Posted on February 2018 By Speller International
It’s a common question in many contracting industries. Are you better off being a Pay As You Go (PAYG) or a Proprietary Limited Company (Pty Ltd) contractor? The simple fact is that both have their merits.
If you’re thinking of making the leap and entering the world of a Pty Ltd contractor, there are a couple of things you’ll need to know.
It’s important to note that Speller can’t give you accounting or legal advice. What we can do however is point you in the direction of some of the things you’ll need to arrange or investigate before you make the leap.
With that said, we suggest you pick up the phone and get your accountant on the line, to talk through the best way for you to structure everything before you make the shift.
They’ll advise you of any benefits you might be able to leverage as a Pty Ltd contractor, such as being able to offset expenses and tax minimisation strategies. They’ll also be able to provide advice regarding how your obligations to yourself change when crossing into the Pty Ltd world.
There are other options such as a sole trader or trading under a family trust which have a different set of requirements and obligations attached to them so make sure you explore your options with a professional.
What kind of obligations do we mean? Well, there are a number of things under a PAYG agreement that your employer handles as part of payroll. These include your superannuation and your tax, obviously.
As a contractor, you’ll need to take care of your own super, and make sure you set enough of your income aside for tax time.
But you’ll also become responsible for other things. You’ll be required to cover your own Public Liability, Professional Indemnity and Worker’s Compensation insurance, for instance.
And you’re going to have to get into the habit of invoicing the company you are contracting to in order to be paid for your services, not to mention handling all your own administration, including your BAS (Business Activity Statement) reporting to the ATO.
Here’s a straightforward checklist that should serve as a basic guide for your new requirements.
Arrange your Worker’s Compensation insurance in line with your State’s legal requirements, and make sure to get your PL/PI Insurance certificates in order. Common requirements are a) Public Liability cover to the value of $20m, and b) Professional Indemnity to the value of $10m, with copies supplied to your recruitment company.
It’s a good idea to get a few quotes to compare as insurance policies vary from one provider to the next.
Get yourself an ABN (Australian Business Number) and get registered for GST and set up a Bank Account registered to the ABN name while you’re at it. You’ll also need to be able to produce a weekly invoice with your bank details.
Looking after your own affairs can feel like a big commitment. And in many ways, it is. You’ll need to set aside some time for your administration, i.e. for your invoicing and your reporting to the ATO. Ask yourself seriously if you’ll have the bandwidth for this. Because if you don’t do it, who will?
After all, you’re not going to get paid if you’re not getting your invoices out. And don’t forget, your super is your future. Do not overlook it!
So there you have it! Everything you’ll need to have set up before you can begin contracting under a Pty Ltd agreement.
Now, while it sounds like a lot to juggle, the benefits – flexibility, feeling in control of your own destiny – can be worth it. And really, if you’re the kind of person who doesn’t blink at the idea of adding another module to your SAP toolbox, you’ll do just fine.
Remember, for any tax questions, contact your accountant. And for everything SAP, contact us here at Speller!