TR 2005/16, it is considered that the workers are employees, and there is an obligation on the entity to withhold from payments made to the workers.