Tips when becoming a Contractor for work – From Pat Hoey

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Tips when becoming a Contractor for work

From Pat Hoey

With a few clients asking about what they need to do to become a contractor for work, I have put together the following tips:

 

  1. You will need an Australian Business Number (ABN). Also need to decide if you will be a sole trader, or other tax structures like a partnership, or trust or company (recommend you speak to your accountant regarding the best tax structure for you).
  2. Confirm working agreement for who you work for in regards to working hours, times expected to start/finish, any tools or equipment requirements and who is to provide, can you work for other entities, etc.
  3. Negotiate a higher hourly rate. As contractor, you normally won’t be entitled to any annual leave, sick leave or public holidays.  Which this adds up to 8 weeks a year.  So you should be paid an extra 18% compared to a fulltime/parttime hourly rate, to cover these 8 weeks of the year you are not working.
  4. See if you are being offered superannuation on top of what you are being paid.
  5. Which if they aren’t, you may still be entitled to super – see ATO questionnaire at Employee/contractor decision tool | Australian Taxation Office (ato.gov.au).
  6. You will receive all your income, so need to set aside tax to pay the ATO when you do your tax return. Depending on you work expenses, a general guide is to set aside 20% of your income for tax.
  7. You should also set aside spare funds for weeks when you don’t work.  Even if it’s only 4 weeks a year, this is over 8% of the year you are not working – so set this aside when you are paid your contractors income.
  8. Have a separate bank account for all your business income and expenses (so separate to your personal bank account you use for groceries, dinners, etc).
  9. And have a second account to transfer your tax and holiday pay each time you are paid.
  10. If contractor income is expected to be over $75,000 for tax year, you are required to register for GST (and add 10% GST on your invoices).
  11. And then complete a quarterly Business Activity Statement (BAS) to pay this GST you collected to the ATO.
  12. Having an easy to use record keeping system is important – especially if you are GST registered.  Which we recommend contractors to use Xero and link their 2 business bank accounts to keep track of income and expenses (& GST)
  13. You will need to be completing invoices for the work you do – this could also be done in Xero record keeping system.
  14. You may need business insurance, and also need income protection insurance.

 

Let me know if you would like to discuss any of the above tips further or require any help from me to get you started.

Regards

Pat Hoey