Home – New Forums Money matters Record keeping when employing contractors etc

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  • #969719
    TBJ Creative
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    Hi,

    This may be a stupid question but I’d like to ask about record keeping when employing a contractor or freelancer.

    I am a sole trader and am about to employ a freelancer to handle my overflow.
    Lets say I charge out $120ph to my client whilst my freelancer charges me $40ph. And lets say the total bill is $120 to my client, do I record the full amount as income for me (being $120) and then record the $40 in my expenses? Or do I record $80 as income for me and $40 as expense?

    I suppose this applies to markups I make on things as well. For instance, if I mark up a printing job by 25% and invoice the total amount direct to my client, do I record in my income the full print total including the 25% markup or do I record just the 25% markup amount? If this is the case, do I then include this in my expenses as the client is covering the cost through my invoice anyway?

    I am sure I have made this sound more confusing than it needs to be!

    Thanks.

    #1040339
    StellarScott
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    Hi Tashbj and welcome to the forums

    Yes, In your example you show $120ph as income and expenses such as freelancer costs and printing as a cost of sales.

    As an aside you dont employ contractors the ATO makes a clear distinction between employees and contractors and is cracking down on ‘sham’ contracting

    http://www.ato.gov.au/nonprofit/content.asp?doc=/content/4540.htm

    Please feel free to contact me anytime for any book keeping or accounting questions

    #1040340
    Anonymous
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    tashbj, post: 48836 wrote:
    This may be a stupid question but I’d like to ask about record keeping when employing a contractor or freelancer.

    Hi tashbj,

    Welcome to Flying Solo, and I’m glad Scott was able to help you with your query (thanks Scott!).

    Just to let you know, our policy around here is that the only stupid question is the one you don’t ask =)

    Looking forward to getting to know you on the boards,
    Jayne

    #1040341
    MattR
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    I would concur with Scott (SSW), the ATO is looking closely at contractor arrangements. And its not just PAYG withholding but for superannuation arrangements as well.

    A recent case the ATO won was where a company that offered interprators for its clients was found to be liable for superannuation as its contractors (the actual interprators) were deemed to be employees for SGC.

    #1040342
    @HeatherSmithAU
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    Hi Tashbj,

    Great question, and it is not the first time I have heard it.

    Can I suggest you read an article I wrote in Flying Solo about your Profit & Loss Statement

    There are lots of great financial articles here, worth reading, to get a grip of that side of your business.

    I have contractors who work for me.

    I have contracts in place with them.

    I do pay SGC Superannuation, on the invoice they provide me at the end of the month.

    e.g. If I receive an invoice for $1000, I pay it, then, I make a payment of $90 (9% of $1000) to their superannuation fund.

    Love your work,

    Heather

    #1040343
    TBJ Creative
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    Thank you everybody so much for the answers. Certainly clears things up for me.

    So I think I’ll get the freelancer to invoice me directly and then I can log that as
    cost of sales.

    Just to clarify then, for all supplier mark ups I record the full amount (including markup to my client) as income and then record the payment to the supplier as cost of sales.

    No doubt I’ll have more questions shortly. This forum has been great!

    Thank you.
    Tash.

    #1040344
    Rhys
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    Tash,

    Once you start recording this it will become easier – if you invoice your client for 1 hour (using your figures) you’ll raise an invoice for $120 + GST, or $132. Your accounting software will help you in this – it will show that your customer owes you $132, and you have $120 of revenue (the other $12 is the GST you will have to pay to the ATO, but your bookkeeper will step your through that at the end of the quarter).

    Treat the invoice from your supplier completely separately: they will bill you $40 + GST (assuming the are GST registered), again just enter this as a bill and charge it to a cost of goods sold account, your accounting software will look after the debits and credits in the background for you.

    The one thing you might then want to think about is the procedures you have in place to ensure that all the hours your subbies charge you, you in turn on charge to your clients. MYOB and other systems have some functionality to help you with that, but maybe that’s a topic for another thread.

    Good luck, cheers, Rhys

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