Contractors: Stay above Board with Your Tax Obligations by Outsourcing to a Payroll Processing Services Company
One of the significant challenges of being an independent IT contractor is staying on top of all your tax obligations. When you work for a company that considers you to be an employee—whether full time or part time—you don’t have to worry about taxes so much. PAYG income tax is withheld from every pay to satisfy ATO requirements and superannuation is paid to your super fund on your behalf. All you need to do is lodge a tax return at the end of the financial year with your PAYG Payment Summary information, and that’s about it.
However, if the company you work for considers you an independent contractor, you are on your own. Therein lies one of the biggest benefits of payroll processing companies.
How to Handle Taxation as an Independent Contractor
When you get paid as a contractor, you typically get paid an agreed hourly rate for your services. If the contract was worth $5000 then that’s what your invoice will say. If your hourly rate was $100 per hour, that’s what you will get paid. Your client didn’t withhold any taxes. You are still expected to pay PAYG income tax on this income, and you must comply with Personal Services Income legislation that pertains to IT contractors, but you have to pay for it on your own in a quarterly BAS. Alternatively you will end up paying those taxes later when you lodge your tax return.
Obviously, there are some pros and cons with this kind of payroll setup. On the one hand, you get your hands on more money than you would providing the same services as part of a full-time job. You can put that money in the bank, invest it, earn some interest on it and then pay your taxes. With payroll withholding, you never even see the money taken out of your pay for taxes. On the other hand, you need to save money to pay those taxes later. Otherwise, you could end up lodging your tax return and finding yourself short on cash to pay what you owe the government. This doesn’t even consider that you also have to hold your own insurances and pay additional accounting fees for lodging your company tax return, and paying your annual company reporting fee to ASIC. Considering that, due to the PSI rules, there are few benefits available to contractors that you wouldn’t be entitled to as an ordinary employee anyway, you’ll find there’s minimal financial gain in trying to do all the work yourself.
You have three basic options here. First, you could just get in the habit of saving 20 to 30% of each check you get for taxes. Second, you could start your own company and then set things up so that you receive a salary, with taxes withheld (bearing in mind that the PSI rules will apply to 100% of your contracting income, and you will be taxed at your personal income tax rate regardless of whether you interpose the arrangement with a company or trust structure anyway). Third, you could look into payroll processing outsourcing as an alternative to option two.
Choose Option Three: Work with AchieveCorp as Your Payroll Processing Company
At AchieveCorp, we offer payroll processing services designed to make life easier for independent contractors. With us, you don’t have to set up your own business just to handle taxation, payroll management and other obligations. You don’t have to spend the week doing your job and then the weekend preparing invoices and doing the bookkeeping for your company.
Instead, we take care of the hassle. We provide a system that includes PAYG withholding, superannuation, professional indemnity, public liability and workers’ compensation insurance. We also set up a salary package that is logical for you and help you find benefits allowable under ATO legislation. Our goal is to maximise your wealth creation while also shielding you from any potential legal snafus.
At the end of the year, we will even offer you a complimentary basic tax return, prepared and lodged by our sister company, Advantage Accountants.
Payroll processing outsourcing is a powerful way for contractors to stay above board with their tax obligations while also making good money and avoiding extra hassle. If you are interested in learning more about payroll processing services, call AchieveCorp today on 1800 882 059.