Within the last few years, the Australian Tax Office (ATO) and Western Australian Office of State Revenue (OSR) have intensified efforts to ensure employers are compliant with their employment tax obligations.
For the ATO, the primary employment tax obligations are PAYG and superannuation. For the OSR, it is pay roll tax. These obligations arise where the ATO and/or the OSR determine that a business is an employer of employees. Where the ATO or OSR make that determination and issues an assessment notice or its equivalent to the subject entity in respect of that determination, that entity bares the onus to rebut the presumption that the workers are employees. The problem lies therein; as there is no ‘lightning rod’ or ‘bright line’ test to determine if the worker is an employee or independent contractor, potential employers are left in limbo at both the contracting and dispute stages.
MAKING THE DISTINCTION USING THE ‘MULTI-FACTOR’ TEST
In the decision of Hollis v Vabu (2001) 207 CLR 21 (“Hollis”), the High Court held that because the worker (the bicycle courier) was an employee, the employer (Vabu) was vicariously liable for the employee striking and injuring the Appellant with his bicycle. In their reasoning, the Majority and McHugh J explained that, in order to determine whether a worker is a contractor or employee, an examination of the ‘totality of the relationship’ between the principal and worker is required. This means weighing various indicia that may lead towards or against an employment relationship. However, the Court relevantly highlighted that spotlighting indicia would not necessarily illuminate the totality of the relationship, as some indicia are more useful in particular work arrangements. Their Honours decided that the following indicia (amongst others) militated towards the classification that the courier was Vabu’s employee:
a) The courier was responsible for his own bicycle and repair costs. However, because the capital outlay was relatively small and the courier was not providing skilled labour, the courier was unable to pursue an independent courier career;
b) The courier lacked control over his work. Vabu directed and allocated work the courier could not refuse. Vabu was unlikely to have permitted the courier to delegate his tasks or be employed by another. Vabu set the courier’s remuneration rate without scope for negotiation; and
c) The courier was presented to the public as an emanation of Vabu.
Through the application of the principles articulated in Hollis, numerous cases have illuminated the difficulty that principals have in determining what their workers really are. At HHG Legal Group, our experienced team of solicitors can provide you with this advice at the outset in order to minimise potential liability. If you or your company has already received an assessment notice or its equivalent from the ATO or OSR asserting that your contractors are employees, we can assist you in the preparation of an appropriate response.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office at firstname.lastname@example.org or call us on 1800 609 945.