As a business, have you ever considered how you engage someone to complete work for you? Employee or a contractor? In this article we will explore the issues you face when you engage a contractor.
A contractor may be engaged for a one off assignment or they could be engaged for a series of assignments. When you have engaged a contractor for a series of assignments, it is possible that the contractor can be deemed to be as an employee for Superannuation, Workers Compensation and Payroll Tax purposes. Financially, this can add significant costs to you, especially if you mistakenly believed you had already included these costs in your contractor payments.
What can you do as the business operator to avoid unexpected costs from the engagement of contractors?
- You could ensure the contractor has a bonafide business operation and that you have engaged them for a one off assignment or;
- The contractor could register as a Company. This would ensure you are not liable to pay Superannuation and Workers compensation, in addition to the agreed rate of payment.
- Additionally, the contractor could employ staff of their own to assist in completing the job – such would remove the payroll tax costs associated with payment to that contractor
As is life, it’s not always so black and white. There are exceptions to the rules. It’s mindful to note that in time, a contractor can become part of the organisation if their business evolves to merely suppling their services to you. Where initially, you may not have been liable for Superannuation and Workers Compensation, you may now be deemed to be liable – but your rate of payment to the contractor would not change, resulting in you being out of pocket.
My recommendation for dealing with this, is that when engaging an unincorporated contractor, you need to meet the Superannuation and Workers Compensation costs direct. That is, until such time as the contractor registers as a Company to undertake the work.
To discuss you own specific circumstances, call us at HQB Chartered Accountants.
– Ian Hogbin
This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are general comments only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.
