- 1 So you’ve decided that you’re going to be working as a contractor in your industry. Great work! Contractors run their own business and the potential to generate a large income is an attractive option. However, with great reward, comes to a lot more responsibilities. In this guide, we go through some of the pitfalls that many first-time contractors find themselves in and what you should do instead. Knowing some of your obligations can help avoid costly and time-wasting mistakes.
- 2 1. Paying the required tax
- 3 2. Issue tax invoices to your clients
- 4 3. Register your business name
- 5 4. Register your Australian Business Number
- 6 5. Setup compulsory registrations & licenses
- 7 6. Good Workplace Health and Safety
- 8 7. Employers Obligations
- 9 8. Good record keeping
- 10 9. Issuing contracts
- 11 10. Pricing your services
So you’ve decided that you’re going to be working as a contractor in your industry. Great work! Contractors run their own business and the potential to generate a large income is an attractive option. However, with great reward, comes to a lot more responsibilities. In this guide, we go through some of the pitfalls that many first-time contractors find themselves in and what you should do instead. Knowing some of your obligations can help avoid costly and time-wasting mistakes.
1. Paying the required tax
Working as a contractor, you must report your income and pay the required tax. The taxes that may be applicable are GST, income tax, PAYG withholding and payroll tax.
2. Issue tax invoices to your clients
Tax invoices issued to your clients must be provided within 28 days of their request. They also require the following information:
- It must state that it is a tax invoice
- Your (the sellers) details
- Your ABN
- Date of issue
- Brief description of service provided or rate of pay and duration
- GST amount
- Clients details
- Any expenses you incurred under the contract (if applicable)
- Payment details
3. Register your business name
If you are operating under a new business name, also known as a trading name, you must register this name with the Australian Business Register. This is not a costly exercise and quite easy to do. Just visit the ABR website to register.
4. Register your Australian Business Number
If you are running a business as a consultant, contractor, freelancer or locum you must have an Australian Business Number or your client may legally withhold the highest tax rate plus medicare from your payments (i.e 49%).
5. Setup compulsory registrations & licenses
Depending on your industry, you may have to get compulsory registrations, permits, certificates and licenses required to run your contracting business. There is a number of ways to figure this out if you require registration & license.
- Search your industry on Australian Business Licence and Information Service (ABLIS) to find out which licenses or permits are applicable to your business.
- Contact relevant industry associations or bodies related to your industry. For example, as an accountant, we have a few known associations in our industry. The Institute of Chartered Accountants provides detailed information for accountants and their members on what licenses and registrations are required to run our accounting practices.
- Contact your accountant or Box Advisory Services
6. Good Workplace Health and Safety
Working as a contractor requires you to comply with the duties set out in the Workplace Health & Safety Act. You need to ensure that your business doesn’t create health and safety problems for your employees, contractors, volunteers, visitors, customers or the public. For more information, visit Workplace Health and Safety on the AFR website.
7. Employers Obligations
When you start to hire employees you must ensure you do the following:
- Maintain current workers’ compensation insurance
- Pay for employee’s compulsory superannuation on time
- Withhold income tax from employees’ wages
- Ensure your employees receive the correct leave & redundancy entitlements
8. Good record keeping
Under tax law, all businesses including when you’re working as a contractor, are required to keep evidence to support your business income and expenses for at least five years. This can include the use of an accounting software, receipts, invoices and bank statements. The records can be kept either electronically or as a hard copy.
9. Issuing contracts
When working as a contractor you will most likely be requested to provide a contract for your services. A good contract should consider the following information:
- The parties involved
- Result to be achieved and the services to be performed
- Timing and payment details
- Insurances required
- Intellectual property rights
- Termination of the contract details
- Terms and conditions
- Confidentiality obligations
- Dispute resolution
- Provision of expenses (including equipment and fees)
- Defects liability and rectification
10. Pricing your services
Setting the price for your work is no easy task. You can either charge per hour or a fixed quote per project. To ensure you cover the costs you must take into consideration the following:
- Leave entitlements
- Workers compensation
- Fees for professional services such as accounting fees
- Fees for subcontractors & consultants for the project
- Training and licensing fees
- Profit margin
Please note that the above list of the contractor must-dos is not exhaustive and includes most of the general contractor obligations when starting your contractor business.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.