Part 3 – What to do next?
If you’ve been following this series of emails, you’ll now be aware of some of the over-arching issues businesses might encounter when engaging staff or contractors. You will know now that casual staff, contractors and permanent employees all have different entitlements, and how important it is to have an employment contract or contractor agreement at the very least.
Sometimes the best way to fully understand the impact of an issue is to see how it has played out in the real world. For this reason, we’ve put together the following real-life case studies of how these issues have affected our clients.
Case Study 1: Super Guarantee
One of our clients believed that they were engaging a contractor. The terms of employment were loose and casual, with no subcontract agreement or purchase order in place. The parties had agreed on a flat rate of $50 per hour for each hour worked. This rate included insurances (public liability and workers compensation) and superannuation. It was agreed that all tools would be provided by the subcontractor and no set work roster was decided as the subcontractor didn’t want to work regular hours (they were also doing a number of other smaller jobs at the same time). The subcontractor failed to show up for work on occasion and so wasn’t paid for those hours.
Years later the subcontractor made a complaint to the ATO about non-payment of superannuation – despite the previous agreement the two parties had made. The ATO contacted our client and performed a Superannuation Guarantee audit. They found that:
- The subcontractor was an employee for superannuation purposes
- Even though the rate of pay had been agreed as a flat fee of $50 per hour, including all insurances and superannuation, our client was liable for the ATO Superannuation Guarantee for 4 years, totalling $40,000 (plus penalties and interest).
AAG in Action: Had our client engaged our services earlier we could have helped guard against this outcome by ensuring they had a proper legal subcontract agreement in place before any work commenced or, we could have reviewed the loose arrangements earlier, fixed the problems and limited the unpaid superannuation liability before it grew to the magnitude it did.
Case Study 2: Fair Work Commission (Fair Work) Issue
Another client employed a member of staff on a casual basis. The rate of pay was agreed to be $30 per hour which was 25% above the award rate for usual work. This rate allowed for:
- Non-frequent work
- No holiday pay or sick pay (at the request of the staff member)
- The ability for the staff member to work as many hours as they wished, with no paid overtime. This was agreed as the rate of pay was above the casual rate in the award.
A year later the staff member resigned and made a complaint to Fair Work.
Fair Work asked our client for details such as:
- A copy of the Employment contract
- Copies of Payslips
- Copies of Timesheets
- Other evidence of pay and conditions
Our client was unable to provide these things. All they could produce were bank statements showing payments and some handwritten payslips.
AAG in Action: Fortunately, we were able to negotiate an agreed outcome that did not involve vast legal costs. Had we been engaged earlier, we would have emphasised the need for good record keeping, warned of the dangers of not doing so and assisted with preparing the necessary employment documentation. However, we’d taken the client over from another accounting firm and their financial records weren’t in a good state. Our subsequent investigations found:
- There was no formal employment contract
- There was no confirmation that the staff member had been employed and paid on a casual basis
- By current tests, the employee was actually classified as permanent part-time not casual
- The employee was entitled to payslips each pay period, so in not providing those the client had been in breach of Fair Work regulations.
Had the client engaged AAG’s services before engaging the employee, created a sound legal employment contract and complied with all payroll and payslip requirements, they would have saved a lot of time, money and stress in dealing with the matter.
Case Study 3: Payroll Tax Audit
It’s important to note that the State Revenue Department in each state has its own definitions of what constitutes an employee and a subcontractor and that these definitions differ from state to state and from those set out by the ATO.
Not knowing this, one of our clients engaged a series of subcontractors to complete some work. They variously hired them as:
- Sole Traders
- Personal Trustees of a Family Trust
Unfortunately for the client, the State Revenue Department’s definition classed the subcontractors as employees (not subcontractors) for the purposes of Workers Compensation Insurance and Payroll Tax. This resulted in an unexpected Payroll Tax liability of over $10,000.
AAG in Action: Had the client engaged AAG’s services before awarding the initial works we would have ensured that they only hired subcontractors which operated under a corporate company structure instead, and this issue would not have arisen. We determined the cost of fighting the State Revenue Department’s decision was going to be in the order of $8,000 and as there was no guarantee of a better outcome, we assisted our client to negotiate a payment plan for the $10,000. This could have so easily been avoided.
AAG in Action
We are here to help. At AAG we assist current and potential clients with a range of employment related issues including:
- Employment Contracts
- Payroll Advice
- Superannuation Advice
- Payroll Tax Advice
- Structuring of employees or subcontractors
- Review of business structures
By setting things up property in the beginning, we can help to protect you against the risk of fines, legal expenses and that most valuable commodity, time, further down the line. If you would like to chat to us further about how we can help you, call us today on (08) 9227 6300 or .
Important information and disclaimer
This publication has been prepared by AustAsia Accounting Services Pty Ltd Registered Tax Agent No 7587 3005.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.
Information in this publication is accurate as at the date of writing, 7 November 2018. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.
Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this document.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent/