The beginning of a new financial year is a great time to make a change… and, with a looming skills shortage in Australia, if you’ve got the expertise needed, contracting your services could be the perfect way to make more money while enjoying the freedom to work as you wish.
If you’re considering contracting, there are a few things you need to know to ensure your new venture is sustainable and that you’re compliant with existing tax obligations.
Contractor or Employer?
Of greatest importance is the need to ensure you’re engaged by companies as a contractor as opposed to an employee, as this will affect your tax, superannuation and even insurance requirements.
- If you’re an employee you’ll typically be working as directed by an employer, using tools and equipment provided (or purchased with an allowance). You’ll bear no financial risk for the organisation and your employer will deduct income tax and pay superannuation contributions into a nominated superannuation fund on your behalf. You’ll be entitled to paid leave (eg. annual leave, personal/carers’ leave, long service leave) or receive a loading instead of leave entitlements if you’re working as a casual.
- If you’re a contractor, you’ll be running your own business and providing a service using your own tools and equipment. You’ll be free to contract or engage another service provider to fulfil the obligations of your contracts. However, as a contractor, you’ll bear the risk for making a profit or loss on each task and you can be held personally responsible and liable for poor work or any injury sustained while performing the task – as such, it’s generally wise to have your own insurance policy. As a contractor, you’ll be responsible for paying your own tax and GST (if applicable) and paying your own superannuation, although in some circumstances you may be entitled to be paid superannuation contributions. Sadly, you won’t be entitled to paid leave.
Maximise Your Earnings
Contracting can be lucrative however when negotiating your hourly / daily / project rate it is important to keep in mind that the income you earn needs to be enough to cover any holidays / sick leave etc and to enable you to put money aside for tax and superannuation.
Plan Your Budget
Budgeting is essential when you’re a contractor – you’ll need to have money aside when you have periods between contracts; to take holidays; and in case you’re sick. You’ll also need to budget for marketing your business, and for work expenses like tools and equipment necessary to fulfil your contractual obligations.
Wise up on deductions and incentives
Maximise your earnings and your potential to earn even more by researching all the tax incentives available to you via business related expenses, training, car leasing and more. Don’t be shy about taking advantage of every incentive that’s legitimately available. Ask for expert advice.
To build your business as a contractor you’re going to need to network. Research the local professional associations that are relevant, introduce yourself to businesses that might need your services and support a local team that will be recognised by prospective clients. Establish a website, start interacting on social media to get yourself and your expertise known, and don’t be shy – ask clients you’ve worked for to endorse your skills and professionalism on LinkedIn, and to recommend you to their own contacts.
As you become busier as a contractor, you’re bound to find managing all your obligations – like booking jobs in, preparing contracts, invoicing and keeping track of your accounts –become increasingly burdensome. Set your processes up early while you have time, and when things become too busy, bite the bullet and engage help – paying someone who is expert at bookkeeping to maintain your accounts will free you up to earn more by doing what you do best.
Ask for Help
At the Ayers Group, we help contractors like you every day to manage their contracts, invoices and financial obligations. With purpose-built systems, we streamline processes to maximise efficiencies and help you grow your wealth. Along with state-of-the-art systems, at the Ayers Group, we’ve got real people here, waiting in line to offer you the advice and support you need. Call us today.
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