Edited version of private ruling

Authorisation Number: 1011726475364

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Ruling

Subject: Employee or contractor

Question

Are you an independent contractor or an employee in respect of services provided as a particular Coach for the Club?

Answer:

Independent contractor

Relevant facts and circumstances

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

In your application, you have provided a signed Agreement between yourself (referred to as the Coach) and the Club.

You are contracted to provide services as a particular Coach.

The Agreement offered by the Club to you contains the following conditions of engagement:

· the duties and obligations of the contracting parties shall be for a period of 40 weeks spread over one calendar year commencing on the relevant date and maybe terminated by either party giving thirty days written notice to the other party.

· the Coach shall be available to Coach the Club's team two to three times a week on agreed days for a period not exceeding 10.5 hours in total contact time. It is expected that the Coach will coach the Club's team to a level that will enable then to compete at up to international competitions. The Coach is to submit a schedule for training for the calendar year for approval by the Committee. The Coach shall not represent the Club, its Management Committee in any transaction or communications nor shall the Coach make claim to do so. The Coach shall carry out the Rights and Responsibilities guidelines.

· the Coach shall receive payment from the Club for the performance of the services rendered to the Club pursuant to the terms of the agreement. The Club shall reimburse the Coach per diem for any reasonable out of pocket expenses subject to approval of the Treasurer incurred by the Coach pursuant to the terms of this agreement The Coach shall submit itemised statements of hours of service performed and expenses incurred during each month and be paid accordingly each month. Expenses incurred by the Coach to attend competition and/or tours will be covered by the Coach unless the Management Committee funds the Coach.

Further, the contract states that your remuneration package will consist of the following:

For 10.5 hours of contact time and 0.5 hours of preparation time for the Club's team per week at the rate of $XX per hour. This will be paid accordingly each month for the period of 40 weeks.

You advised that you determine where the participants train. You set up the program and schedule the trainings and that you work out how many hours each team requires.

You advised that you need to coach the participants to a level that will enable them to compete at State, National and World competition.

You stated that you operate on your own account and submit monthly invoice which states your ABN.

Further, you advised that you do not believe that you have the right to pay for another person to provide coaching services and that do you use your own personal computer to work out the programs and also you provide some fitness equipment. The Club fundraises to purchase equipment for each partipant or each family purchases their own equipment so the participants can practice at home. However if you are running a workshop with another team or school, you do provide your own equipment.

Finally, you advised that it is reasonable to suggest that others would view you as a contractor and that you are not entitled to any benefits such as annual, sick and long service leave and with regards to uniform that there is no requirement or any written requirement that you wear the organizations uniforms, however you chose to wear it at competitions or demonstrations.

Reasons for decision

Summary

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

Detailed reasoning

Employee Vs Contractor

There is no one factor that determines whether a person is an employee or an independent contractor. A number of factors must be considered.

It is important to determine whether a worker is under a contract for service or a contract of service at the outset as it results in certain obligations for the payer and the payee. This decision cannot be made at random, but by considering the facts presented in light of all of the criteria determining the status of the worker.

At either end of the spectrum, it is a simple matter to recognise the classic employer/employee relationship and independent contractor. It is sometimes difficult to define the nature of the relationship where the factors are not so clear. The emergence of performance-based contracts, flexible working hours and work from home arrangements represent a trend that is blurring the traditional distinctions between employee and independent contractor.

Whether the true nature of an arrangement between a payer and payee is that of employer/employee or principal/independent contractor is a determination which must be made by reference to the various indicators developed by the Courts. These indicators have been collated in Taxation Ruling TR 2005/16.

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.

TR 2005/16 goes on to provide the key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law, as follows:

Terms of engagement

The terms and conditions of the contract whether express or implied, in the light of the circumstances surrounding the making of the contract, whether verbal or written, will always be of considerable importance to the proper characterisation of the relationship between the parties.

Some conditions of engagement are closely associated with employment and may, therefore, be persuasive indicators. For example:

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

· provision of other benefits prescribed under an award for employees;

· payer prescribed times and location for the performance of work;

· remuneration in the form of a salary or wage;

· the worker uses assets and materials provided by the payer or is reimbursed, or paid a compensatory allowance, for expenses incurred in respect of use of own assets and materials; and

· payer discretion (within the constraints of industrial relations laws) in respect of task allocation and termination of engagement.

However, this list is not exhaustive and it must be emphasised that there is not a standard set of conditions applicable to an employee and another (different) set applicable to an independent contractor.

In your case, you have provided a signed copy of the Contract Agreement between yourself and the Club.

The Contract Agreement refers to you as the "Coach" and states that the Club engages the services of the Coach to perform for the Club Coaching services as an independent Coach and not as an employee.

The Contract Agreement states that the Coach will provide services for a fee and will be paid upon presentation of a invoice.

Also, the Contract Agreement does not contain any provisions for annual, parental, bereavement or sick leave nor is there any mention of Superannuation and it also states that Coach will provide services for a period of twelve months.

Accordingly, this is a indicator that the arrangement constitutes an independent contracting arrangement.

Control

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the root of the classical view of the master-servant relationship. The degree of control varies on the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather, whether they have the right to exercise it.

Traditionally, a common law employee is told what work needs to be done, how it is to be done, and where it is to be done. However, the mere fact that a contract may specify in detail how the contracted services are to be performed does not necessarily imply an employment relationship, and a high degree of direction and control is not uncommon in contracts for services.

It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. As stated by Dixon J in Humberstone v. Northern Timber Mills (1949) 79 CLR 389; 

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in performance of his work resided in the employer so that he was subject to the latter's orders and directions.

Likewise, the High Court in Zuijs v. Wirth Brothers Proprietary Ltd (1955) 93 CLR 561 described the significance of control in the following way in the context of skilled employment where the nature of the work performed left little scope for detailed control: 

What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.

The right to control versus actual control is particularly relevant where the nature of the employment requires a considerable degree of experience, knowledge or skill. In these circumstances, it is to be expected that the employer will leave the performance of the activity up to the employee.

In your case, it is apparent that there is minimal control being exerted on you as the Coach. You determine when the children train and you set up the program and schedule the trainings. Further, you work out how many hours each team requires.

With reference to your profession, it would not be considered unreasonable for a Coach to be able to exercise a high degree of direction and control over the work. These factors indicate that it is a contract for service.

Results Contracts

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 service.

In a contract for services, the contract specifies the services to be performed in return for an agreed payment. Satisfactory completion of the specified services is the 'result' for which the parties have bargained. Conversely, under a contract of service, payment is not necessarily (but may be) dependent on, and referable to, the completion of specified services.

An independent contractor normally renders accounts payable by invoice and possesses his/her own ABN, and payment would be for the performance of the contract, that is, payment for a result.

In your case, you need to Coach the participants to a level that will enable them to compete up to international level.

You do possess an ABN and the Contract Agreement states that Coach will receive payment from the Club for the performance of their services in return for an agreed payment of $XX per hour up to a maximum of 10.5 hours of contact time and 0.5 hours of preparation time for the duration of the contract.

Further, the Contract Agreement states that the Coach will have to submit itemised statement of hours of service performed and expenses incurred during any particular month. The amount will be paid to the Coach each month according to the terms in the contract.

These indicators are more consistent with a contract for service, that is, an independent contractor.

Does the worker operate on their own account or in the business of the payer?

Another significant consideration offered in TR 2005/16 is the issue of whether the worker operates on their own account or as part of the business of the payer. This is sometimes viewed as a consideration of whether the workers would be viewed by a third party as carrying on their own enterprises as independent contractors or operators and whether they could be expected to generate goodwill in their own right.

In Hollis v Vabu, the majority of the High Court quoted the following statement made by Windeyer J in Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210;

'…the distinction between an employee and independent contractor is 'rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.'

In your case, there appears to be a strong desire to separate the operations of the Coach from the Club. The Coach is paid separately for their services. It could be viewed that the Club and the Coach operate jointly, but each have distinct characteristics of carrying on a business in their own right.

Contract Agreement states that the Coach shall not represent the Club, its Management Committee in any transaction or communications nor shall the Coach make a claim to do so.

Further, you state that your contract is for a year and you also do contract work for other Clubs.

Importantly, an independent party is likely to view the operations of the Coach as those of an independent venture or enterprise in its own right.

These points would suggest that an independent third party is unlikely to view the Coach as being an employee of the Club or as being integrated into the business, concern or enterprise of the Club.

This is indicative of there being an independent contracting arrangement in existence.

Hours of Work

An employee generally works standard or set hours. An independent contractor, on the other hand, generally sets their own hours of work.

In your case, the Club does not operate a roster or schedule detailing what times the Coach should work. There are no minimum hours that the Coach is required to work. You as the Coach choose the times and dates that you wish to work with consultation with the management committee.

This is also a clear indicator that the arrangement constitutes an independent contracting arrangement.

Provision of tools and equipment and payment of business expenses

It has been held in a variety of cases that 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.

There are situations where, having regard to the custom and practise of the work, or the practical circumstances and nature of the work, very little or no tools of trade or plant and equipment are necessary to perform the work. This fact alone will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this - or any other indicator - depends on the particular circumstances, the context and the nature of the contractual work.

In your case, the Contract Agreement states that the expenses incurred by Coach to attend competition and or tours will be covered by Coach unless the management committee funds the Coach.

Further, you supply your own personal computer and aids to work out your programs and you provide fitness equipment.

In addition, the Club fundraises to purchase the equipment for each participant or participants may purchase their own equipment so they can practice at home however if you are running a work shop with another team or organisation, you provide your own equipment.

Again this indicator would be more indicative of the arrangement constituting an independent contracting arrangement.

Delegation of work

The unlimited power to delegate or subcontract work is an important factor in deciding whether the worker is an employee or independent contractor.

If the worker is contractually required to personally perform the work, this is an indication that the person is an employee whereas if an individual has unlimited 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.

In your case, the Contract Agreement states that the Coach is not liable to the Club or to anyone who may claim any right due to any relationship with the Club for any acts or omissions in the performance of the services on the part of the Coach or on the part of the agents or employees of the Coach.

You have advised that you do not believe that you have the right to pay another person to render the services.

Based on the information that has been provided, it is not conclusive as to whether you are entitled to engage someone on your behalf to render the services to be performed as a Coach.

Risk and rectification of work performed

Whether the worker is contractually obliged to be liable 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 bare the risk and responsibility of liability for their work if it is not up to an agreed standard and would be required to either rectify this defective work in their own time or at their own expense. This means that an independent contractor will often carry their own insurance and indemnity policies.

An employee on the other hand would bare no such responsibility and the liability for any defective work of the employee, either to a third party or otherwise, would fall on the employer in terms of the burden of cost or time for rectification.

As per the Contract Agreement, the Coach is expected to Coach the Club's team to a level that will enable them to compete at state, national and international competitions. Prior approval for extra training and variation to training hours must be obtained from the Committee.

Accordingly, with respect to the risk test, the Coach is considered to be independent contractor.

Place of Performance

Workers under a contract of service will generally perform the tasks on the payer's premises using the payer's assets and equipment. A contractor, on the other hand, generally provides all their own assets and equipment.

In your case, you are required to work from the premises of the Club but will be using your own computer and aids to work out programs and also provide some fitness equipment.

Conclusion

With consideration of all the facts presented in this case and with reference to the indicators provided in TR 2005/16, it is clear that the Coach is an independent contractor and not an employee of the Club.

As the Coach is considered an independent entity, you have an obligation to manage your own tax affairs, for example PAYG withholding, GST and superannuation.