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Ruling

Subject: Employee vs contractor

Questions and Answers:

1. Are the workers you engage to provide language services considered to be employees for the purpose of Section 12-35 of Schedule 1 of the Taxation Administration Act 1953?

No.

2. Are the workers you engage to provide language services considered to be employees for the purpose of Section 12 of the Superannuation Guarantee Act 1992?

No.

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You operate a business providing language services for the public. You engage workers to provide client services on an as needs basis, following a request for services from a client. In a typical transaction for services, you will be contacted by a client to provide language services, often in more than one language.

You will then provide a quotation for the services required, depending on factors, such as word count, complexity and nature of the document, urgency, range of languages required, age and sex (with regard to voice recording) and availability of linguists. If a quotation is accepted, you will select a worker/s from your database of suitably qualified persons.

There are a number of factors which are significant in selecting a worker for a particular job. These include the worker's track record and reputation, whether they have any specific skills relevant to the individual job (i.e., technical, legal, or medical knowledge), whether they hold professional accreditation or membership and whether their fees are considered acceptable within the context of your quotation for a particular project.

With regard to translation, editing and proofreading, you will then send a copy of the document to the most suitable worker with an offer to take the job.

The worker is under no obligation to accept a particular job and, in the event that a job is not accepted by one worker, it is simply offered to the next most suitable candidate. When a translation, editing or proofreading job is accepted by a contractor, they are provided with a time limit in which to complete the work but are able to complete the work at any hours they choose.

The workers use their own offices, IT equipment, dictionaries, faxes and stationery and you are not required to supply any tools or equipment.

You do not, in any way, supervise or dictate the language task. The worker is completely responsible for his/her own work and must rectify any errors so that the outcome provided to you is in its final form.

There is no requirement that workers perform the work themselves and they are free to delegate work to any other qualified person, although they are inevitably responsible for the finished product and will not be paid unless the work completed is satisfactory.

The workers are not prevented from using any of the commercially available translation memory tools or machine translation systems to produce the specified result.

The workers are usually paid a fixed set rate for the completion of tasks, although some workers do set their own rates, which usually reflect increased demand for their particular services.

With the exception of interpreting and voice recording, payment is made based on results rather than time.

The workers have their own ABN (unless they live overseas) and charge you by way of invoice. In the event a worker does not have an ABN, ABN Withholding Tax is applied.

You do not reimburse the contractors for any expenses incurred in relation to the assigned work, with the exception, on occasion, of travel expenses for interpreting jobs overseas or interstate.

The workers widely advertise their services and they are not required to provide their services to you exclusively, or even primarily. Thus the workers do not use a business card of your company, wear your company uniform or represent you in any way.

Many of the workers engaged by the company live interstate or overseas and, in some instances, you have never met or had any face-to-face interaction with the workers.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 Section 12-35

Superannuation Guarantee (Administration) Act 1992 Section 12

Reasons for decision

Section 12-35 of the Taxation Administration Act 1953 states an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Similarly, the Superannuation Guarantee (Administration) Act 1992 requires employers are required to make superannuation contributions into a complying superannuation fund or Retirement Savings Account for the benefit of their eligible employees in accordance with minimum prescribed levels.

Whether a person is engaged as an employee or an independent contractor is outlined in Taxation Ruling TR 2005/16. The ruling lists features which have been regarded by the courts as key indicators of whether an individual is an employee or independent contractor that have been regarded by the courts at common law. These indicators include:

The control test, the degree of control which the payer can exercise over the payee. In your case, you primarily provide a service of matching a linguist with a client. However, it is the linguist that controls how they perform the work. Thus, the balance of the control test weighs in favour of the individual linguists.

The organisation or integration test, whether the worker operates on their own account or in the business of the payer. In your case, you primarily provide a service of matching a linguist with a client, based on the skills, qualifications and availability of the linguists. In other words, it seems, primarily, the goodwill generated is dependent on the skills and qualifications of the linguist. Thus, the balance of the integration test weighs in favour of the individual linguists.

The results test, whether the worker is free to employ their own means and paid to achieve the contractually specified outcome. In your case, although there is some payment based on hourly rates, most of the work is performed on a results basis. Thus, the balance of the results test weighs in favour of the individual linguists.

The risk test, whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance. In your case, your linguists bear most of the responsibility and expense for the rectification or remedy in the case of unsatisfactory performance. Thus, the balance of the risk test weighs in favour of the individual linguists.

The delegation test, whether the work can be delegated or subcontracted (with or without the approval or consent of the principal). In your case, your linguists may delegate the work. Thus, the balance of the delegation test weighs in favour of the individual linguists.

Which party provides tools, equipment and payment of business expenses. In your case, your linguists provide the necessary equipment and must bear many of their own expenses. Thus, the balance of this final test weighs in favour of the individual linguists.

In your case, the various tests weigh heavily in favour of your linguists being independent contractors. Thus, the linguists you engage to provide client services are not employees for taxation purposes.