11 minute read
Chapter 11 E nsure the Succ ess of Your Business
Chapter 11
Ensure the Succ ess of Your Business
John Ford | Assistant Commissioner Austral ian Taxat ion Off ice
About the Author
Assistant Commissioner John Ford is the Program Lead for the ATO’s Risk and Strategy – Employer Obligations portfolio. He is responsible for leading the ATO’s approach to supporting employers to meet their Superannuation Guarantee, Fringe Benefits Tax and Pay as You Go Withholding obligations. John has been with the ATO for 21 years and has held Assistant Commissioner roles in Integrated Compliance and Superannuation & Employer Obligations.
Amongst the plethora of information to consider when setting up or buying a franchise, knowing and meeting your tax and super obligations for your workers is an essential factor to ensure the success of your business. Depending on whether your workers are employees or contractors, there are a number of obligations that you as their employer need to meet.
These employer obligations include helping your employees meet their end-of-year tax liabilities by collecting pay as you go (PAYG) withholding amounts from payments you make to them, reporting and paying superannuation guarantee (SG) for eligible employees and also reporting on and paying fringe benefits tax (FBT).
Are you hiring employees or contractors?
Your tax and super obligations will vary depending on whether your worker is an employee or contractor. At a high level, an employee works in your business and is a part of your business, whereas a contractor is running their own business.
The Australian Taxation Office (ATO) outlines six factors that, taken together, will help you determine whether a worker is an employee or contractor for tax and super purposes. There isn’t one factor that makes a difference on determination on its own which is why you need to consider the whole working arrangement
1. Abilityto subcontract/delegate
An employee can’t subcontract/delegate the work – meaning they cannot pay someone else to do the work in their place where a contractor can subcontract/ delegate the work – meaning they can pay someone else to do the work in their place.
2.
3.
4.
5. Basis of payment
An employee is paid either: for the time worked, a price per item or activity or by commission where a contractor is paid for a result achieved based on the quote they provided.
Equipment, tools and other assets
An employee is either provided with all or most of the equipment, tools and other assets required to complete the work or the business grants the employee allowances or reimbursement for the cost of equipment, tools and other assets. A contractor will provide all or most of the equipment, tools and other assets required with no allowance or reimbursement for the cost of these.
Commercial risks
An employee takes no commercial risks; your business is legally responsible for the work and liable for the cost of rectifying any defect in the work. A contractor takes a commercial risk; they are legally accountable for their work and liable for the cost of rectifying any defect in their work.
Control over the work
The way in which an employee works is directed by your business, whereas a
contractor has the freedom to decide how the work is done, subject to the specific terms in any contract or agreement.
6. Independence
An employee is working within and is considered part of your business where a contractor is operating their own business independently. Contractors perform services as specified in their contract or agreement and are free to accept or refuse additional work.
If you hire employees, you will need to:
Withhold tax (PAYG Withholding) from their wages and report and pay the withheld amounts to the ATO
Pay super, at least quarterly, for eligible employees Report and pay FBT if you provide your employee with fringe benefits.
If you hire a contractor:
They generally look after their own tax obligations, so you are not required to withhold from payments to them unless they don’t quote their Australian Business
Number (ABN) to you, or you have a voluntary agreement with them to withhold tax from their payments.
You may still have to pay super for individual contractors if the contract is principally for their labour
You don’t have FBT obligations.
It should be noted that it is against the law to treat an employee as a contractor wrongly, so you need to check that you’ve got it right. The ATO has developed a tool you can use to help you get this right; it’s called the Employee/Contractor decision tool and can be found on the ATO website. If you’re unsure about your circumstances, you should seek independent advice or request a private ruling.
PAYG withholding
Once you’re an employer and have determined the correct classification of your workers, you have a role to play in helping your employees to meet their tax obligations. You do this by collecting PAYG withholding (PAYGW) amounts from payments you make to your employees, other workers – such as contractors that you have voluntary agreements with, and businesses that don’t quote their ABN.
In order for you to know the correct amount to withhold, your employees must complete a Tax file number declaration.
You must register for PAYG withholding before you are first required to withhold an amount from a payment. You can register (or cancel) your PAYG withholding business account:
online through our Business Portal
through your registered tax agent or BAS agent
using your Standard Business Reporting compatible software
by phoning our business line if you’re an authorised business contact – 13 28 66.
If you cease to be an employer, you should cancel your PAYG withholding registration
When it comes to tax time, you do not need to provide your employees with payment summaries for information you report and finalise through Single Touch Payroll. This information will be made available to your employees through ATO online services via myGov. You need to make a finalisation declaration by 14 July each year. When you have made the finalisation declaration, your employee’s information will display as ‘Tax ready’ in ATO online services via myGov.
If you do not report using Single Touch Payroll, you still need to provide payment summaries.
It’s important to remember PAYG withholding is different from payroll tax as payroll tax is a state tax.
Superannuation Guarantee
Now that you’ve set your employees up for the end of the financial year, it’s time to think about the vital role employers play in providing for their employees’ retirement. Superannuation Guarantee (SG) refers to the minimum you must pay towards your worker’s retirement; currently standing at 9.5% of an employee’s ordinary time earnings, and is paid in addition to the salary and wages you pay your employees.
Any employee you pay $450 or more (before tax) in a calendar month, regardless of whether you employ them on a full-time, part-time or casual basis, is eligible for super. Employees under the age of 18 or working in a domestic or private nature (e.g. a nanny) will also need to work for more than 30 hours per week to qualify for super.
Importantly you also need to consider whether your contractors, company directors and temporary residents are eligible. This is generally the case where they are engaged by you principally or wholly for their labour.
Remembering when and where you have to pay super is just as important as paying the right amount. At a minimum, you must pay SG on a quarterly basis by 28 October, 28 January, 28 April and 28 July. All businesses must pay SG using SuperStream, which allows you to pay by electronic funds transfer or BPAY® to super funds. Contributions are considered paid when the fund receives them, so you need to take into account processing time to ensure you meet these quarterly due dates.
Making SG payments on time means you can claim those amounts as a tax deduction. This also includes additional contributions you have paid on behalf of your employee under a salary sacrifice arrangement. These deductions can only be claimed for payments the fund received during the relevant financial year.
If you underpay, do not pay, or pay your super obligations late, you must lodge a super guarantee charge (SGC) statement and pay the superannuation guarantee charge to the ATO by the quarterly due date – one month after the SG due date. Unfortunately, as you
have not met your full obligations on time, you will have to pay extra interest (which is then paid by us to your employee). You will also have to pay an administration fee per employee of $20, per quarter, and you will need to calculate and pay the SGC based on your employee’s total salary and wages and not ordinary time earnings – which is generally a higher amount.
In 2019 we released a new SG employer obligations online course to help employers better understand their super requirements. We recommend all employers take the time to take the course to make sure they are on track with the SG obligations. If an employer is identified as not paying the correct amount of SG, we can direct them to complete the course. You don’t have to do the whole course in one sitting – you can make a start now and continue later.
Fringe benefits tax
As an employer, you may want to provide your employer’s benefits on top of their agreed salary and wages. These can be in the form of salary sacrifice arrangements, allowing employees to use a work car for private purposes, giving employees a discounted loan or entertainment such as free tickets to events and Christmas parties. These are known as fringe benefits and are subject to fringe benefits tax (FBT).
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. If you are providing your employees something worth money, then it is usually subject to FBT. As an employer, you must self-assess your FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return. As an employer, you can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT you pay. You can also generally claim GST credits for items provided as fringe benefits.
An important FBT exemption to keep in mind is when you, as an employer, are providing your employees help in emergencies. In emergency situations like natural disasters, providing immediate relief to employees who are impacted (or potentially impacted) is exempt from FBT where the assistance is for:
first aid or emergency health care emergency meals, food supplies, clothing, accommodation, transport or use of household goods
temporary repairs.
If you or your business are affected by a disaster, we understand tax will be the last thing on your mind. We have a hotline you can call for assistance in getting your tax back on track once the emergency has passed – 1800 806 218.
We have an FBT guide for employers available on our website and can be downloaded as a PDF. It contains comprehensive information on all things FBT.
Single Touch Payroll
So how do you report all of these obligations? Single Touch Payroll (STP), is a new way of reporting tax and superannuation information to us.
Previously, only large employers with 20 or more employees were required to be reporting through STP, but as of 1 July 2019, all employers are required to be reporting through STP enabled software.
If you are a micro employer with one to four employees, there are a range of options for you to report through STP including no-cost and low-cost STP solutions such as simple payroll software, mobile applications and portals.
You also have the option to get your registered tax or BAS agent to report on your behalf. They can do this quarterly, rather than each time you run your payroll. This option will be available until 30 June 2021. You’re registered agent had until 28 February to apply for this concession, if they have missed the cut-off, they can still apply on your behalf, and the ATO will consider your application.
Small employers with Closely Held payees such as family members of a family business, Directors, shareholders or Trust Beneficiaries, will need to start reporting these payees from 1 July 2020. There will be an option to communicate these payees on payday or every quarter, the ATO will be providing more information on this over the coming months.
STP enables you to report your tax and super information to the ATO every payday. You can continue to pay your employees weekly, fortnightly or monthly while your STP software sends us the information we need from you, such as: salaries and wages pay as you go (PAYG) withholding super liability information
Super funds also report to the ATO when you make your super contributions to your employees’ chosen or default fund. The introduction of STP allows the information reported through STP to be matched to the ATO’s employer and employee records. This system enables the ATO to ensure that employees are paid their correct entitlements.
Where to get help
We recommend speaking with your trusted advisor about your tax and super obligations, but we are also here to help. You can engage with us online using our virtual assistant on ato.gov.au, join our online forum ATO Community to ask questions and share information, or call our business line on 13 28 66.
ato.gov.au/business ato.gov.au/franchise
