Edited version of private ruling

Authorisation Number: 1011572503304

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Ruling

Subject: Employee vs contractor

Are you considered to be an employee, rather than a contractor, of the company that you work for?

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You work for company A, who provides services to a Government department.

You applied for a private ruling to determine your status as either an employee or a contractor.

In your application, you supplied the following information with respect to your work circumstances.

You are allocated work each day by Company A who have previously inspected the job and made the necessary arrangements with the Government department.

Prior to commencing each job, Company A gives you specific instructions regarding the location of the work, when it is to be done and how it is to be carried out.

You are provided with a pre-filled invoice specifying what you will be paid for each job.

As you have no control over the work practices, which are set out entirely by Company A, you are not liability for remedying any defects that may arise in the work.

All necessary materials and large tools and machinery are supplied by Company A.

You supply your own utility and tools of trade up to the value of $1,000.

You must carry out all work yourself and can not employ the services of any other person to carry out the work.

You must report all matters to Company A and take direction from them at all times.

You must carry an identification tag provided by Company A.

You did not sign an employment contract with either Company A or the Government department for whom Company A works.

You are paid by Company A but that no tax is withheld on your behalf.

You do not receive annual leave or sick leave, however you did receive long service leave under an industry scheme.

You were not reimbursed for any of your out of pocket expenses such as the use of your car or your petrol expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 6-5

Income Tax Assessment Act 1997 8-1.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Based on the information you have provided we consider that you are an employee, rather than an independent contractor, in the income years in question.

Detailed reasoning

Employee Vs Contractor

The employer-employee relationship is a contractual one often referred to as a 'contract of service' which can be contrasted with a principal/independent contractor relationship typically referred to as a 'contract for services'. That is, an independent contractor generally contracts to achieve a result, whereas an employee contracts to provide labour (to enable the employer to achieve a result).

The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts, including income tax, industrial relations, payroll tax, vicarious liability, workers compensation and superannuation guarantee. As a result, a substantial and well-established body of case law has developed on the issue. There are often many relevant facts and circumstances, some pointing to a contract of service, others pointing to a contract for services.

A determination of whether an individual under a specific arrangement is an employee cannot be made at random, but by considering the facts presented in light of all of the criteria determining the status of that individual. It is the totality of the relationship that needs to be considered. 

Taxation Ruling TR 2005/16 Income tax Pay As You Go withholding from payments to employees at paragraph 7 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 has provided the following key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law:

1. Terms and circumstances of contract - a clause in a contract that purports to characterise the relationship between the parties as that of principal/independent contractor and not that of employer/employee must be considered with all the other terms of the contract. That is, the parties cannot deem the relationship between themselves to be something that it is not by simply giving it a different label.

2. Control test - the degree of control which a person who engages another person can exercise over that person is a classic test for determining the nature of the relationship: Hollis v Vabu (2001) 207 CLR 21; 47 ATR 559. A 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 a contract may specify how the contracted services are to be performed does not necessarily imply an employment relationship.

3. Contract for results - where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services. Other indicators of a contract for services include where the person is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome, the consideration is for a fixed sum on completion of the specified services which is the result, as opposed to an amount paid by reference to hours worked. 

4. Delegation - if a person is contractually required to personally perform the work, this is an indication that the person is an employee. However, "delegation" exercised by an employee (e.g. a manager or supervisor) is fundamentally different from the delegation exercised by a contractor where the contractor is responsible for the cost and the emphasis is on achieving a result.

5. Risk - where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. On the other hand, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor also often carries their own insurance and indemnity policies. 

6. Provision of tools/payment of own 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. Further, the Tax Office considers that 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.

7. Other - other indicia suggesting an employer-employee relationship include:

- the right to suspend or dismiss the person engaged;

- the right to the exclusive services of the person engaged;

- provision of benefits such as annual, sick and long service leave;

- provision of other benefits prescribed under an award for employees; or

- a requirement that a worker wear a company uniform.

Application to your circumstances

In your case, you work for a company who contracts to a government department. You have advised that you did not sign any sort of contract with either company or the government department upon commencing your role. As such, we can not consider the terms and circumstances of your contract as a factor in determining whether you are an employee or a contractor.

With respect to the control test, you have advised that you must take direction from the company at all times. Prior to commencing a job, the company gives you specific instructions regarding the location of the work, when it is to be done and how it is to be carried out. The results of this test indicate that you are more likely to be an employee of the company, rather than a contractor.

The contract for results test is less conclusive. Although you are engaged to achieve a set result, being the completion of each job, these results are ongoing as you move from one job to the next. Similarly, while you are paid a predetermined amount upon completion of each job, which is indicative of a contract for services, you are not permitted to employ your own means (such as plant, labour and equipment) to complete the job. The latter factor is inconsistent with your work being regarded as a contract for results.

While the contract for results test is inconclusive, the delegation and risks tests produce a more specific outcome. You have advised that you are solely responsible for carrying out the work assigned to you and can not engage the services of any other person or company to perform the work. You have also advised that you are not personally liable for remedying any defects that arise from your work as your work practices are set out entirely by the company. These factors give a strong indication that you are an employee of the company, rather than an independent contractor.

Regarding the provision of tools and payment of expenses test, you have advised that the company supplies all materials required to carry out your work. The company also supplies all large tools and machinery. However, you supply your own utility and tools of trade (up to $1,000) and you are not reimbursed for your motor-vehicle expenses. Although this test is inconclusive, the fact that the company supplies all large tools and machinery as well as all materials is more indicative of an employer-employee relationship.

Finally, there are some other factors that come into consideration in determining whether you are an employee or a contractor. The fact that you have to wear a name tag provided by the company, as well as your entitlement to long service leave and your right to be dismissed from your position, are all indicative of an employer-employee relationship.

Therefore, in application to your case, having regard to all the factors listed above, it is considered that your position is one of an employee, rather than an independent contractor.

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