Don't enlist a 3rd party payroll company until you read this

At Speller, we know how much work goes in to managing payroll services. We look after more than 120 contractors, and the time and resources required to do the job properly are quite demanding.

So how is it that some businesses are able to offer deals in addition to their standard payrolling services? Financially it’s a very precarious practice.

House of cards
As recently as last month, Plutus Payroll Company had their bank accounts frozen by the Australian Taxation Office. According to Plutus, the ATO believes they owe them money, which Plutus denies and is fighting through the objection process and the courts. You can imagine the affect this has had on the contractors waiting to be paid by Plutus for services rendered.

A few years ago, in 2014 Freelance Global went under administration after it was found the company had failed to pay the appropriate amounts of payroll tax. Again, it was the contractors who were left holding the can.

Beware of carrots
Both these companies offered contractors an enticing deal. Plutus offered to cover insurances and arrange payrolling services for zero fee. Freelance Global were the only payrolling company Speller was aware of to pay directly into a trust or sole trader account, which enabled their contractors to operate as sole traders.

The question we’d like to ask is, how are such deals possible? The old adage, ‘if it sounds too good to be true it probably is’ seems appropriate!

Due diligence
The key is, if you’re a contractor considering using a third party payroll service you must do your due diligence. Here’s a few things to look for:

  • Is the company established and reputable? Businesses with a track record of stability are generally more reliable.
  • Can you research the company in online forums (such as Whirlpool)? Consistent commentary, either negative or positive, can be a useful guide as to whether deeper research is required.
  • Are they offering services other companies don’t (such as contracting as Sole Traders)? If so, how are they able to provide these services? And why are they the only ones doing so?
  • If the cost of their services is substantially reduced or even free, when most companies charge between 3-7% for insurances and administration fees, how is that sustainable in the long term?

Things to think about
You should be aware that large payrolling companies risk being audited, which in turn can lead to you being audited. So always make sure your side of the paper trail is up to date.

Plutus reminds us that adding a third party to the payrolling process is risky. So ask yourself if it’s necessary. This will depend on what you’re hoping to achieve by using a third party (such as salary sacrificing).

Listen to your gut feeling. Investigate any concerns you may have immediately and move to protect yourself and your income if necessary.

Remember: do your research! And always seek professional advice (from your Accountant for example) to make sure it’s the right decision for you and your circumstances.

Well-respected payrolling companies with stringent processes and practices that can offer benefits to maximise your income, such as salary sacrificing, do exist. We know, because Speller is one of them!

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