Edited version of your written advice

Authorisation Number: 1051508854087

Date of advice: 24 April 2019

Ruling

Subject: Employment relationship between host family and au pair

Question

Was there an employer-employee relationship between you and the au pair you hosted?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

Your household consist of your children and yourself. One of your children requires a special needs program.

You required someone to look after the children while you were at work. You engaged the services of Agency to recruit a live-in childcare worker for the family. You chose this agency because they specialise in recruiting and placing special needs assistants and childcare professionals who had additional experience with special needs children.

The agency had to determine your eligibility to participate in the program as a host family. They required background investigation including criminal background check and employment and personal references.

The agency’s recruitment process involved collection and verification of passport, childcare references, qualifications, criminal record and Australian Working with Children Check.

The agency found a match for your family. They assisted the au pair on the post-match arrival process.

You signed up for a cultural exchange program with Agency. You agreed to a Service Agreement which had key terms relevant to:

● the Agency services and obligations

● host family obligation with the Agency

● to speak with the agency Area Director on a monthly basis and to respond to any other request for communication

● to pay a placement fee and monthly service fee

● the au pair’s

● standard working hours, overtime hours and days off

● duties being limited to childcare and related tasks only

● excluded tasks- heavy housework, yard work, or other labour related to the household.

● entitlements- weekly compensation, overtime, annual leave, days off, other benefits

● non-eligibility to continue in the program in the event of illness, injury or other medical condition that prevents continuation of duties

● host family obligations- to provide:

● positive cultural exchange experience

● room and board including a private bedroom

● payment of a weekly compensation based upon 40 hours of child care services per week

● payment of overtime and annual leave

● automobile insurance

● continued housing for current au pair for up to 14 days if placement change is deemed necessary

● termination of program by Agency

● if the au pair is in an unsuitable environment and

● if host family fails to comply with the terms of the Agreement

● program fees that are payable to Agency: application fee, placement fee and monthly service fee

You hosted an au pair who has a specialization specific to your child’s special needs. She holds a 417 working holiday visa. She lived as part of your family, accompanied you on holidays and helped you with before and after school care for your children. She did not enrol in English classes.

You provided the au pair a manual and an additional information sheet at the start of her placement.

The manual contains information on:

● rules and expectations during children’s activities such as before and after school care, sleeping, eating, watching television, toileting, playing and discipline

● special care requirements

● tasks required from au pair

● emergency contact details

● first aid kit and medicines

The additional information sheet contained your expectations from the au pair or house rules in relation to: the use of car, internet, air conditioner, mobile phones, visits from friends, au pair’s bedroom, bathroom, kitchen, and bar fridge.

The au pair was responsible for preparing the children for school, school drop off and pick up duties, and after school care. She performed a regular special needs session with one of your children in the afternoon after school. Her average weekly working hours were below 40 hours. She had days off on Saturdays and Sundays. She was not required to do household chores.

You paid the agency a weekly amount for the au pair’s compensation. You paid the agreed rate even when she was away for short trips. You also paid the agency a monthly service fee to administer the program. During the school holidays, you paid for additional hours worked in excess of the agreed 40 hours a week.

The au pair had food and board. She was given access to a car and Wi-Fi. She had a funded pass to attend the local swimming pool. She also used a sewing machine for her sewing projects.

Relevant legislative provisions

Income Tax Rates Act 1986 Section 3A

Income Tax Assessment Act 1997 Section 6-5

Tax Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

From 1 January 2017, employers of working holiday makers are required to withhold tax from amounts they pay to their workers under the pay-as-you-go (PAYG) system.

A working holiday maker is an individual who holds a Subclass 417 (Working Holiday) visa, a subclass 462 (Work and Holiday) visa or certain related bridging visas which are issued by the Department of Immigration and Border Protection. The visas allow young adults aged 18 to 30 from eligible partner countries to work in Australia while having an extended holiday. Work in Australia must not be the main purpose of the visa holder's visit.

The amended legislation requires employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers.

An employer needs to register with the ATO before employing a working holiday maker. Once registered, an employer will be able to withhold a flat rate of 15% up to $37,000 in total payments made to each individual working holiday maker within an income year. Where total payments exceed $37,000, different rates apply.

Traditionally, au pairs came to Australia on a cultural experience and were treated like members of the family, helping out with incidental childcare in exchange for the Australian experience and some pocket money. At times, the au pair would be studying English while in Australia and immersing themselves in a local family would help enhance these language skills. They would not be expected to work during their study hours.

This type of au pair were commonly referred to as ‘demi au pairs’ and it was expected that the au pair must enrol in an English language or other academic program in conjunction with their au pair arrangement. While this type of au pair still exists, the cultural exchange factors have diminished and the distinction between an au pair engaged as part of a cultural experience and an au pair employed purely for domestic and childcare assistance has blurred.

Intention to create legal relations

In order to determine whether or not there is an employer/employee relationship between a host family and an au pair, it is necessary to establish whether their arrangement constitutes:

● a legally enforceable contract for the provision of the au pair’s services in return for accommodation, board and payment; or

● an informal arrangement primarily aimed at providing the au pair with a cultural experience.

In most jurisdictions contracts do not need to be represented in writing and oral contracts are as enforceable as written contracts.

For a contract to exist, whether written or verbal, the parties to an agreement must intend to create legal relations. If the circumstances show that the parties ‘did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts’ then there is no contract.

At common law, there are certain requirements that must be satisfied in order for a valid contract to exist:

● the need for one party’s offer of terms to correspond with the other’s acceptance,

● for the terms agreed to be certain and complete,

● the need to meet the necessary formalities, and

● an intention to create legal relations and consideration.

Employer/employee

The expression ‘employee’ is not defined in income tax legislation. Therefore, it has its ordinary meaning. The Tax Office provides guidance to assist in determining whether an arrangement constitutes an employment arrangement in Taxation Ruling TR 2005/16 Income tax: Pay As You Go withholding from payments to employees.

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.'

The ruling provides key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law.

● the degree of control exercised by the person for whom the work is done

● the obligation to work

● the hours of work

● the mode of remuneration

● the provision and maintenance of equipment

● any provision for leave

● the power to delegate, and

● the deduction of income tax.

Control test- The degree of control which the host family can exercise over their au pair is a classic test for determining the nature of the relationship: Hollis v Vabu (2001) 207 CLR 21; 47 ATR 559. At 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 an agreement may specify how the services are to be performed does not necessarily imply an employment relationship.

The Full Bench held in Swift Placements Pty Ltd v. WorkCover Authority of New South Wales [2000] NSWIR Comm 9 that control over a worker did not merely relate to the on-the-job situation, but rather the ultimate or legal control over the worker. It stated:

…control by an employer over an employee is not to be viewed merely in the on-the-job situation in directing a person what to do and how to do it, but rather in the sense of the ultimate or legal control over the person to require him to properly and effectively exercise his skill in the performance of the work allocated …

Ultimate control would, amongst other things, enable the relevant entity to withdraw the worker from an assignment and terminate the contract with the worker. However, specifying in detail how contracted services are to be performed does not of itself necessarily imply an employment relationship.

A host family has a high degree of day-to-day control over their au pair. They usually set the working hours, what is to be done during that time, and when it needs to be done (for example, picking up children from school, taking them to classes, providing food at specific times of the day). The host family provides the au pair with a written or verbal explanation of the weekly or daily routine, precise duties, time off, strategies for managing the children and can include a curfew time when working the following day.

It is likely that the au pair has some input into these arrangements (such as which night they are available for babysitting or when they might decide to travel). However, it is also likely that the host family would have ultimate control to require the au pair to be available for a particular task.

This ultimate control is reinforced by the fact that the host family has the right to terminate the arrangement with four weeks’ notice (or without notice in certain circumstances). This means that if the host family is dissatisfied with the performance of the au pair, they can terminate the arrangement at any time.

Integration- Unlike a typical commercial arrangement, an au pair is not engaged in a business enterprise of the host family. However, they provide direct services to the host family. From the perspective of a third party, they would be seen to be part of the family (particularly as they live with them) and providing services that are integral to the running of the family. They use the family’s car and equipment (rather than their own) and do not project themselves as operating independently such as through advertising or business cards.

Results- Although they receive a weekly amount, au pairs usually are paid for hours worked, not for a result. The rate paid to an au pair is usually negotiated between the host family and the au pair. If they work beyond a set amount of hours they must receive additional pay, often at babysitter rates per hour.

When hours change, for example if the au pair accompanies the family on a vacation, changes to regular duties would accompany changes to pocket money. These factors show the agreements are equivalent to the remuneration received being commensurate with being paid on a time basis.

Application to your circumstances

You work irregular hours. One of your daughters has a condition which requires special care. You claimed that childcare is difficult to find because you live in a rural area. With those circumstances, you submitted that au pairs were the best way to fill the irregular needs for childcare. You also said that the au pair was purely required to be with the children in your absence. Even though you indicated elements of cultural exchange, the primary motivation for your family was for the au pair to provide childcare services in exchange for food and accommodation and payment.

You engaged the services of the au pair through the agency. In exchange for program fees, the agency agreed to recruit, screen and train professional au pair candidates for your consideration and to provide reasonable support during the 12-month program term. You entered into a host family service agreement. The agreement sets out specific details on matters including the program requirements, the length of the program, the role of the au pair, weekly rates of pay, accrual and payment of annual leave, insurance, non-monetary benefits, the number of off-duty days each week, the average number of duty hours per week and replacement and termination conditions. These are legally enforceable terms of engagement and are consistent with an employment relationship.

Where there is a legally enforceable contract between the au pair and the host family, we have to examine the totality of the relationship among the parties. We have to determine whether, on balance, the worker is an employee.

As a host family, you exercised a high degree of control over the au pair. You were involved in the recruitment and selection process for the au pair. On placement, you handed a manual and an information sheet that outlined details on childcare duties and special care arrangements, job expectations and house rules. Though the contract indicated that the agency may immediately terminate your participation in the program, this termination is dependent upon your compliance to the terms of the agreement. Potentially, you can cause termination by not paying the agreed fees to the agency and/or by not providing the agreed benefits and working conditions to the au pair.

Further, the au pair worked directly to, and was integrated into your family. She worked before and after school hours and around your non-availability to look after your children. She provided a personal service that was not delegable. You paid her a weekly set amount. You paid the corresponding overtime rates after the standard 40 hours a week. These factors indicate an employment relationship.

While the au pair and/or the agency were responsible for travel, insurance costs and some reasonable costs, the factors that indicate an employment relationship far outweigh those that indicate an independent contractor relationship.

Therefore, on balance, we consider that there was an employer/employee relationship between you as a host family and the au pair.