In a landmark decision, Uber has successfully argued that payments made to its drivers are not subject to payroll tax under the relevant contractor provisions. This victory, valued at $81.5 million, highlights critical differences between Uber’s operations and other recent cases concerning payroll tax, such as those involving medical practitioners and loan brokers.
Understanding Uber’s Operational Model
Before diving into the court’s reasoning, it’s essential to understand how Uber operates behind the scenes. Uber has developed two software applications: the driver app for drivers and the rider app for riders. These platforms allow riders and drivers to connect, enabling drivers to offer transport services. The apps share minimal information about either party until a ride is accepted.
Importantly, Uber contracts separately with both drivers and riders. These contracts stipulate that Uber does not provide transportation services but instead acts as a collection agent between the rider and driver. The contracts also describe Uber’s business as providing access to these apps and offering lead generation services for a fee. When invoices are issued, they include the driver’s ABN and name—not Uber’s.
The Commissioner’s Argument
The Commissioner argued that the services provided by Uber drivers to the company included:
- Transporting riders
- Giving feedback about riders
- Referring individuals to Uber to become drivers
According to the Commissioner, these actions constituted work under a relevant contract, making the payments made by Uber subject to payroll tax.
Court’s Findings
The Court agreed with parts of the Commissioner’s argument, stating:
- These actions were indeed services.
- Driving (or transporting riders) was undeniably “work.”
- Although rating and referring might involve minimal effort, they were sufficiently connected to driving, making them services “in relation to” work.
- The contracts between Uber and its drivers were the source of obligations like transporting riders, providing feedback, and making referrals.
Although the contracts did not explicitly obligate drivers to transport riders, the Court held that the right to use the driver app (and all associated entitlements) stemmed from these contracts. Drivers had the right to use the app, regardless of whether they chose to drive at any given time.
The Decisive Factor
Where the Commissioner’s argument failed was in proving a connection between the payments made by Uber and the work done by drivers under the relevant contracts.
The Court ruled that Uber does not directly pay its drivers; rather, the rider does. Uber merely acts as a payment collection agent. By the time Uber accounts to the driver, the driver has already been paid by the rider, fulfilling the rider’s payment obligation.
Quoting from paragraphs 180 and 181 of the judgment:
- “There is no element of reciprocity or calibration between the driver and Uber or the rider and Uber with respect to the money paid by the rider. Those elements exist only between the driver and the rider. The payment here is made pursuant to an obligation to account, and no more.”
- “What the rider pays the driver is for or in relation to the work done by the driver. What Uber pays the driver is in relation to the payment Uber has received, not in relation to the work itself.”
As a result, the Court concluded that the payments made by Uber were not considered wages under payroll tax law.
Exceptions to Relevant Contractor Provisions
While most of the Court’s commentary on the exceptions to relevant contractor provisions was unremarkable, one notable point involved the interaction between the ancillary exclusion and the additional services provision. The way services are bundled together as a single offering or presented as separate options can significantly impact how these exclusions apply.
Key Takeaways for Businesses
This case offers hope for taxpayers disheartened by recent contractor-related payroll tax cases. However, the application of relevant contractor provisions remains complex. Businesses are strongly advised to seek legal advice before entering into contractual agreements, though reviewing arrangements post-agreement is still beneficial.
Service providers, labour hire firms, and companies offering lead generation services should particularly review their contracting arrangements in light of this case. Key points for consideration include:
- Ensuring payment mechanisms correctly reflect the legal relationships in place.
- Evaluating the impact of the ancillary exclusion and additional services provisions on contracts.
How NB Commercial Law Can Assist
NB Commercial Law regularly advises medical practices, allied health practices, and brokerage firms on their contracting arrangements and payroll tax obligations. For further information, please contact Luke Steptoe, Senior Associate ([email protected]).