The legally tested framework allowing business to ensure contractor - PowerPoint PPT Presentation

The legally tested framework allowing business to ensure contractor compliance in an age of increasing regulation and complexity

ContractRight - Who are we!  The ContractRight team have specialised in Contractor Management services to the Corporate and Individual Contractor markets nationally since the early 1990’s.  We have consulted in almost every business segment imaginable, anywhere from Allied Health Care to Industrial Maintenance facilitation.  Bespoke engagement solutions are tailored to suit the unique needs of each C lient’s business.  ContractRight delivers a sustainable and compliant system for many Contractors to provide labour based services.

The Current Legislative Landscape and Compliance Risk  Various areas of Federal and State legislative mean labour based Contractor arrangements are subject to considerable scrutiny!  Where a contractor provides largely or wholly labour based services the engagement must be compliant under the Australian Tax Act, the Personal Services Income (PSI) legislation & the Fair Work Act.  Attempting to contract out of these obligations brings with it significant mutual business risks associated with fines, back tax payment and SHAM contracting prosecution.  Hiring Contractors who invoice via ABN & Pty Ltd companies, does not necessarily remove the risks associated with avoiding PAYG, Superannuation, Industrial Relations instruments, WorkCover, Payroll Tax and PSI obligations!

Are your contractors really contractors?  To be compliant and running a business enterprise contractors who provide largely or wholly labour based services must pass the validation tests prescribed by the Personal Services Income (PSI) legislation.  The individual must pass either the Results Test or the 80% Rule!  Payment for labour by hourly, daily, piece rate and in some cases commission only do not qualify as a result!  Earning 80% or more of personal services income from one source means a contractor can’t even reach the starting line!  Invoicing via an ABN, Company or Trust does not automatically mean an individual is running a business – this is an urban myth at best!

Are your contractors really contractors?  Having a written agreement between two parties that purports to create a contracting arrangement has little or no substance.  Even if both parties agree and sign an agreement – you cannot contract out of the law, it’s the law!  As many ABN contractors do not submit tax returns or cannot pass the business enterprise test the ATO is cancelling their ABN’s.  In many cases the ATO is cancelling ABN’s for some contractors as they are clearly employees, or should be employees.  Unless the engagement falls under an exemption all States have provisions enabling them to deem Contractors as Employees for the purposes of Payroll Tax & WorkCover.

ABN Abuse & Sham Contracting!  Abuse of the ABN system is common and suspect engagements can be subject to the Sham contracting provisions of the Fair Work Act.  Liability for super payments to sole traders – can’t contract out of the legislation.  Avoidance of tax is becoming an art form.  Invoice via fake ABN.  Collect and never remit GST.  It’s about to change.

We’ve established there are many risks!  So what Options are available?  Make all contractors employees – not productive and probably not in tune with the aims of the business plan.  Insist all contractors are incorporated. But this has huge risks – Part IV a, deeming provisions and also sham contracting arrangements.  Possible solution - Consider a model like CR.

The ContractRight Legal Basis  There has always been a lawful right of an individual to provide services as an Independent Contractor at Common Law.  We have worked with the system managed and refined by ContractRight since 1995. It has been tested in many jurisdictions from the High Court to Fair Work Commission investigations. ContractRight has failed none!  ContractRight manages the processes so all statutory requirements are met and all Contractors are compliant.  We have a section 15 variation agreement with the ATO allowing Contractors within our framework to vary tax payments to rates such as 20%.  This agreement is based on the system being accepted by the ATO as one of a Contract for Service and not employment.

The ContractRight Process How a third party arrangement works.  Client enters an agreement with ContractRight to contract the services of an individual for agreed terms. This is not a recruitment function.  The individual enters into an agreement with ContractRight to supply service to the Client on agreed terms as an Independent Contractor.  The Client receives an invoice from ContractRight for the agreed services of the individual and ContractRight remits funds to the individual.  ContractRight remits Payroll Tax, WorkCover and other statutory payments along with any payments requested by the individual to ensure compliance.  Fully compliant and fully insured system.  No ABN, no interposed entity, no PSI regulations, no ATO instalments.

The ContractRight Engagement Model Individual IC Client Company (Independent Contractor) No Contract between Client & IC Contract Contract H S A for the ContractRight L o C. • provision of an Assignment. • Individual to Rate Card. Breaks the nexus between • provide services Code • the Client Company & the as an IC. Individual

The ContractRight Payment Model Individual Client (Independent Contractor) $ No Direct Payment CR makes CR Invoices payments to Client for the Services $ $ Contractor rendered for Services by the rendered Contractor CR pays ContractRight (CR) WC, PRT & PAYE Tax Breaks the nexus between under ATO Client & the Individual Sec. 15 Variation approval

How do the Contractors Benefit? Engagement via the ContractRight framework means:  The Contractors retain all the benefits and tax advantages of self employment.  They don’t need an ABN, Company, Trust or any contrived conditions such as “rental” of tools or “rental” of office space or “hiring” of equipment. Estimated Contractor saving of around $2,500 – $4,000 p.a.  Contractors are engaged as a “natural person”. There is no alienation of Personal Services Income – the validation tests are not applicable.  Contractors do not have to complete BAS, collect or remit GST, invoice for their services or collect payments.

Legal Background to ContractRight?  ContractRight – is a derivative of legal precedents from the High Court to Fair Work Commission investigations, is a legally tested, agile, intelligent and compliant approach to the engagement of Independent Contractors.  ContractRight - provides Contractor relationship clarity in this age of increasing regulation and complexity – but exciting change.  ContractRight - delivers a compliant and sustainable model ensuring all State and Federal regulations are met.  ContractRight - ensures all Contractor PAYG tax obligations are managed and paid.  ContractRight – ensures Contractor engagements are sustainable & all future liabilities are removed.

A Note of Caution! Our Solution Does not suit every situation & every business!

QUESTIONS?