Edited version of your written advice

Authorisation Number: 1051435113655

Date of advice: 28 September 2018

Ruling

Subject: Pay as you go withholding (PAYG W) obligation

Question

Is there an obligation on you to withhold from payments made to workers who are engaged to provide tutoring services to students under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No

This ruling applies for the following periods:

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

Financial year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your organisation engages tutors. Teachers with appropriate qualifications and skills are engaged to provide tutoring to students. Your organisation uses a national program with teachers working with students in each state and territory in Australia.

Control

Teachers engaged by your organisation exercise a high degree of control over the manner in which they provide the tutoring services, and in particular:

n they may (and do in practice) exercise their discretion as to the method of providing the tutoring services to an appropriate standard, including the selection and use of appropriate learning strategies

n they use their own skill and experience to prepare and provide all necessary teaching materials, and your organisation relies on their professional experience and qualifications to do so

n they liaise directly with the relevant child's school and parents regarding the relevant child's progress and goals

Whilst teachers are expected to perform their duties at the relevant child's school and during school hours, they are otherwise free to determine the hours that they work

Organisation or integration

All engaged teachers have specific skills which they carry on in their own right. The teachers are

engaged to perform the specific task of providing tutoring and how they do that is basically up to

them within the limited guidelines set by your organisation.

Results

The engaged teachers are paid on an hourly basis once a month. Teachers will be paid provided they have performed the tutoring service at the relevant standard, submitted a plan for the relevant school term for each student and have provided an appropriate tax invoice. Teachers are free to implement their discretion as to the method of providing the tutoring services to an appropriate standard including the selection of and use of appropriate learning strategies within your organisation’s boundaries.

Fees

Your organisation has a standard fee per month per student for tutoring services up to a maximum per annum per student, based on a standard program of one lesson per week during the school term. Invoices must reflect any variance to this.

Teachers are required to issue itemised invoices to your organisation in order to receive fees, which are calculated based on the number of hours spent providing the tutoring services. Teachers are responsible for any expenses incurred in the provision of the services, as well as payments of GST in relation to the provision of the services.

Exclusivity/Independence

Teachers are not engaged on an exclusive basis and are free to provide tutoring or other teaching services to other organisations. In practice, teachers are frequently employed at the relevant child's school and they perform the tutoring duties in addition to their regular teaching duties.

To assist the teachers provide the appropriate tutoring services, they are provided with an assessment of the relevant child's learning needs as prepared by your organisation, based on which they are required to develop a curriculum with reference to the relevant child's specific needs as identified in the assessment. However, no other material relevant to the tutoring services, including any tools of trade or learning materials developed by your organisation or any other person are provided to the teachers by your organisation or any other related entity. Furthermore, whilst the tutoring plan is subject to approval by your organisation, and teachers are also required to submit reports to your organisation in relation to each tutored child each term, this limited oversight is necessary to ensure that an adequate standard of tutoring services is being provided and is not indicative of the type of control exercised in an employment relationship.

Your organisation relies on the professionalism of each teacher to provide the appropriate curriculum content for each child. Your organisation does not provide any specific programs or direct teachers in what they must teach.

Ability to delegate

Your organisation is engaging the skills and expertise of the teachers who must refrain from assigning, subcontracting or delegating any of their rights or obligations as a tutor to a third party without your organisation's written consent, this is because the teachers will be working with children and must meet relevant "working with children" requirements.

Commercial risks

The teacher is responsible for and indemnifies your organisation against liability for all loss, damage or injury caused or contributed to by them in the course of their work.

Provision of tools, equipment and payment of business expenses

Teachers are responsible for any expenses incurred in the provision of services as well as payment of GST in relation to the provision of services. Teachers must also prepare and provide all necessary training materials.

Contractual terms

Under the terms of the standard form agreement between the teachers and your organisation:

● Teachers are responsible for the payment of all group tax, PAYG, GST, superannuation and any other taxes, levies, deductions charges, duties, penalties or withholding taxes arising out of the provision of the tutoring services

● Teachers agree to be responsible for and indemnify your organisation against liability for all loss, damage or injury to persons or property caused or contributed to by them in the course of performing the services. If your organisation incur any expenses or pay any amount in respect of such loss, damage or injury, your organisation may deduct the amount form any monies owing to the teacher

● The engagement is not intended to be exclusive and teachers may accept any other engagement or employment by a third party during the term of the consultancy which will not hinder or interfere with the performance of the tutoring services.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 Division12-35

Reasons for decision

Summary

After considering the facts relating to the engagement of tutors with your organisation, as outlined in your application, against the facts considered by the courts in determining if engaged people may be employees or contractors it has been determined that you are not obliged to withhold from payments made to your tutors under section 12-35 of Sch 1 to the TAA.

Detailed reasoning

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that you must withhold an amount from a payment of salary, wages, commission, bonuses or allowances you pay to an individual as an employee.

A determination of whether an individual under a specific arrangement is an employee must be made by a consideration of the total factual circumstances in light of all of the indicators determining the status of that individual. It is the totality of the relationship that needs to be considered.

Taxation Ruling TR 2005/16 considers the various indicators the courts have considered in establishing whether a person engaged by another individual or entity is an employee within the common law meaning of the term.

These indicators include:

● The control test: The degree of control which the payer can exercise over the payee.

● The organisation or integration test: Whether the worker operates on their own account or in the business of the payer.

● The results test: Whether the worker is free to employ their own means and is paid to achieve the contractually specified outcome.

● The delegation test: Whether the work can be delegated or subcontracted (with or without the approval or consent of the principal).

● The risk test: Whether the worker bears the legal responsibility and expense for the rectification or remedy in the case of unsatisfactory performance.

● Which party provides tools, equipment and payment of business expenses?

Control

The test for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. The importance of control lays not so much in its actual exercise as in the right of the employer to exercise it.

A high degree of discretion or latitude in the manner in which a task is performed does not, of itself, indicate a contract for services.

Further, although it is not uncommon for a contract to specify how the contracted services are to be performed, this does not necessarily imply an employment relationship. A high degree of direction and control is not uncommon in contracts of service. In contractual arrangements any control or direction must be expressed in terms of the contract only, so that outside the contractor is free to exercise their own discretion, because they work for themselves.

In this case, teachers engaged by your organisation exercise a high degree of control over the manner in which they provide the tutoring services. They exercise their discretion as to the method of providing the tutoring services to an appropriate standard, including the selection and use of appropriate learning strategies. They use their own skill and experience to prepare and provide all necessary teaching materials, and your organisation relies on their professional experience and qualifications to do so. They liaise directly with the relevant child's school and parents regarding the relevant child's progress and goals. Whilst teachers are expected to perform their duties at the relevant child's school and during school hours, they are otherwise free to determine the hours that they work.

Your organisation does not provide any specific programs or direct teachers in what they must teach. Your organisation has limited control over any of the engaged teachers. The engaged teachers are free to exercise their skills as a teacher within the boundaries set by your organisation.

Organisation or integration

In an employment relationship, tasks are performed at the request of the employer and the employee is said to be working in the business of the employer. An independent contractor carries on a trade or business of their own. An independent contractor enters into a contract to perform specific tasks and has a high level of discretion and flexibility about how the work is to be performed, even if the contract contains precise terms about methods of performance.

An employee works in the business of the employer and the work performed may be said to be integral to that business. An independent contractor works for the payers business but the work is not integrated into the business rather is an accessory to it.

In this case the teachers are from a range of educational backgrounds using individual methodologies and providing a range of tutoring services specific to the student’s and school’s needs. They are engaged to use their specific skills, within limited guidelines, to achieve a result specific to the student as opposed to a result specific to your organisation.

Results

Where the substance of a contract is for the production of a given result, there is a strong indication that the contract is one for services.

'The production of a given result' means the performance of a service by one party for another where the first-mentioned party is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified services is the 'result' for which the parties have bargained.

The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled, the remuneration is usually made for producing a given result.

In this case, engaged workers are paid on an hourly basis once a month. Teachers will be paid provided they have performed the tutoring service at the appropriate standard, submitted plans and reports for the relevant school term for each student and provided and appropriate tax invoice. If additional tutoring for the student is required beyond the minimum hours outlined in the contract because the tutoring services have not met the appropriate standard the teachers will not be paid further fees for the further tutoring they perform to achieve the required standard.

Delegation

The power to delegate or subcontract is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee.

Whereas if an individual has unfettered 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. The contractor is free to arrange for their employees to perform all or some of the work or may subcontract all or some of the work to another service provider. In these circumstances, the contractor is the party responsible for remunerating the replacement worker.

A common law employee may frequently 'delegate' tasks to other employees, particularly where the employee is performing a supervisory or managerial role. However, this 'delegation' exercised by an employee is fundamentally different to the delegation exercised by a contractor outlined above. When an employee asks a colleague to take an additional shift or responsibility, the employee is not responsible for paying that replacement worker, rather the workers have merely organised a substitution or shared the work load. This is not delegation consistent with that exercised by a contractor.

Teachers are able to engage subcontractors to carry out the tutoring sessions with your organisation's written consent.

Risk

An employee bears little or no risk of the costs arising out of injury or defect in carrying out their work. An independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor is usually expected to take out their own insurance and indemnity policies.

Whether the worker is contractually obliged to accept liability 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 bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense.

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

All teachers must agree to indemnify your organisation against liability for all loss, damage or injury to persons or property caused for contributed to by them in the course of performing the services. Your organisation has the right to terminate the arrangement if it considers that a teacher's performance of the tutoring services is unsatisfactory or at the reasonable request of a school or parent/guardian (among other reasons).

Provision of tools and equipment and payment of business 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.

However, the provision of necessary tools and equipment is not necessarily inconsistent with an employment relationship. The provision and maintenance of tools and equipment and payment of business expenses should be significant for the individual to be considered an independent contractor.

There are situations where very little or no tools of trade or plant and equipment are necessary to perform the work. This fact by itself will not lead to the conclusion that the individual engaged is as an employee. The weight or emphasis given to this indicator (as with all the other indicators) depends on the particular circumstances and the context and nature of the contractual work.

Further, 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.

Teachers are responsible for any expenses incurred in the provision of the services as well as payments of GST in relation to the provision of services. Teachers must also prepare and provide all necessary teaching materials.

After comparing the facts of your case against the generally considered indicators of; control, organisation or integration, results, delegation, risk, and provision of tools and equipment, it is considered that your engaged teachers are generally not employees of your organisation, therefore there is no obligation to withhold from payments made to them under section 12-35 of Sch 1 to the TAA.