Need some help from OzBargainers - regarding ABN

• 

  pax on 04/02/2013 - 14:30

  Is she contracting?

  She could be employed under another company who then manages her payroll, etc and pays her. This will mean she doesn't need to do payroll, BAS, etc, but means she will get less money due to "management" costs.

  I have my own ABN as I will be doing longer term contracting and I have a company which does my accounting, BAS and PAYGW taxes quarterly. She will also need to register for BAS and PAYGW with the tax department.

  It depends on how she wants to structure her pay as to the benefits of doing things through her own company, but she does have choices. If she is interested in doing long term contracting, speak to a financial adviser.

  I can answer some other specific questions, but will recommend all financial questions are answered by a financial adviser.

  Pax

  • 

    justmadethis on 04/02/2013 - 17:21

    +9

    http://youngworkertoolkit.youth.gov.au/starting-your-job/my-…

    My boss has told me to get an ABN and my own workers compensation insurance. Do I need to?
    An ABN is an Australian Business Number, which businesses use when dealing with the Australian Tax Office and other government departments.

    If your employer is asking you to get an ABN, it is possible that he or she is hiring you as an independent contractor and not as an employee.

    It’s illegal for an employer to pretend you are a contractor when you are clearly an employee. This is called ‘sham contracting’ and your employer could be prosecuted.
    If you are working as an independent contractor, you’ll be responsible for reporting your income and paying tax to the Australian Tax Office. If you are an employee, your employer will usually deduct tax from your income.

    Generally contractors use their own tools, have their own insurance and decide how they want to do the job. They may also be responsible for their own superannuation entitlements and workers compensation.

    www.slamthesham.com.au has details how to report. (Please do)

• 

  retiredfeline on 04/02/2013 - 14:34

  You'll want to read the ATO pages on ABN. E.g. start here:

  http://www.ato.gov.au/businesses/content.aspx?doc=/content/1…

  It means she is not an employee and doesn't get the usual employee entitlements. She has to quote her ABN on business communications and withhold GST (if she opts to register for GST, optional under the threshold, $75k).

  Aside from withholding GST it has nothing to do with the tax rate. Her income will be taxed at the same personal tax rates as employees. As a business or sole trader she might in fact be able to claim various expenses and deductions but talk to an accountant or financial advisor about this. In fact that's a good idea anyway.

• 

  mrhorseham on 04/02/2013 - 14:41

  Hey, No she isn't contracting, she's a full time student at the moment and the job is just a casual personal assistant for a business. I'm guessing the business must get some advantages over having her as a contractor than as an employee? is there any significant disadvantages for her?

  • 

    pax on 04/02/2013 - 14:46

    If this is casual and not a long term position, then it would probably be an advantage to her to work under the umbrella of an employment company.

    It costs money to set up a company and register for ABN. This money sounds like it would be better off spent by her and the money over the short term will not compensate for the costs of setting up the company.

    Again, financial adviser or accountant would be the best to consult for all the low down on costs.

    Pax

    • 

      Miss Dior on 04/02/2013 - 16:16

      On the other hand she doesn't have to incur the costs of setting up a company. She can register a business name and trade as a sole trader. Sounds a bit odd to me - for an employee (which this clearly isn't).

      Also it says this on the ATO website: "Employees and hobbyists are not entitled to an ABN as they are not carrying on an enterprise." as per this link - http://www.ato.gov.au/businesses/content.aspx?doc=/content/1…

      • 

        retiredfeline on 04/02/2013 - 16:23

        She doesn't have to register a business name as a sole trader, but she can; she can trade under her own name.

      • 

        pax on 04/02/2013 - 16:30

        Important questions on that link to which Mrs Horseham should consider about whether she has to invoice or not.

        Mr Horseham, you should make sure that your Mrs can answer the questions about her employment relationship so she doesn't get caught out.

        Pax

  • 

    retiredfeline on 04/02/2013 - 14:46

    Sure, because it's just a business-business arrangement, all the things that an employee entail are absent, e.g. they can terminate the arrangement at will.

  • 

    meroveus on 04/02/2013 - 23:51

    +1

    Plenty of disadvantages for her:

    • responsible for paying her share of tax to the ATO
    • gets no superannuation from employer
    • not covered by employer workers compensation if she gets injured

    Her only advantage is she gets paid (or should get paid) an extra amount of $$$ to make up for the lost benefits. At a bare minimum 15%-20%.

    I run a business and work as a contractor for various companies, but I charge between double and triple what an employee would get. No way would I do it for a measly 20%.

    What her employer gets out of this:

    • doesn't have to worry about PAYE arrangements
    • doesn't have to pay her superannuation, sick leave etc.
    • doesn't have to make workers compensation payments on her behalf

    I would suggest this is really not something she wants to do.
    Sounds like she just wants to be an employee, not run a business or be a sham contractor.
    She should get in contact with the ATO ASAP so they can step on this low-life employer.

• 

  siraitken on 04/02/2013 - 14:58

  +2

  If she uses an ABN make sure she factors in all costs into her going rate ie:

  • Wage rate
  • Bonus if applicable
  • Super on wage & bonus
  • Payroll tax on wage, super & bonus
  • Workers Comp rate
  • Other ad hoc allowances (meals, etc)

  These are costs the company would incur if she was an employee not a contractor so make sure she fully factors these in else she will effectively be taking a pay cut.

  Also make sure she has a services contract with the company ie. 2 days per week etc. To mitigate her risk of losing a job at short notice.

  As a side note if you are intending to purchase a property soon it would be preferable to be an employee not contractor.

  • 

    mrhorseham on 04/02/2013 - 15:21

    +1

    Thanks, i'm waiting till she gets home and ask her more about it, but when she said he wanted her to get an ABN it just sounded a little dodgy to me. I actually think he will be setting the rate he pays her so she'll have no say in how much she charges. And i'll also ask about the contract. Thanks.

• 

  ohsnap on 04/02/2013 - 16:37

  Basically, there is no advantage for her. A lot of businesses are doing this because it saves them the hassle of paying super and withholding tax for the employee. It is not that they are out to cheat you, because they are still going to be paying you the amount you agreed on, but it is not the right thing to do in the ATO eyes. To the ATO, if you are performing the role like you are an employee, then you are not a contractor. The ATO is much stricter now with ABN applications - if you do not answer the questions correctly, your application for an ABN will probably be rejected.

  • 

    ciab on 04/02/2013 - 17:05

    As ohsnap has pointed out it is to the business's advantage. Say she gets $20 an hour this includes her tax (that she should withhold) and her super. So less super at 9% and a tax rate of 19% (if she will earn under $37,000 for the year) so roughly its more like $14.40 in the hand.

    On a plus note if she works there a couple of years and moves on, she can inform the ATO and probably get her superannuation back paid from the employer.

    Edit: Sorry its the Fair Work Act 2009 not the ATO that can get her super back paid. Look under Sham contracting arrangements
    http://www.fairwork.gov.au/resources/fact-sheets/workplace-r…

  • 

    Ahan on 04/02/2013 - 17:09

    Is there any obligations for ABN holders like do extra tax lodgements ect.?

    • 

      ciab on 04/02/2013 - 17:14

      Not straight away. But if she does it for a couple of years the ATO will start sending out quarterly PAYG installment statements.

• 

  Ahan on 04/02/2013 - 17:04

  +2

  Your gf will not be taxed at 30%. That's corporate tax rate which will not apply to sold trader.

• 

  tonka on 04/02/2013 - 17:35

  +1

  Sounds strange for a PA role. You may find that although the employer is trying to dodge the employment relationship by calling her a subbie it won't wash anyway.

  The test is 'if they look like an employee then they are an employee'

  A subbie sets their own hours and decides how work is achieved. They will provide their own tools and may employ other people. They will often provide service for more than one company. I can't see this in a PA role.

  A subbie is usually paid at a higher rate, take the higher rate then after the end of the job or a couple of years make a claim with fairwork for fulltime employment rights, backpaid annual leave and sick leave and potentially unfair dismissal compensation.

  If your not feeling generous also report them for falsifying workers comp declarations and avoiding payroll tax (depending on size of company).

  • 

    grasstown on 05/02/2013 - 07:46

    Yep, so she can get all the employee benefits down the track. Unless she works for multiple employers etc.

    The whole arrangement though is dodgy. Used by dodgy operators like 'fly by night' pink bat installers.

    So they will just deregister the company and she cant go after those benefits anyway. Or worse still, I'd be scared they dissolve the company before she gets paid in the first place. How often does she get paid?

• 

  mrhorseham on 04/02/2013 - 19:09

  I believe she can set her own hours, like it is pretty flexible and apparently can work at home, only 1 day a week has to go in or something. But it's really not a contractor like you've all said and he is probably trying to avoid paying super

  • 

    blitz on 04/02/2013 - 19:36

    +3

    This is sounding fishier and fishier all the time. I'd look elsewhere if I were you (or your gf).

• 

  cintamami on 05/02/2013 - 11:03

  Hi mrhorseham

  This situation happens very often in business, for the description you have given in the above.

  The whole scheme is a sham contracting business, check workfair.gov.au, there is lists of stuff there about sham contracting. In the end, if the employees were to get back to the employer and challenge them, the employees will win. As I have a few cases like that with our clients, sometimes it was unintentional, but most of the times it was intentional.

  Your girlfriend will be deemed an employee under the law, the business was trying to avoid to pay super and workers compensation insurance in the above scenario.

  your girlfriend do not have to get her own workers comp…. pffftttttt hahahahaha…… its getting dodgier by the day.

  If I were your gf, I would confront him:
  1. either pay cash on hand, if your gf cant stomach this, ask for an employment contract and explain the workfair stuff to the boss.
  2. move on and find another job.

  Hope it helps.

• 

  xtanda on 05/02/2013 - 12:11

  The abuse of ABN for employment is 2 sided.

  In one side, just like what happen with the OP, is a company wants to take less responsibilities of their new employee (as what all the other poster describe above)

  But on the other side, many professional, say architect, who get paid in 6digit number, before (before ATO become stricter), preferred to use ABN (employed as contractor) so they did not pay 47% tax (before) but only 30% (company tax rate)

  The problem is: it is hard for ATO to prevent it happens beforehand (although yes, they can prosecute AFTER) because there are some legitimate small businesses (e.g sole trader) that genuinely need ABN for operation, as well as there are indeed entrepreneur professional that "transform" his employment into his new business (become company).

  Although in this case the company that ask the OP's girfriend to get ABN seems like a little bit dodgy, there are also some legitimate reason (and legal) for businesses require ABN.

  For example: some businesses due to some downturn apply "no hiring" policy (no budget allocated for new employee), but have budgeted for ongoing cost, say for computer maintenance/upgrade. Therefore, while the company cannot hire new IT Help Desk (as permanent employee), they could "give you a favor" that if you have ABN and invoice them regularly, you can still got the same money, but as contractor. In this case, I think it's legit and if you pass this one, other will grab it. SO, I guess it depends on the case.

  Thanks

• 

  2ndeffort on 05/02/2013 - 16:15

  To add my 5 bobs worth, The company she is helping probably doesnt want the commitment of an employee. If they were to employ her and then, in the future decide they didnt need her anymore they would potentially have to retrench her. They would also have to make sure she received Super, training and all of the standard conditions of employment stuff. Contractors are potentially less of a commitment for a company as they may be easier to get rid of if their services aren't needed down the track.

  On the upside for your girlfriend though, contractors can normally command higher wages and, as long as they deliver on the terms of their contract, aren't normally bound as tightly to that 1 specific company, for instance, your girlfriend could be a PA at 3 other businesses on other days of the week potentially.

  I have just left a multinational and started my own small business. It gives me great flexibility on how I go about things and, as long as I can find enough paying clients, great work/life balance. In the times I am working I am making 3 times what I was making as an employee but there are also periods where I am essentially unemployed and looking for the next job!

• 

  G-Dawg on 06/02/2013 - 13:05

  So does anybody know what her reporting obligations will be like? Will she need to submit a BAS or can she just report her earnings as normal via her income tax return?

  It sounds like the level of hassle which is required on her end to pay her super and income tax is significant.

  I've just started as a contractor so am interested if anybody knows what the process is as the ATO helpline hasn't been very helpful.

• 

  georgedeka on 06/02/2013 - 16:02

  +1

  You will not need to do a BAS, unless you register for GST.
  After your first year, the ATO may put you on quartley IAS statements, they are a simple form, which just asks you to pay a pre-determined amount and fill in what you earnt for the quarter. It is just so the ATO collect the tax from you as you go.

  The ATO website is full of info on contracting etc…

  • 

    G-Dawg on 06/02/2013 - 16:12

    Thanks George that's helpful.

    I finally managed to get onto the ATO today and their advice was essentially the same.

    I can just report via my normal tax return at the end of the year, which will make life easier.

    My apologies for hijacking the thread for my own gain too. I'm an opportunist.

• 

  mrhorseham on 07/02/2013 - 14:43

  +3

  Thank you to everyone who contributed, she has declined the job.