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With the market now heating up in building and construction in South-east Queensland, we are seeing businesses actively look to take on more staff and contractors to keep up with the growth.
With this in mind, are you on top of all the employment and contractor costs that come with this?
There are many different myths about employees and contractors in the market, particularly about who is and who is not an employee or contractor. On top of this there are many common misconceptions as to when superannuation and payroll tax actually apply.
SO WHAT ARE THE COMMON MYTHS AND MISCONCEPTIONS THAT WE SEE IN THE MARKET:
1. Having a good quality contract agreement will solve all your problems?
Wrong. In the case of a sole trader who provides you with an ABN you still need to look at all of the facts and circumstances of each case to determine whether or not that person is really an employee or a contractor. Yes, it is helpful to document the arrangement correctly but there are no guarantees.
2. You don’t need to pay superannuation for contractors?
Wrong. Sole trader contractors will be covered by superannuation where the arrangement is mostly [more than 50%] for the provision of labour. For example, the payment of an hourly rate for a labour only contract is most likely going to be subject to superannuation. However, you will not be liable for superannuation for any contractors who are operating through a company or trust structure.
[Tip - this problem can easily be solved by making the contractor rates inclusive of superannuation for super guarantee purposes]
3. Your contractor agreement can exclude you from paying super?
Wrong. The super guarantee charge applies regardless of any contractual terms between the parties. If the contractor falls within the super guarantee rules it is a legal obligation which you cannot contract out of no matter what clauses or terms you agree to.
4. Your HR induction processes will protect you from employee liabilities?
Wrong. Your HR induction processes may get lots of things right but they are traditionally poor at dealing with employee taxes.
[Tip – do a presentation to all departments on all of the employment issues. This will ensure HR, Finance and key management are working together – it isn’t just about taxes and it isn’t just about HR]
5. Payroll tax will not apply if my contractors are incorporated?
Wrong. In Queensland from 1 July 2008 [and in some states earlier] incorporated contractors are subject to payroll tax unless they fit into an exemption category. The most common exemptions being for employees engaged for less than 90 days in a financial year or where the services are performed by two or more people.
[The OSR will normally expect you to hold evidence of how you have categorised your contractors into an exemption category – are your systems collecting this data up front or do you need to update your processes?]
6. If I am caught in an OSR or ATO audit they can only raise assessments for the last five years?
Wrong. If you have never had a payroll tax assessment or lodged the super guarantee statement then no statutory time limits start.
7. I can’t be made personally liable as a director for employee taxes?
Wrong. When it comes to PAYG withholding and superannuation, a director can be made personally liable under a directors penalty notice. It’s very easy to see how a personal bankruptcy situation might arise despite the supposed protection of a limited liability company.
[Tip – the OSR in New South Wales can use a directors penalty notice for payroll tax – this is not the case in Queensland]
8. The ATO and OSR cannot share information?
Wrong. Both departments undertake employee liability reviews for different taxes. They can and will share information before selecting an audit target. When one department finishes their job they then provide that data to the other department. This will mean that a payroll tax audit with the Office of State Revenue can quickly turn into a superannuation audit with the Australian Taxation Office.
If any of these common myths concern you then now is a good time to re-examine your arrangements. A contractor review will ensure that your affairs are put in order and you aren’t building up a large employee liability without realising it. Prevention is always better than the cure. Being proactive in dealing with your employee taxes is vital to ensure your business is sustainable and you know where you stand from day-to-day. Don’t let your business be one of the statistics.
If you have any questions or would like to chat further please don’t hesitate to contact one of our Building and Construction Specialist team members. Or better yet, drop in and see us at our premises – Level 1, 27 James Street, Fortitude Valley, grab a coffee and let’s chat!
If you want to know more about what is happening in the Building and Construction space, check out some of the below resources: