Do you run a business and have or are thinking about hiring workers? If so, it’s important to understand the difference between contractors and employees, as you have different tax and superannuation responsibilities depending on the status of the worker.

What’s the difference between contractors and employees?

Generally speaking, an employee works in your business and is part of your business. A contractor is a person who is typically running their own business and anyone who engages their services has little direction or control in respect of how that service is supplied unless a written agreement is provided.

The table below provides six key factors that determine whether a worker is an employee or contractor for tax and superannuation purposes.

Factor	If worker is an employee	If worker is a contractor
Ability to subcontract/delegate	The worker can’t subcontract /delegate the work – they can’t pay someone else to do the work. They must do the work themselves.	The worker can subcontract/ delegate the work – they can pay someone else to do the work.
Basis of payment	The worker is paid either:For the time worked or a price per item or activity and or, commission.	The worker is paid for a result achieved based on the quote they provided. A quote can be calculated using hourly rates or price per item to work out the total cost of the work.
Equipment, tools and other assets	Your business provides all or most of the equipment, tools and other assets required to complete the work, or the worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.	The worker provides all or most of the equipment, tools and other assets required to complete the workThe worker does not receive an allowance or reimbursement for the cost of this equipment, tools and other assets.
Commercial risks	The worker takes no commercial risks. Your business is legally responsible for the work done by the worker and liable for the cost of rectifying any defect in the work.	The worker takes commercial risks, with the worker being legally responsible for their work and liable for the cost of rectifying any defect in their work.
Control over the work	Your business has the right to direct the way in which the worker does their work.	The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
Independence	The worker is not operating independently of your business. They work within and are considered part of your business.	The worker is operating their own business independently of your business. The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work.

Your tax and super obligations 

Your tax, superannuation and other obligations will vary depending on whether your worker is an employee or contractor. The table below summarises the key considerations. 

Tax/Obligation	If worker is an employee	If worker is a contractor
Income	You’ll need to withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to the ATO.	Contractors generally look after their own tax obligations, so you don’t have to withhold payments to them unless they don’t provide their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments.
Superannuation	You’ll need to pay superannuation, at least quarterly, for eligible employees.	You may still have to pay superannuation for individual contractors if the contract is wholly or principally for their labour.
Fringe benefits tax (FBT)	You’ll need to report and pay FBT if you provide your employee with fringe benefits.	You don’t have FBT obligations.

The High Court’s new employee/contractor test

The High Court has delivered several decisions which confirm that when determining whether a person is an employee or contractor, it is necessary to look to the legal rights and obligations agreed under the relevant contract, rather than what happened in the working relationship as it unfolded. 

This is in contrast to the previous practice adopted by courts and tribunals whereby the actual circumstances of how the arrangement played out in real life (on the facts, not the contract terms) was decisive. In other words, the written agreement (the contract) will determine the nature of the relationship, rather than examining the subjective circumstances. This is unless the contract is a sham  and does not reflect the circumstances of the arrangement. 

Review your contracts with your workers

It is important that business owners understand the difference between employees and contractors. Businesses should absolutely review their written contracts with employees and contractors to ensure that the contracts correctly give effect to the arrangement the parties understood was being entered into when the contract was formed.

If you have any questions regarding your obligations in this space – de Kretser is here for you.

Need more information? Please do not hesitate to get in touch – we look forward to hearing from you.

T: +61 3 9550 6900

E:admin@dekretser.com.au

Are you ready to take control?

Follow these easy steps and compare your superannuation fund’s performance against other funds to make the right choice.

This will be possible if you have a MySuper fund as the ATO’s Your Super comparison tool as it can help you compare different MySuper products and choose a superannuation fund that meets your needs.

What is a MySuper fund?

A MySuper fund is a low-cost superannuation product and is usually the default account for people who don’t choose their own superannuation fund when they start a new job.

Many large Australian Prudential Regulation Authority (APRA) regulated superannuation funds (ie, retail, industry and corporate funds) can all offer MySuper accounts to members in accumulation (ie, non-retirement) phase. MySuper funds are simple accounts that generally have the following basic features:

■Simple investment strategy options – depending on the fund, you will be put into either a single diversified investment option or a lifecycle investment option based on your age.

■Lower fees – you don’t pay for unnecessary features that you don’t need.

■Default insurance options – you can easily opt out of the insurance arrangements if you wish.

■Easy to compare – you can easily compare MySuper funds based on investment performance, cost and insurance.

YourSuper comparison tool

You can find out about and compare MySuper products by using:

■Your superannuation fund’s product disclosure statement (PDS) for the MySuper product, or

■The ATO’s YourSuper comparison tool. If you can’t find your current account type within the MySuper products list, your account may not be a MySuper product. The best way to confirm whether your account is a MySuper product is by contacting your superannuation fund directly.

What does the YourSuper comparison tool do?

The YourSuper comparison tool can compare MySuper products based on only a few key differences.In particular, the YourSuper comparison tool:

■Displays a table of MySuper products ranked by fees and net returns (updated quarterly).

■Allows you to select and compare in more detail up to four MySuper products at a time.

■Links you to a superannuation fund’s website when you select a MySuper product from the table.

■Can show your current superannuation accounts alongside other MySuper products (if you access the personalised version through myGov)

■Provides links to help you consolidate your superannuation accounts.

APRA assesses the annual performance of each MySuper product. As such, the investment performance column will provide one of the following results for each fund:

■Performing – the product has met or exceeded the performance test benchmark

■Underperforming – the product has not met the performance test benchmark

■Not assessed – the product had less than 5 years of performance history and has not been rated by APRA.

Using the YourSuper comparison tool

To access a personalised version of the tool which allows you to view and compare your existing MySuper products:

■Log in to ATO online services through myGov, and

■Go to the Super drop-down menu and select Information, then select Your Super comparison.

You can also access a non-personalised version of theYourSuper comparison tool without logging into myGov by:

■Visiting ato.gov.au and search for “Your Super comparison tool”

■Start searching for your own MySuper product name.

If you have any questions regarding your Super obligations – de Kretser is here for you.

Need more information?
If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.

We look forward to working with you.

T: +61 3 9550 6900

E:admin@dekretser.com.au

• 

Here at de Kretser – our team have compiled a simple guide to help your business with it’s Super responsibilities in the new Financial year.

You will have heard by now that business Superannuation contribution in Australia has increased to 10.5%  

The Superannuation Guarantee (SG) rate will rise from 10% to 10.5% on 1 July 2022 and will then steadily increase by 0.5% each year until it reaches 12% on 1 July 2025 – the following numbers tell the story –

Period	SG rate (%)
1 July 2015 – 30 June 2016	9.5%
1 July 2016 – 30 June 2017	9.5%
1 July 2017 – 30 June 2018	9.5%
1 July 2018 – 30 June 2019	9.5%
1 July 2019 – 30 June 2020	9.5%
1 July 2020 – 30 June 2021	9.5%
1 July 2021 – 30 June 2022	10%
1 July 2022 – 30 June 2023	10.5%
1 July 2023 – 30 June 2024	11%
1 July 2024 – 30 June 2025	11.5%
1 July 2025 onwards	12%

The increase to the superannuation guarantee (SG) rate begins from 1 July 2022 and will see more employees (and certain contractors) entitled to additional SG contributions on their pay.

If you have employees, what this will mean depends on your employment agreements.

If the employment agreement states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund.

For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.

But what happens when income earned before 30 June is paid after 30 June 2022 – will employees be entitled to the higher SG rate of 10.5%?

SG based on when an employee is paid

On 1 July 2022, the SG rate increased from 10% to 10.5%. In some cases, an employee’s pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned.

The rate of 10.5% will need to be applied for all salary and wages that are paid on and after 1 July 2022, even if some or all of the pay period it relates to is before 1 July 2022.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 10.5% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

EXAMPLE

Nicholas is an employee of ABC Pty Ltd.

If Nicholas performed work:

• In June (or partly in June and partly in July) but he was paid in July, the SG rate is 10.5% on his entire payment and contributions totalling 10.5% of his ordinary time earnings for the September 2022 quarter must be made to his superannuation fund by 28 October.
• In July but was paid in advance (before 1 July), the SG rate is 10% and contributions totalling 10% of
  his ordinary time earnings for the June 2022 quarter must be made to his superannuation fund by 28 July.

Please also note the following changes to the SG Threshold

	$450 super guarantee threshold removed
	From 1 July 2022, the $450 threshold test will be removed and all employees aged 18 or over will need to be paid superannuation guarantee regardless of how much they earn. It is important to ensure that your payroll system accommodates this change so you do not inadvertently underpay superannuation.
	For employees under the age of 18, super guarantee is only paid if the employee works more than 30 hours per week.

If you have any questions regarding your Super obligations – de Kretser is here for you.

Need more information?
There are many factors to consider regarding the information shown above. Please contact us if you would like more information, we are happy to explain and action your requirements.

We look forward to working with you.

T: +61 3 9550 6900

E:admin@dekretser.com.au