Edited version of your written advice

Authorisation Number: 1051355529375

Date of advice: 29 March 2018

Ruling

Subject: Engaging a working holiday maker

Question 1

Will your proposal to engage an au pair fall within the new legislation that applies to holders of visa subclasses 417 and 462 and require you to register as an employer?

Answer:

Yes

Question 2

Does the new legislation that applies to holders of visa subclasses 417 and 462 and requires 15% tax to be withheld from their earnings apply to au pairs who are not employees and are in Australia for a cultural exchange?

Answer:

No.

This ruling applies for the following periods

Year ended 30 June 2018

The scheme commenced on

1 January 2018

Relevant facts and circumstances

You are a busy working parent and very time poor.

You will be using an agency to find an au pair. You are not sure which agency you will be using at this stage.

The agency will do all the visa checking and administration associated with finding an au pair and you will simply pay them a one-off finders’ fee.

You will interview the au pairs and choose the best suited to fit with your family.

The au pair will also choose which family they would prefer to live with for their cultural exchange.

There will be no contract between you and the au pair agency and neither will there be a contract between you and the au pair.

Your au pair will be given pocket money of $X for up to 30 hours of domestic assistance during the week.

Your au pair will be coming to live with your family as part of a cultural exchange. They will be treated as a family member, not an employee. They will eat with the family and often partake in family outings. The au pair will also receive other benefits such as full board and accommodation, use of the family car, free wi fi, all bills included etc.

You are proposing to prepare a memorandum of understanding so that the au pair’s responsibilities are clear, especially when driving the car for insurance purposes (should there be an accident, the memorandum of understanding would make it clear who is responsible for paying the excess).

You are also preparing a 'household guide' that explains the children's routine, the light household duties and laundry they will be doing. They will not be required to clean the house as you have a cleaner.

You have X children, X of which are school age. The youngest has X days in care and X days at home. The au pair would be assisting with care for the youngest during these X days.

You work part-time so full-time care is not necessary. The au pair would be assisting with the children Monday to Friday in the mornings, getting breakfast and clearing up the breakfast dishes, and again in the evening. They would have the rest of the day and weekends off to join in with family events etc.

Should either you or the au pair not be satisfied with the arrangement you would consider that two weeks' notice would be sufficient to end the arrangement.

You do not believe the au pair will have any other work or study commitments.

Relevant legislative provisions

Income Tax Rates Act 1986 Section 3A

Income Tax Assessment Act 1997 Section 6-5

Fringe Benefits Tax Assessment Act 1986 Section 35

Fringe Benefits Tax Assessment Act 1986 Section 36

Superannuation Guarantee (Administration) Act 1992 Section 12(11)

Reasons for decision

Summary

Where an au pair is on a genuine cultural experience and being treated as a member of the family, while providing only incidental domestic services (minimal hours), it would be less likely they would have entered into a legally enforceable contract and be employed by the host family.

The prime motivation for the family in such a case is to provide a cultural experience and the family may not obtain the degree of benefit from the arrangement that the au pair does. It is also likely that, the more informal the arrangement, the more likely that one or other of the parties is not obliged to fulfil any agreed terms and conditions. This would particularly be the case if payment of the au pair’s expenses is discretionary, varies, or is not directly related to work performed by the au pair.

In contrast, and as outlined in your proposal, an au pair working and being remunerated for significant hours of service, with distinct responsibilities and duties would more likely be a party to a legally enforceable, express or implied contract and would be considered to be employed by their host family.

Detailed reasoning

As you are aware, 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 is in Australia holding a sub class 417 or 462 visa or certain related bridging visas which are issued by the Department of Home Affairs (previously known as the Department of Immigration and Border Protection). These 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 of Taxation, which will allow them to withhold tax from income they pay to each working holiday maker at specific income tax rates (15%).

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.

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.

Intention to create legal relations

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.

You propose that you and your au pair will have a memorandum of understanding so that the au pair’s responsibilities are clear, especially when driving the car for insurance purposes (should there be an accident, the memorandum of understanding would make it clear who is responsible for paying the excess).

The 'household guide' will explain the children's routine, the light household duties and laundry the au pair will be doing. Your au pair will not be required to clean the house as you have a cleaner.

Your au pair will be provided remuneration consisting of room and board and pocket money of $X per week.

On the above, it is concluded there is an implied contract entered between the parties.

Employer/employee

The expression ‘employee’ is not defined in income tax legislation. Therefore, it has its ordinary meaning. The ATO 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 has provided the following key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law:

1. Terms and circumstances of an agreement – an item in an agreement that aims to identify the relationship between a host family and their au pair as a cultural experience and not that of employer/employee must be considered with all the other terms of the agreement. That is, the parties cannot deem the relationship between themselves to be something that it is not by simply giving it a different label.

2. 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. A 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 kids 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 two 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.

As we have discussed above, you propose to prepare a ‘household guide’ which will explain the children's routine, the light household duties and laundry the au pair will be doing. You also expect that either you or the au pair will have the right to terminate the arrangement, should it not be satisfactory.

3. 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.

4. 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 negotiated between the host family and the au pair on advice from the agency. 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.

You propose that your au pair will be given pocket money of $X for up to X hours of domestic assistance during the week. You have considered the amount of work your au pair will be undertaking and have calculated an amount based on the number of hours involved, having regard to the value attributable to the room and board provided.

5. Delegation – There is nothing to indicate an ability to delegate. Considering the personal nature of the relationship between the host family and the au pair, it is unlikely that, in practice, there is any ability for the au pair to delegate their duties.

If an au pair is required to personally perform the work, this is an indication that they are an employee.

6. Risk – It is understood that au pairs are not required to take out insurance against any loss that their errors may cause or to indemnify the family against loss. By covering the au pair in your car insurance, the family bears the risk of loss for the au pair having an accident.

Where the au pair bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. On the other hand, an au pair that bears the risk and responsibility for any injury or accident and carries their own insurance and indemnity policies would be less likely to be an employee.

7. Provision of tools/payment of own expenses – An employee is often reimbursed (or receives an allowance) for expenses incurred in the course of employment.

Au pairs are required to complete working with children checks, obtain visas and arrange travel at their own expense. Their agency provides some support, but does not provide funds to enable an au pair to fulfil their responsibilities. However, these costs are not related to the actual agreement with the family but rather are costs that put the au pair in a position where they can enter the agreement.

8. Other - Other indications suggesting an employer/employee relationship include:

● the right to suspend or dismiss the person engaged;

● the right to the exclusive services of the person engaged;

● provision of benefits such as annual, sick and long service leave;

● provision of other benefits prescribed under an award for employees; or

● a requirement that a worker wear a company uniform.

Conclusion

When weighing up the indicators, it can be seen that as a host family you will be exercising a great deal of control in the arrangements you will have with your au pair. You will determine which au pair is suitable, how much you will pay, the working conditions, the duties, the terms of engagement and can terminate with two weeks’ notice.

Your au pair is likely to have some input into the detail of these arrangements however we consider that you will have ultimate control and would be able to direct the au pair to undertake a particular task.

You propose the au pair will work directly to and will be integrated into the family and would not be perceived as carrying on their own business. The au pair will be paid by the hour and provide a personal service that is not likely to be delegated to a third party. Your family will bear the risk of loss resulting from any mistake made by the au pair in the course of their duties that is not included in your memorandum of understanding.

While the au pair will have some reasonable upfront costs, your family will cover all costs associated with the au pair’s duties while working for you.

These factors show an employment relationship.

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