Tax in Focus – Employee v Contractor
Are you and your business at risk when determining whether you are engaging the services of an employee v contractor?
Having an ABN - Business attempt to disguise the employment arrangement and make it look like their contracting to avoid their PAYG and super obligations. If the working arrangement is employment, whether the worker has or quotes an ABN make no difference and will not make the worker a contractor.
80% rule – The 80% rule, or 80/20 rule as it is sometimes called, relates to personal services income (PSI) and how a contractor:
· Reports their income in their own tax return
· Determines if they can claim some business-like deductions.
It is not a factor that a business should consider when determining whether a worker is an employee or contractor.
Paying Super – If you pay an individual contractor under a contract that is wholly or principally for the person's labour, you have to pay super contributions for them.
Worker wants to be a contractor – Just because a worker has a preference to work as a contractor doesn't mean your business should engage them as a contractor.
Using invoices – Submitting an invoice for work done or being 'paid on invoice' does not automatically make a worker a contractor.
New reporting rules – in certain industries, contractors are being targeted for personal services income splitting.
New year end reporting to Australian Taxation Office on contractors of your business (splitting materials v labour components) will be a major risk for businesses, supposed contractors and their accountants.
Other issues to consider
If you think you have any of the following issues, then please contact us immediately – before the Australian Taxation Office; Office of State Revenue or Work Cover does:
· Setting up payroll in software
· Registering for PAYG withholding
· Payroll tax issues (OSR)
· Superannuation – ordinary times earnings
· Workers compensations
· Year end reporting for contractors and employees
· What forms should be provided to employees?
· What forms need to be sent to ATO at beginning of employment
· What forms need to be sent to ATO at the end of each financial year
Business advisory – Quality Control Using Checklists
How often does it happen – you put hours or weeks into a job there is one little thing that a customer or client sees wrong. It has undone all your good work.
"A lack of quality control can lose you ongoing clients as quick as you get them".
Humans make mistakes and all businesses have humans involved, so how do we minimise these mistakes made by employees?
Answer = Quality control checklists
In my own personal business, there are more than 30 pages of quality control checklists to prepare year end financial statements and income tax returns. A checklist is prepared at the end of every job to ensure that nothing is missed (hopefully!). It is both signed by the preparer and then the reviewer of the task or job.
Some would take the view that the thinking is taken away. Not at all, it is a protection of the business upon completing and reviewing the job.
Checklists also allow business owners to take comfort when growing a business and leveraging themselves through the use of employees.
Can this work in your business and does it add value?
All businesses should have a checklist that is both signed by the preparer of any job and then signed by someone that reviews the job.
Checklists can also serve as training and education. Take employees through the checklists and get them to contribute to the checklists.
It is very important to review such checklists on a regular basis and update them for either new technology, new procedures or new legislation etc.
Getting consistency between employees is difficult, but having checklists can assist in getting this consistency.
Value add, additional services and products can be promoted at the end of a job, by simply having such a dedicated area at the end of any checklist that an employee follows. Eg. Would you like fries with
The KFC's, MacDonalds etc have the strongest employee checklists that allow them to employee people with different levels of skills.
Documentation of processes and systems also add to the value of a business, if and when you sell your business.
The critical part of the implementation of any checklist is the enforcement of that checklist.
The job is not finished until that checklist is signed by the preparer and reviewer.
Take the time to review the quality control of your business and any inconsistencies, then work with your employees to come up with a checklist that will get consistency across your business and improve the quality control of either the product or services you provide your loyal customers and clients.
Please contact us to get our views on how to set up employee checklists.
All checklists have standard requirements to be successful and meet their objectives.
Superannuation – What are the consequences of not paying super for your employees?
The Australian taxation Office has been targeting through their matching of business activity statements and income tax returns the failure to pay superannuation on behalf of their employees, including directors, bonuses, annual leave etc
This leaves only a small window of opportunity for tax planning in June/July to get payments to directors, shareholders and employees correct.
When do you have to pay super by?
As an employer, you are required to pay super for eligible employees. This requires employers to pay superannuation guarantee contributions to the correct super fund at least four times a year.
· September Qtr – 28 October
· December Qtr – 28 January
· March Qtr – 28 April
· June Qtr – 28 July
When a cut-off date or payment falls on a weekend or public holiday, you can make the payment on the next working day.
What is Super paid on?
Employers are required to pay super guarantee on ordinary times earnings.
Ordinary hours worked by an employee is classed as both ordinary times earnings for super purposes and salary and wages.
However, some salary and wages are not included in the definition of ordinary times earnings.
The following link relates to what is considered to be ordinary times earnings:
What to do you do when employing someone?
· Employment contract
· TFN declaration
· Super choice
Employment contract kept on file.
TFN declaration is sent off to the Australian Taxation Office – a copy should be kept on file too.
Super Choice form kept on file and must be available in the event of a review by the Australian Taxation Office.
TIP – Each employee should have their own folder with the above in it and be easily accessible by employer.
What if an Employer pays the super guarantee late?
Both penalties and super guarantee charge (interest) is payable to the employees super fund.
It is best to complete the relevant forms if you are late, rather than the ATO reviewing or auditing you.
Director penalties - There are now director penalties for failure to pay superannuation that are caught under the Corporations Act – serious consequences.
Remember – Directors and owners receiving a salary should be paying super guarantee.
It is never too late to fix your super issues in your business – Contact us!
Remember, when you grow, we grow! When you succeed, we succeed too!
We are a referral based business and value referrals from our existing
clients. If you know of any associates, friends or family members who
can benefit from our extensive knowledge and expertise in business
advisory, taxation and superannuation, then please refer us or
contact me directly.
Kurt Harriss || 0417 427 791 || kurt@Harriss.com.au
Tom Summerell || 0437 811 877 || tom@Harriss.com.au