One Subcontractor costing $80,000 pa could cost you $100,000 in back taxes!
If your subcontractors are not contracted properly and you suffer an ATO audit - you can find yourself having to remit PAYG and Super Guarantee for the period of the contract - back assessed for 5 years and penalties!! Read how to prevent this...
Subcontractor Agreements
For a wide variety of reasons, it is becoming increasingly common for businesses to engage subcontractors rather than employing persons directly.
A major benefit of engaging subcontractors is that it can grow your business without taking on any debt. Further, with a properly drafted subcontractor agreement, certain obligated payments for employees are not required to be paid to the subcontractor. However, this requires careful consideration and proper advice from a professional advisor with experience in this area.
Having a valid subcontractor agreement will be one of the first items that the Australian Taxation Office review when undertaking an audit into your payroll tax affairs and or Workcover obligations. We have recently had experience with a client being subject to such an audit, who had in place subcontractor agreements prepared by Ascendia Lawyers. The end result was that the ATO was impressed with the agreements and our client had a potential payroll tax and Workcover bill of $250,000 waived by the ATO as a result of having the agreements in place with each subcontractor engaged.
Your subcontractor agreement is a very important agreement to your business. By engaging a professional advisor to prepare the document, important issues such as:
- Termination
- Payments
- Confidentiality
- Policies and Procedures
- Insurances
- Responsibility
- Standards of work
can all be addressed in the one document.
You can also clearly define which party is responsible for payments such as Workcover insurances, PAYG taxes, payment of any applicable industrial awards and agreements, adherence to anti-discrimination legislation and required workplace health and safety legislation.
The one issue that cannot be contracted around is that of superannuation payments. If your subcontractors invoices are wholly or predominantly for labor, you will still be required to pay the relevant superannuation contributions on their behalf, unless the subcontractor party is a company.
While it is prudent to ensure that you have the relevant subcontractor agreement in place, you need to continue that even after such agreement is signed, you do not advertise or give the impression that the subcontractor is associated with your business. An example may be giving them a business card with your logo or driving around in a car with your business logo. Even with a subcontractor agreement in place, if all actions of the parties make it appear as if it is an employment relationship, you will be held to be an employer and required to provide all the usual insurances, payments and other obligations required of an employer.
For the initial upfront cost of having Ascendia Lawyers prepare you with a compliant subcontractor agreement, your savings can be substantial, in terms of less disputes with contractors, lowers liabilities in payments, lower taxation costs and smaller amounts of statutory required payments
In order to obtain further assistance in this area or to have your subcontractor agreements prepared or reviewed, please contact Ascendia Lawyers.