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The Establishment process
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It is our goal to keep all aspects of contracting and renumeration as simple as possible. Individuals are taken through an interview process to establish personal circumstances and profile. A recommended package for each individual situation is provided.
Enquiry Form
Please complete the questions listed below and click submit once you're done.
Our office will then contact you to discuss the next step.
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Contractors are they Employees?
Contractors are one of the biggest growing classes of workers in Australian labour markets, for very good reasons. Non-essential or at the other end highly skilled functions can be more cost-effective for a company to outsource. If the business diminishes or a project comes to a close it is often simpler and easier to terminate the contractual relationship than an employment relationship.
If employers get it wrong employing independent contractors can be false economy. Courts and tribunals will award all the benefits of employment, including termination payments, and severance and leave entitlements, to workers they deem employees, regardless of the label the worker comes under.
Whether a worker is an employee or contractor will depend on what that person actually does and how he or she does it. A court or tribunal will examine a range of criteria in order to answer that question. Traditionally, the most important of these has been the issue of control. In recent times the High Court of Australia held control was no longer the most important consideration, but rather one of many. Instead, a court or tribunal should look at the totality of the relationship.
There are a number of factors employers should look at when determining whether or not a specific contractor is, in fact, an employee. These include:
- Determining who supplies and pays for tools of the trade;
- Sorting out who determines the workers hours;
- Establishing whether the worker is taxed as a contractor or an employee;
- Deciding the obligation of the worker to work;
- Deciding who determines the delegation of work;
- Choosing who has the right to control the worker as opposed to who controls the worker;
- Determining whether the worker is paid by result; and
- Determining whether the worker is “in business for themselves
Independent contractors have proven advantages for business. But it is important to get the relationship right in order to minimise your exposure and maximise the benefits of this flexible form of labour. If you are in any doubt about the true nature of your contractors, you should seek professional advice from a workforce management group like Freelance Global Limited.
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Do I need an ABN?
Not everyone is entitled to an ABN.Companies registered under the Corporations Law and business entities carrying on an enterprise in Australia are entitled to an ABN. Employees and hobbyists are not entitled to an ABN as they are not carrying on an enterprise. Self-funded retirees do not need an ABN. They continue to use their tax file number when reporting their annual income to the ATO.
Is the ABN compulsory?
Applying for an ABN is not compulsory. All businesses with an annual turnover of $50, 000 or more must register for GST and
will need an ABN to do this.
Organisations with a lower annual turnover may choose to register.
If you are not required to register for GST, you can still apply for an ABN. All non-profit organisations with an annual turnover of $100, 000 or more must register for GST and therefore need an ABN. Also, businesses that need to be endorsed as a gift deductible recipient or an income tax exempt charity or both, require an ABN.
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The 80-20 rule
80% Rule
If you earn 80% or more of your Personal Services Income (PSI) from one source in an income year and do not pass the results test, you cannot self-assess to determine whether you have a PSB. A Determination from the ATO will be based on:
- satisfying the employment test, the business premises test or the
results test, - or but for unusual circumstances, the employment test, the business premises test, the results test or the unrelated clients test, could reasonably be expected to be met.
Results test
The results test is where, in an income year, at least 75% of the PSI earned by the contractor or the personal services entity is under a contract(s) to:
1. produce a result and payment is for the result;
2. provide the tools and equipment necessary for the work; and
3. be liable for the cost of rectifying defective work.
All three conditions need to be met to satisfy the test.
Business premises test
This test is about whether at all relevant times during the income year:
- you or your personal services entity maintained and had exclusive use of business premises that are mainly used to conduct activities which produce the personal services income;
- and those premises were physically separate from premises used for private purposes and the premises of the client(s).
Unrelated clients test
This test is about whether in an income year you or your personal services entity earns income from providing services to two or more unassociated clients as a direct result of making offers to the public or a section of the public to provide the services.
Employment test
The employment test relates to whether in an income year, you or your personal services entity engaged certain individuals or
unassociated entities to perform at least 20%, by market value, of your principal work.
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Labor hire how does it work?
The employment of professionals by labour hire firms has increased over the past decade. The labour hire employment relationship is, however, very different to the standard direct employment relationship and more traditional independent contracting arrangements.
What is labour hire and how does it work?
Under a labour hire arrangement, a professional has a contract of employment with the labour hire firm or agency but actually
performs work for another firm (the principal employer), usually on the principal employer’s premises, using their equipment, and under the supervision of employees of the principal employer. The principal employer then has a separate contract with the agency or labour hire firm for the provision of “labour”.
Working in a labour hire arrangement differs from independent contracting in that the labour hire firm or agency pays superannuation, a regular salary, covers insurances and deducts PAYG tax for the professional, whereas an independent contractor must organise these themselves.
There are both advantages and disadvantages to working in a labour hire arrangement, particularly for short term contracts,as the labour hire firm takes responsibility for many of the more expensive and inconvenient aspects of contractor-style employment, such as recovering unpaid debts from principal employers.
Additionally, it can be a good way to get a “foot in the door” with the principal employer for future direct, permanent employment, or to add to your professional experience.
On the negative side, it is often quite easy for the principal employer to “dismiss” labour hire employees with or without a good reason. As there is no direct employment relationship with the principal employer, the relevant legislation and mployment protections often do not apply. Labour hire firms may be reluctant to provide training and professional
development for their employees.
If you are offered a position via a labour hire agency, you should contact Freelance to discuss the issues relating to this type of employment relationship to ensure you are able to make an informed decision on whether or not to accept the job offer.
