Contingent workers have become a significant asset to many businesses in Australia, due to a range of factors such as the flexibility that comes with these arrangements, through to the level of skill and expertise that these workers bring to the table.
However, at both a State and Federal level, there are a range of on-costs and administrative challenges that come with engaging contingent workers.
Businesses need to determine how a range of additional taxes are going to apply to their contingent workforce – withholding contingent obligations, superannuation and work cover costs. For employees, the analysis is generally morestraight forward; for a contingent workforce, the issue of whether any employment obligation exists varies from tax to tax. And the risk of getting it wrong remains, resulting in time spent working with the authorities to explain a position and arrive at an outcome, or, worse, encountering an unexpected liability exacerbated further by the issue of penalties and interest. These can be both extremely costly and distracting for businesses.
My top 5 contingent obligations every organisation needs to be aware of to avoid penalties and fines:
1. Superannuation Guarantee
It can still apply to a contingent workforce – particularly if the contract is wholly or principally for labour. The ATO is unwilling to vary SG, or interest, as this is the individual’s money, not the ATO’s.
2. Payroll tax
This is so easy to get wrong! Engaging a contractor through a company doesn’t help mitigate payroll tax. Payroll tax auditors are active in all states.
3. Leave obligations
A good relationship turned sour could see a long term contractor seek unused leave entitlements – a very costly claim if it succeeds. Paying a contractor above market rates to account for the fact that he or she doesn’t get leave doesn’t necessarily negate the leave obligations of a business, if the contractor can subsequently argue that they’ve been treated like an employee over the years. Who has had contractors on their books for, say, more than 2 years? Who has invited their contractors to their staff Christmas parties? Have you even given a contractor an “Employee of the Month” award?
4. Fringe benefits tax
This one can come as a surprise to employers. Yes, FBT can apply to contractors. Imagine you have a contractor who has become ‘part of the furniture’, receiving free office equipment, free parking, discounted company products, attending Christmas parties, … the list goes on. Now imagine the contractor is, in reality, an employee. Because that’s what the ATO can do when they’re considering fringe benefits tax.
5. Additional reporting
Companies in the construction industry are already subject to a Taxable Payments reporting regime for the contractors, which requires the companies to report to the ATO all payments made to their contractors. If the program works, there’s a good chance it will be extended.
You can view Rohan’s presentation on avoiding penalties and pines below.
If you want to learn more about contingent risk mitigation, managing a contingent workforce function and the rise of the freelancer, join us at this year’s Contingent Workforce Conference in Sydney 22-23 September.
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