You may have entered the world of contracting as it offers more flexible working arrangements, the opportunity to work on differing roles or a chance to travel and work in various locations, but are you aware you have choices in how you get paid and operate as a contractor?
A common question from our contractors is whether they should contract through a Pty Ltd company, a management company, or work as a casual. Whilst there are no hard and fast rules here are a few points to consider when selecting an option. Remember, Kinexus can facilitate each option.
*Before we go any further, please note this does not constitute financial advice, and you should speak to your accountant/financial advisor to confirm the best choice for you!
Some contractors choose to work through Pty Ltd companies. As with each option, there are benefits and challenges associated that need to be worked through at an individual level. By deciding to contract through a Pty Ltd company, you will need to:
Set up your company (usually through an accountant)
Track and manage your GST, including submission of quarterly BAS statements
Purchase Workers Compensation, Professional Indemnity and Public Liability insurances
Manage your own superannuation contributions
Prepare statutory accounts and pay for associated costs
As a Pty Ltd contractor, you also need to be confident that your clients will be varied enough to pass the Alienation of Personal Services Income test. This test is to ensure that contractors are genuinely taking a variety of roles and not just working for one client over a sustained period (which might be the case if using a management company).
If you are set on this route and think it is appropriate, then you will need to be prepared to provide proof of Workers Comp, PI/PL insurances, as well as company registration and ABN to your client or agency before commencing your contract role.
Casual is an ideal option if you want to keep the admin requirements simple, as casual contractors don’t need to worry about the complicated requirements listed above.
Casual is a great option for people who are time poor, hate admin and don’t want to shell out for insurance cover. All it requires is the completion of a tax file declaration and a few personal details, and you are all set up and ready to go.
Management companies are similar to Pty Ltd, except under this arrangement you have outsourced the management of the company to someone else, who then charge fees for this service (usually in the region of 2-3% of your annual earnings).
A management company set up can work if you are a highly paid contractor who wants to take advantage of any tax or financial benefits that Pty Ltd contracts may offer, but you want to reduce the admin time and possible risks inherent with managing a company yourself.
To ensure you are getting ‘bang for your buck’, you should ensure that at a minimum, the following is provided by your management company within their fee:
Advice on efficient tax structures and overall tax advice
Admin and other support
Workers Compensation, Public Liability and Professional insurance cover
If you decide to go via this route, make sure you have confirmation and details of your management company to provide to your agency before you start work.
As you can see, the options are varied and must be considered carefully on an individual basis – best get on the phone to your accountant or advisor to work out which one will work for you.