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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. 

An 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 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 tous on the Taxable payments annual report by 28 August each year."

I don't have one?

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

Sam's Story

Sam decided it was time to ditch the boss and work for himself.  He packed up his stuff and went to WA to ride the mining boom in the building industry.

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

Five years went by quickly, he forgot about his record keeping and lodgments.  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.  Sam panicked, he realised the ATO was going to catch up with him.

Then, the same bookkeeper found that Sam was not registered for GST, she asked Sam to pay back all the GST or back date his GST registration with the ATO.  Sam knew he was in trouble.

Help for your business

We can help you catch up on just a year, to many years with a fixed rate rescue package.  We can help you implement and set up your tax compliance in an automated online system.

Contact Paula on 0427669969 for find out more.