Employee or Subcontractor

What’s all the fuss about employment?

The number one concern on employers minds are the many hidden costs of employing someone.

A employee paid $80,000 on their payment summary at the end of a financial year, will cost their employer much more.

$80,000 a year will cost the employer $112,000 after they pay for workers compensation, liability insurance, training, incorporating health and safety protocols, payroll tax, superannuation, bank transaction fees, annual leave and sick days, then lastly the cost of recruiting a new staff member in the first place. It’s extremely expensive to employ and in my opinion it’s a privilege not a right to be employed.

Many a small business owner have decided that their solution to the high cost of employment is to put on only sub-contractors, or they even encourage existing staff to get their own ABN so they can invoice them, instead of having the overheads of a employee. Industries I see this as becoming common place are cleaning and construction related companies like painting, electrical, carpentry, plumbing and the like.

Building and Construction Businesses 

Due to the high cost of employing staff, many businesses in the construction and building industry choose to have sub-contractors. The sub-contractor supplies their own vehicle, tools and insurances saving the business who employs them from additional overheads.

This appears on face value to be a win / win situation. Reduced overheads for the company that employs them, while the sub-contractor is able to deduct expenses before tax and have twelve months or more to defer paying the ATO.

Sub-Contractor or Employee – The chicken or the Egg

It may seem very confusing to work out ATO rulings about an employee or a sub-contractor.

Rather than listen to the uneducated comments of your business peers, I have three suggestions:

1. Use the ATO Employee or Contractor Tool – Click on the link here
2. Use the ATO Superannuation Guarantee eligibility tool link here
3. Seek professional advise from a HR Firm

Play the What if Game?

What if you are audited by the ATO and they see that there is money going in for paying sub-contractors only. How would the ATO auditor see this activity?  Could they view your activity with suspicion or even as an act of tax evasion? Should they investigate the sub-contractor status and deem they should have been employees, what fines and interest would this attract?

Do not play games or listen to the so called loop holes that other business owners might brag about. Do your own homework and due diligence for your own peace of mind.

If you are audited, how much better your situation will be when you show the ATO your results from their own online tool.

Annual Reports are due soon for the Building and Construction Industry 

AUGUST 28TH – TAXABLE PAYMENTS REPORTING

The ATO site states the following:

Businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year.

You need to report these payments to us on theTaxable payments annual report by 28 August each year.

I don’t have one?

Go to Taxable payments annual report to order your’s now.

Why do I need to report?

Let me share a story:

Bill decided that it was time to ditch the boss and work for himself. He packed up his ute and drove to Northern Queensland to ride the mining boom in the building industry.

Bill worked 60+ hours a week, spending the money faster than he earned it.

Five years passed by quickly, he forgot all about record keeping, lodging a tax return or anything else. That was until a current bookkeeper on a job site required him to verify his ABN as she had to lodge the company’s Annual Taxable Payments Report . She wanted to ensure the information she had was accurate. Bill was in a panic because he realized it was a matter of time before the ATO caught up with him.

Then, the same bookkeeper found that Bill was not registered for GST, she asked Bill to to pay back all the GST or back date his GST registration with the ATO. Bill knew his goose was cooked now.

The ATO is no fool, they know that Bill is not alone.

Are you a “Bill”? 

My Office Books can help you catch up on just a year, to many years with their fixed rate rescue packages. We also can help you implement and set up your tax compliance in an automated online system. Bookkeeping can even be fun, instead of a chore.

Contact Amanda on 0423463721 to find out more.

Amanda Hoffmann

Amanda Hoffmann is a registered Tax Practitioner / BAS Agent No.18613005, Associate of Finance, Xero, Myob & Quickbooks Proadvisor / Trainer and a Consultant for the Australian Taxation Office.

She says she is more than just a bookkeeper with experience in real estate investing, social media, podcasting, blogging and recently recording monthly youtube episodes

Amanda loves to teach smart, easy online cloud solutions and fix messy bookkeeping. Follow her on social media and say “Hi”