Home – New Forums Money matters Invoicing freelance client who now pays super

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  • #995067
    Amsterdamned
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    Hi all,

    Longtime browser, first time poster.

    I work as a freelance IT guy with an ABN number and earning less than $75k so not registered for GST. I made regular payments into my super fund in the past to keep it topped up around the 10% of income rate.

    I have a regular client where I work one day per week. They have told me that they are now required to start paying super on my behalf. I’m a bit crap when it comes to understanding taxes so I’m unsure of how to do my accounting.

    I have used MarketCircle’s Billings Pro for a number of years and its been great for creating invoices and tracking payments, but has no options to record things like super contributions. I’m unclear if I need to do something different to reflect the witheld super contributions in my invoicing. If I invoice them for $600 for that one day per week, then they pay me $547.95 and withhold $52.05 that they pay into my super, do I still record the invoice as being paid for the full $600? Presumably this means at the end of the financial year, when calculating my earnings, I will be taxed at the same rate on that $52.05 super contribution. Is this correct? Should I be doing something different? Any help gratefully received.

    #1199813
    Dave Gillen – Former FS Concierge
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    Hi there,

    Welcome to Flying Solo!

    I haven’t come across an arrangement like that before where a client takes super off your invoices, so hopefully one of our accounting experts will drop in to clear things up for you.

    Dave

    #1199814
    Anonymous
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    Your income is what you are paid, the superannuation amount is a concessional contribution by your client (employer) you wouldn’t declare it but have to keep it in mind when doing your own contributions so you don’t go over the concessional cap.

    That’s the simple explanation from my understanding, why they are now taking out super is because they have to play it safe and consider you as an employee based mainly on your regularity of work for them and maybe because you aren’t GST registered. I’m not a tax agent.

    #1199815
    Paul – FS Concierge
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    No Tax Agent here, but the numbers seem wrong to me. under the arrangement you have described, the invoice should still be $600. The employer (customer) would pay 9.5% Super on top of that.

    #1199816
    d3mad
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    Could you explain a little more on why the client might think they need to pay your super? Is it actually an invoice (payment to you via your ABN) or a pay slip where they are paying you for a days work (ie they have employed you on a part time basis? Have they paid any tax prior to your final invoice amount? do they have your TFN?)? AFAIK and expressed above, super is an employer contribution above wages and wouldn’t make any component of payment to a contractor.

    #1199817
    Anonymous
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    ATO is very particular about who can be defined as a contractor, it is primarily to protect the worker from an employer/client dodging their obligations like SGC. Even if they are considered a contractor, the client might still be liable for SGC if most of the work is labour. I assume they are using the later option, else they should be withholding tax as a well.

    They should be paying the SGC on top of his invoice amount, I know when I was IT contracting you would always quote hr or day rate + Super. If you didn’t state the rate was ex super then they would have to assume it was included in the final rate as the quote is the total cost to the client.

    Some information about Employee or Contractor. https://www.ato.gov.au/Business/Employee-or-contractor/

    #1199818
    d3mad
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    [USER=79633]@Smb[/USER] that’s very interesting. I was aware of the ATO and employer/employee sub-contractor arguments, but in a general world where you contract your services to several clients, when would you be required to invoice for added super? (I’m not disputing, just genuinely interested)

    #1199819
    Donna Klajman
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    The ATO has an employee/contractor decision tool to find out whether the worker is an employee or contractor for tax and superannuation purposes.

    Here is the link: https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/

    Hope that helps.

    #1199820
    d3mad
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    Yeah I worked through that tool before. Interesting. Changing one condition can change everything lol.

    #1199821
    Anonymous
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    It all comes down to the type of service provided, if contracted to achieve a certain outcome eg code an app, install a system, migrate data in a certain timeframe for multiple clients and especially if the business structure is not sole trader then you are most likely a contractor and don’t need to factor super into it as it is your responsibility as a contractor (sole trader) or if doing the contract under your company then it’s your companies responsibility as an employee to pay your SGC.

    If in my case I contracted through an agency for general support then I’d quote with Super on top because I know they would have to pay it, it wasn’t really necessary to remind them because it was standard procedure. But if they were simply doing the referral they need to know what to tell the client my rate is, usually round off to nearest $5 to account for the super I’d pay myself. If quoting direct to a client for what the ATO considers is a contractor arrangement then I would do similar, work out the base rate, add on 9% (was a while ago) and round it off because giving a quote of say $65.70 an hour looks strange.

    A smart employer will err on the side of caution when a contract is in the grey area and at least submit the SGC. In the case of the OP he mentioned he isn’t registered for GST and if he was getting $600 pw he would be about $30,000 pa probably around or more than half his income. Assuming he is only doing labour every week for a specified minimum amount of time with no set termination date then I’d say he is actually classified as a part-time employee and should be getting SGC on top plus PAYG withheld and associated benefits like leave entitlements, at the least a I’d consider him a casual employee. This doesn’t put him in the wrong, he still declares the income and such but probably isn’t entitled to certain deductions like travel expense to site because of PSI rules. It is the employer/clients responsibility to work it out if he is an employee or contractor and do the appropriate things and face penalties if they don’t.

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