Small Business and Contractors
Whether you’re a contractor or about to hire a contractor for your small business, there are some things you need to know.
It’s important to establish whether your or the person you are hiring is considered a contractor or employee under local laws, as well as what kind of contractor they are.
For example, contractors may need to be treated differently for tax and superannuation purposes.
You need to check obligations and entitlements as well as definitions of employees and contractors in your state, territory and country. In Australia you may like to start with the site here.
In the meantime here are 5 things Australian businesses need to know about contractors.
1. What’s an Independent Contractor?
An independent contractors is someone who runs their own business and is hired for a specific task(s) based on terms within a contract. They may delegate or subcontract some of the tasks if allowed within their contract, and can work for a number of different clients or businesses at the same time.
2. What’s a Subcontractor?
Sometimes an independent contractor while hire another independent contractor or ‘a subcontractor’ to help them complete their contracted work.
3. Contractors vs employees
Contractors and employees have very different rights and obligations.
Generally speaking employees are paid a wage, have set hours of work, are entitled to paid holiday leave and sick leave, as well as superannuation. They are usually required to carry out their work in a particular way.
An independent contractor doesn’t usually have a right to employee entitlements such as paid leave. Beyond the agreed terms in their contract, the contractor generally has control of how and when they work.
Definitions differ from state and territory and country. Make sure you take your state/territory/national laws into consideration.
4. Independent Contractor Entitlements
Since independent contractors don’t usually receive superannuation and leave entitlements, it’s important to consider making your own superannuation contributions and taking this lack of entitlements into account in your fee structure.
You are entitled to a safe and healthy workplace and must also comply with the duties set out in the Workplace Health & Safety Act for your state or territory.
Your client may require that you have certain insurances of your own, such as Public Liability, in place.
5. Taxation obligations
There are special tax rules for independent contractors in Australia. You should speak with your accountant or the Australian Taxation Office (ATO) to ensure you understand your tax obligations.
Generally speaking your requirements may include the following:
- A Tax File Number (TFN)
- An Australian Business Number (ABN)
- Registering, reporting on and paying Goods and Services Tax (GST)
- Personal Services Income (PSI) may apply – income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.
- PAYG withholding and instalments for payroll tax
- Regular Business Activity Statement (BAS) reporting.
It’s important when it comes contractor obligations that you consult an accountant and ensure you take your state/territory/national laws into consideration.