Edited version of private ruling

Authorisation Number: 1011678303437

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Ruling

Subject: Employee v contractor

Question 1

Are you engaged as an employee or a contractor by Company X or the licensed outlet for whom you perform work?

Answer: You are engaged as a casual employee.

Question 2

Are you required to apply for and obtain an Australian Business Number (ABN)?

Answer: No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You applied for a private ruling to determine whether you were required to apply for and obtain an ABN to carry out the work that you perform at licensed outlets.

In your application you advised that you have owned two private licensed outlets owned by Company X over many years.

However, more recntly, you have worked on a part time or casual basis at various outlets.

You are mostly engaged by one licensed outlet in particular, but have also provided relief work at some five different outlets when owners or managers are on leave.

You advised that you have never been employed by Company X or their company owned outlets and, therefore, you have never been paid under awards or received conditions of employment that such employees would be entitled to.

Instead, you receive pay as a casual employee as a result of a one to one negotiation arrangement with the owner of the licensed outlet which, on an approximate basis, reflects the rate of pay for a casual Company X employee.

We sent you a letter requesting further information.

Specifically, you were asked to provide information on, and copies of, any contracts that were signed when you commenced work for the licensed outlets.

You were also asked to provide further information regarding the calculation of your pay, the degree of control you have over your work practices, your entitlement to employ third party labour, the supply of any tools or equipment required to perform your role, your entitlement to leave and various other matters.

You responded to our request and provided the following information:

· No written contract has ever existed with respect to your employment. All employment is negotiated before work is commenced and all agreements are verbal.

· You are paid at a set hourly rate, which varies slightly depending on which licensed outlet you work at.

· Your duties are that of a counter officer/manager, which involves processing public transactions usually between the hours of Xam and Ypm.

· Work practices and procedures are under the operating requirements of what is set out in the Company X's Regulations, Rulings and Procedures and all persons working at the licensed outlets are bound by these constraints.

· You are retained on a one to one basis by the manager/owner of the outlet and do not have any authority to delegate work to a third party.

· You are required to rectify any errors in your work where possible, however there is no requirement for you to take out personal indemnity insurance and you are not ultimately liable personally for any errors in work.

· You are not required to supply any tools or equipment to carry out your work as everything is supplied by the payer. You advised that there is little or no physical risk involved in carrying out your work.

· You do not receive any leave entitlements such as sick leave, annual leave or long service leave as you are seen as a casual payee.

· You are not required to wear a company uniform, although you do wear business attire.

Relevant legislative provisions

Taxation Administration Act 1953 - Sch1-23-35

Reasons for decision

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 as a counter operator/manager on a casual basis at various licensed outlets in your area. Although you are mostly engaged by one outlet in particular, you have also provided relief work at some five different outlets when owners or managers are on leave.

From the information you have provided, it is clear that you are engaged in the capacity of a casual employee, rather than a contractor. You have advised that no written contract was ever entered into between yourself and Company X or the outlets that you work for. All of your work agreements are verbal and this is the likely result of you being a previous owner of 2 licensed outlets over many years and being well known and trusted within Company X. As such, the determination of you as an employee is based on the application of the other tests outlined in TR 2005/16.

With respect to the control test, you have advised that all work practices and procedures are under the operating requirements of what is set out in the Company X Regulations, Rulings and Procedures and that all persons working at the outlets are bound by these constraints. This is strongly indicative of an employer/employee relationship, rather than that of an independent contractor who would have a high degree of control over how and when work was performed.

Also indicative of an employer/employee relationship is that fact that you are paid at a set hourly rate and are not engaged on a contract for results. You are required to perform all work yourself and do not have the right to delegation and all of the tools or equipment you require to carry out your work are provided by the payer.

With regards to the risk test, you advised that you do not require personal indemnity insurance and that there is little or no danger involved in performing your work. While you are required to attempt to correct any errors in your work where possible, you do not bear the commercial risk or responsibility for an error. Again, this is indicative of an employer/employee relationship and TR 2005/16 clearly states 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.

You have advised that you are not entitled to leave such as sick leave, annual leave or long service leave, but this is reflective of your status as a casual employee and does not indicate that you are not, in fact, an employee.

From the information you have supplied, the Commissioner is satisfied that you are a casual employee of Company X.

PAYG withholding

The legislation relating to pay as you go (PAYG) withholding is found in Schedule 1 to the TAA 1953.

Section 12-35 of Schedule 1 to the TAA requires an entity (the withholder) to withhold an amount from a payment of salary, wages, commissions or bonuses it makes to an individual as an employee.

Australian business number

The Australian business number (ABN) is a public number that gives businesses in Australia a single identifier to use when dealing with government agencies, other businesses and the community.

You normally need an ABN to register for:

· goods and services tax

· fuel tax credits

· pay as you go withholding.

An ABN is required for sole traders and taxpayers carrying on a business. There is no need for an employee earning regular salary and wage income to apply for an ABN.

Application to your circumstances

As outlined above, the Commissioner considers that you are an employee and that your employer is therefore required to withhold PAYG withholding tax from your salary and wages. As you are considered to be a regular salary and wage earner and not a sole trader or a person carrying on a business, there is no requirement for you to apply for an ABN.

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