Edited version of your written advice

Authorisation Number: 1012875265297

Date of advice: 8 September 2015

Ruling

Subject: Whether there is an obligation to withhold from payments made to workers

Question

Is there an obligation on the entity to withhold from payments made to workers under section 12-60 of Schedule 1 to the Taxation Administration Act 1953?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commenced on

1 July 2015

Relevant facts

The entity provides a service for government/businesses utilising the services of the Workers.

The entity has an ABN and is registered for GST.

The Workers do not have to accept work, and provide their services to other entities (not solely the Principal).

The Workers must provide their own transport when undertaking work, for which they are not paid a per kilometre allowance or in any other form.

The Workers must provide their own tools of trade such as phone, tablet, writing materials etc.

The Workers are paid a set price for the job they undertake according to time taken, difficulty, urgency, after-hours etc.

They are only paid if the job is completed and the job is completed to the satisfaction of the Principal's client.

The client must sign the 'job voucher' to say the job was completed to their satisfaction before the worker can be paid.

If the worker is late or not of appropriate standard they are not paid and under the contract can be penalised at a rate of $X for each job not completed to requirements.

Workers are also free to sub-contract work to other Workers with the rule being that if the client signs the job voucher then the job has been done to their satisfaction and the worker on the Principal's register will be paid, and it is up to them to pay their sub-contractor.

Workers are then paid when completed job vouchers are returned and this is regarded as their invoice to the Principal.

If they do not return the job vouchers they are not paid until they do.

Most workers may only do between one job per month or one per year. The Entity is unaware what income they make from providing services to other entities.

Other workers are more regular and earn more regular income from the Principal. The Entity is unaware what income they make from providing their services to other entities.

The Entity has a database of Workers who they contact on a needs-basis.

The work is not performed daily, only when jobs are available. There are no Workers who work every day and most work irregularly.

The Entity established the working relationships with the Workers by word of mouth and the Principal's website.

The Entity enters into a written agreement with the Workers.

Workers are able to renegotiate their pay or terms and conditions, the Entity advised that it is written in the contracting agreement that they can ask to change their payment amounts for work done.

If the work is not to the appropriate standard then the Entity does not use that Worker again.

The Entity has XX Workers and none of them are paid as employees.

The Entity did not provide any training.

The Entity assesses the competence of each Worker via a phone or in-person 'discussion' to determine if they are suited to the Principal's business. The Entity also provides each Worker with an information sheet (copy provided) to assist with adhering to the Principal's mission and procedures.

All Workers determine their own days and hours they can work on a personal level. The Entity checks if they are available for a job and the Worker decides if they want to do the job. The hours actually worked depend on the job. The Worker has the right to leave the job at any time.

While the Workers are not entitled to paid breaks, some client organisations provide breaks and pay the Worker for these breaks by including this in their hours worked.

The Entity stated they do not schedule the jobs or tasks to be carried out by the Workers. The Entity provides the jobs but the Worker must allocate their work personally according to their diary, as many work for other businesses.

The Entity directs where the jobs are to be performed in that the Entity advises the address where the service is to be undertaken. The Worker cannot decide where to undertake the job because of the nature of the work.

Regarding supervision of the Workers, the Principal's clients supervise the Workers work and undertake quality control and monitor attendance. The Entity is then advised if the work was not 'up to scratch,' or if the Worker did not turn up or was late. The client 'signs off' on the job.

The Worker could refuse to do a particular job or task. They do not have to do any jobs and also have the right to remove themselves part way through any jobs. Approximately X% of the jobs are refused by Workers and the Entity keeps approaching other Workers, until there is acceptance or the Entity cannot fulfil the job, which the Entity estimates happens a few times per week.

The Workers are not required to seek the Principal's permission or provide prior notice if they wanted to take time off, however Workers are encouraged to provide details of when they are taking time off or are not available.

The Workers are able to provide their services to other individuals or businesses. Many also work for other businesses and government departments. Few work solely for the Entity as their income would be minimal.

The Workers work alone.

The Workers do not train or supervise other workers.

After each job the Workers provide multiple copies of job vouchers to the Entity which must be signed by the Principal's client and the Worker, and the details of the hours the job took as approved by the client. The job vouchers provide confirmation for the Entity that the Workers have completed their work before payment because both the Worker and client must fill them in and sign them.

The Entity sets the fees for the jobs. Some Workers set their own fees but this is minimal.

The rate of the fees is re-assessed every few years to take account of any changes to CPI or as a means of retaining valued Workers.

Payment to Workers is not dependent on the completion of each job. Workers are paid if a client does not turn up, common with appointments at employment agencies, or if a job was cancelled at short notice.

Workers are paid for the work they completed by the Entity into their bank accounts.

Workers are not paid any allowances, holiday pay, sick pay, or workers compensation. Travel allowance is paid if travel over X kms is required for a job however this is required only very rarely as most jobs are local. The Worker determines the amount of travel allowance paid.

The Entity does not deduct any amounts for income tax or superannuation from payments to Workers.

If the Workers are sick or on holidays, either the Entity or the Workers can arrange for their work to be done while they are absent. Sometimes the Workers get another Worker to do their job and pay them themselves. Mostly, if a Worker is away the Entity approaches another Worker to see if they can do the work.

Workers cannot organise an employee of the Entity to complete their work. Workers can organise their work to be completed by another person engaged by the Worker with or without the Principal's approval, or any other person.

In relation to work performed by the Workers, the Workers are responsible for paying workers compensation insurance, private accident insurance, public liability insurance.

Workers were not required to guarantee their work for any period of time, due to the nature of the work.

If Workers made a mistake or broke something when doing their work, they would have to correct the work in their own time, pay for the materials used to correct the mistake, and pay for the breakage. Workers advise the price for the job and are only paid the amount quoted. If Workers were for example to break their mobile phones on a job they would have to pay for a replacement.

The Entity does not supply any tools, equipment, or pay Workers reimbursements for assets or tools. Workers must provide their own phone, computer, vehicle, diary etc. to allow a job to be completed.

The Entity enters into a written agreement with the Workers. The Entity provided an unsigned sample copy, which set out the expected behaviour, professionalism to be demonstrated by the Workers in performing the jobs. The written agreement was titled 'Conditions of contract' and contains the following relevant information:

The entity subcontracts to the Workers the work of delivering to clients specific services.

Workers shall perform job personally; replacement for the assignment is to be approved by the office.

When subcontracted by the entity, Workers may present the entity's business card only - they cannot use personal cards, or cards which may imply subcontracting by any other organisation.

Workers may set their own rates and conditions.

Workers may decline an assignment or withdraw from it.

Workers may freely work for other agencies however the entity is to be notified about all agencies Workers work for. Some agencies may approach Workers even while on the job with intention to "poach" them. They must advise the Entity about any such incident.

Workers are personally responsible for the quality of their work.

Workers are not responsible for what clients say or write.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-60 of Schedule 1

Reasons for decision

Section 12-60 of Schedule 1 (Sch) to the Taxation Administration Act 1953 (TAA) outlines payments under labour hire arrangement, or specified by regulations.

Subsection 12-60(1) states an entity that carries on an enterprise must withhold an amount from a payment that it makes to an individual in the course or furtherance of the enterprise if:

(a) the enterprise is a business of arranging for persons to perform work or services directly for clients of the entity, or the enterprise includes a business of that kind that is not merely incidental to the main activities of the enterprise; and

(b) the payment is made under an arrangement the performance of which, in whole or in part, involves the performance of work or services by the individual directly for a client of the entity, or directly for a client of another client.

An example is as follows:

Staffprovider Ltd keeps a database of skilled persons who are willing for their services to be provided to third parties. Staffprovider arranges with Corporate Pty Ltd to provide to it the services of a computer programmer for Corporate. Staffprovider must withhold amounts under this section from payments it makes to Jane under the arrangement with her.

In this case the entity has an ABN and is registered for GST therefore it is operating an enterprise. The entity is in the business of arranging for skilled workers to perform specific services directly for its clients. Workers are paid a payment wholly for the performance of their specific services for the company's clients.

As the conditions under section 12-60 have been met the entity is obliged to withhold from payments made to workers it engages for its clients.