ATO and Fairwork's Contradictory - Rules for Contractor

Hi, ALL

I recently started working as a Contractor through recruitment agency. Being new I started inquire about setting up company vs PAYG format through various sources. It surprise me that how ATO defines contractor when it comes to TAX time is different to how Fairwork defines contractor when it comes to giving employment benefit.

As per ATO 80/20 rules, I am no different to any other employee working for the company for purpose of calculation of TAX. I can create company but still I pay tax as an individual and I cannot claim any deduction more than what an employee can claim. I went through various tool that are on ATO website to check if I can qualify for contractor or not, but every time result came back negative. So I have to pay tax similar to an employee employed permanent at the same company.

Then I checked with fairwork and they define me as a contractor. The reason being the company contract recruitment firm who then contract me as a casual employee of the firm through a contract which states that my pay rate includes my leave allowances and they can get rid of me anytime without reason/redundancy payment.

Yes the day rate that I get is higher than equivalent person within the company, however if I add annual leave, long service leave, RDO/ADO allowance, overtime allowance, penalty rates, long services leave allowance, sick leave allowance, public holiday allowance, family leave allowance to permanent employee's pay rate then they will be making more money than contractor !!!

SO issue it ATO creates tool to make sure then define as many as possible as employee so then can recover maximum tax, they create PSI, PSB, 80/20 and many other rules probably to maximise amount of tax they recover, hence they change system to their benefit.

Fairwork doesn't create any such tool and allows employer to exploit individual on the name of contract engagement!!

So basically contractors are Monkey in the eye of ATO but Fairwork see them as Donkey but in reality they are just little mouse!!!

So the question is how come government allows two of its body to define same individual differently? The way ATO is creating tool/test to make sure contractors pay tax as an employee then why not fairwork creates test for employer that if they hire someone through recruitment company / company /labour hire firm and if the individual is provided with work tools/equipment to carry out their work and individual has 80% income coming from the same company then those individuals to be classify as temporary employee with benefit similar to permanent employee irrespective of their pay scale.

If ATO is right then those people irrespective of their pay rate should be provided benefit of the permanent employee get. And if Fairwork is right then ATO should allow those employees (contractor) to claim deduction and tax rate as per company rate.

(p.s. - I heard about Umbrella Company and Trust creation which some people use to reduce the tax however question here is why we need to go through different route and why government can define same person differently to their benefit).

Comments

  • tl:dr?

    anyway, i stopped reading when i got to this part. this is sham contracting 101.

    The reason being the company contract recruitment firm who then contract me as a casual employee of the firm through a contract

    • Unfortunately It is perceived to be legal, as I work for the company (through recruitment firm) who suppose to make sure everyone else follow LAW !! Yes it is Government department…! and there are 1000 people like me who are on similar contract (yes 1000s…as the department size is bigger than 15,000 !!!

      • Unfortunately It is perceived to be legal,

        not to the ato as you've found out.

  • Yes the day rate that I get is higher than equivalent person within the company, however if I add annual leave, long service leave, RDO/ADO allowance, overtime allowance, penalty rates, long services leave allowance, sick leave allowance, public holiday allowance, family leave allowance to permanent employee's pay rate then they will be making more money than contractor !!!

    This is up to you to negotiate. Many advised me to use 220 days a year to calculate your salary equivalent - (260 weekdays a year - 20 annual leave - 12 public holiday - 9 sick leave). Then add 10% on top to cater for possible days without work. Long service is useless to me and overtime is up to you to negotiate/refuse.

    • the rates are fixed in government department…so if we try to negotiate rate compare to permanent employee by adding what you suggested then we will be out of fixed rate anyways….!

      Long service leave is about 5 working days per year if the entitlement is for 10 years. so if you do contract for 3 year then you loose that 15 days….!

      • Long service doesn't pay out until 5 years though. In most scenarios, better get the pay jump by moving than staying for the few days of pay.

        I cannot speak to gov roles but if it is fixed, it's probably the agency screwing you.

        • -3

          government rules are changed to avoid screwing of candidate consultant get paid % of what they pay to candidate and they can not charge payroll processing or any other fees. so for consultant they get more commission if the candidate get paid more…..! but due to fix government rate they can't go beyond the fixed rates…!

          in government permanent employee get fix pay rise of 5% to 8 % per year ! but contractors are not allowed to increase rate ….but government can offer them lower rate to extend the contract at their discretion !

  • +3

    You are a very very confused boy.

    ATO is for tax and fairwork is for employment. Do not mix the concepts.

    • Yes they both has different function and that is why I was able to explain how both has interpreted same individual to their advantage.

  • btw who pays your salary?

    • recruitment firm pays me salary+super….they charge my company and take out their commission.

      • Well they're not "your company" just yet
        They might convert you to a perm member of staff (they would have to pay a fee to recruitment agency) but is that what you're hoping for to get some of the other staff perks?
        Or were you hoping you could "contract" as your own business and then claim tax benefits of being self-employed in your own business?

        • This is not about what choice i have it is about unfairness in system

  • +1

    Yes, this is normal. 80/20 rule means you pay personal income tax the same as a regular Joe. And being a contract employee to a labour hire company means you don't get full-time status protection.

    Here's another good one for you. Husband earns 60k, wife earns 60k. You each pay about 11k in tax (roughly) for 98k take-home pay as a family unit. Another family has one partner earning 120k and the other can't work (sickness, injury, full-time carer, whatever). The earner now pays 32k in tax giving 88k take-home pay as a family unit. You might get an additional 1 - 2k single-income supplement benefit from Centrelink (if you're lucky).

    How is any of this fair? It's not. But there's no point crying over it. Your choice is to either put up with it or change your circumstances.

    • Airzone.. you nailed it correctly, as I fall into the second criteria you described as well. However it is unfair and you just can't accept that as it is.

      • Because you're looking at tax and employment law, your only real recourse is to appeal to an MP to change it or become an MP yourself and attempt to bring on reform. Good luck with either.

        For what it's worth, I (and many others) have been in both situations. I spent my effort finding a full-time job (and it took about 5 years), and my wife spent some of her 10 year "mum" time re-skilling for a career change that is more fulfilling to her (and has significantly more financial potential) and has recently picked up an entry position in that new career. Without knowing your full situation and presuming you have a stay-at-home partner looking after kids, I'd suggest that you could probably achieve this too.

        • Agree that the only thing that I can do is to appeal ato, fairwork and MP….And they will ignore it as many just accept the situation…The reason is Australia doesn't have robust PIL system in our legal system that is why people live without raising their voice against unjust. …There are some people who trying to increase awareness about PIL and the need to change current system….Check out Grata Fund on FB.

  • 80/20 rule is to determine whether you are in receipt of personal services income and not used to determine if you're a contractor. Common misconception.

    • That is the reason I referred PSI , PSB in my post…So 80/20 is for PSI that eventually means that you pay tax at rate similar to employees…

  • Sydboy…

    You accepted the contract and its terms, no one forced you, no one. You accepted it willingly.

    Now you have the nerve to complain about not getting leave and other entitlements.

    I absolutely hate people who's eyes light up when they see Contractor rates, accept them openly, then go and bitch about no sick leave.

    If you are so offended, LEAVE, let's see how better off you are after that.

    • Read the post again , it's not about me not getting benefits..It's all about ato and fairwork interpreting same person differently.

      • -1

        This….

        "Yes the day rate that I get is higher than equivalent person within the company, however if I add annual leave, long service leave, RDO/ADO allowance, overtime allowance, penalty rates, long services leave allowance, sick leave allowance, public holiday allowance, family leave allowance to permanent employee's pay rate then they will be making more money than contractor !!!"

        …isn't bitching?

        It's bitching.

        You chose this path ….walk it.

  • +2

    Hi Sydboy

    You really need to sit down with your accountant to work this through or maybe with the recruitment agent's HR.

    From the ATO perspective, they dont really care if you classify yourself as a contractor / employee / whatever you may call yourself, as long as you dont overclaim your deduction and pay your fair-share of tax. They do care a bit in ensuring that you are being paid your fair share of super and they are heavy on super payment compliance for employer.

    You need to gain understanding on PSI definition (Personal Services Income), from your very brief description, your service is indeed a PSI, as such, regardless of the entities you used to invoice your employer, the ATO will look through all that and deemed the income to be yours personally.

    Also, they are employing you as a casual employees, which does not come all the added benefits of a full time employee, i.e. no sicky, annual and other benefits. The mere facts that you found out all other full timer get paid more after all things considered, doesnt change the fact that you are a casual employee.

    As long as they have paid your reward wage and your super, everything else is a fair game. If I can employ someone for $20/hr on casual, whilst me myself is paying my other full time staff $25/hr + benefits and the reward only required me to pay $17/hr…….. really……… why not?

    Perhaps you should have negotiated a better salary? or take this as an experience and ask for more on your next employment.

    • I note your point and they are valid however if the people are keep getting employed through contract at the same or lower pay rate then employer would easily consider that rout and avoid all benefits. There is no award/EBA for contractor employed through agency as they work based on their contract terms.union normally keep Clause in EBA that contractor to be employed for short term work and paid higher wages to cover the leave entitlement. Unfortunately in NSW government there is new trend of employing skilled labour either through temperory 2/3 year contract or through skilled hire and hence introduction of work choice practice through back door.

      Coming back to post topic, ATO in a case against a contractor won on the basis that contractual employment is no different to permanent and hence created PSI rule to make sure contractor pays similar tax as employee …..But fairwork never created a rule to make sure employer do not exploit people and avoid paying fair benefit by employing people on contract for number of years and pay them less then permanent.

      • Hi Sydboy

        Fairwork has an extensive guidelines of sham contracting.

        First, every state has their own trade/commercial award.
        Second, there is no way they are going to play cop for every Companies out there to do the right thing.
        Third, it comes down to your mutual understanding with your employer.

        Some people got duped into entering this sham contracting arrangement, some people got into it fully aware of what is going on, some people are just plain ignorant and don't know what they are getting into.

        At the end of the day, does not matter how shit it is, it still provides food on the table, bring some income in.

        I am not in anyway supporting the arrangement, but would you rather be jobless? This is what I called mutual understanding.

        Get into it, learn from it (mistakes, wrongdoings or anything that comes out of it), move on and put yourself in a better environment.

        Although I must say, some of employers are really dodgy and worth to be reported to a higher power. But I guess, you probably would not had taken the job in the first place if you have the options/arent desperate for what ever reason (money, experience or just for the sake of not being jobless).

        I understand your frustration, be very careful about it, learn from your current job, be positive and move on.

        Show them what you can do, then they could either pay up or you can go elsewhere

        Cheers

  • Por que no los dos?

    • no hablo spanglish.

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