The University of New South Wales - Sydney - Australia
Engaging Contractors
Engagement of Contractors & Consultants
Table of Contents
v Overview
v The engagement process and HRC involvement
v Standard Contracts to use when engaging Contractors or Consultants
v What are the 'Indirect Taxes'?
v How will UNSW determine if Indirect Taxes Apply?
v How is Payroll Tax Assessed?
v Why do the 'Number of Days Worked' need to be shown on Invoices?
v How will UNSW record 'eFSD01 Questionnaire' results?
v Vendor Classifications
v New Vendor Creation
v Payment of Invoices
v GL Accounts to use for Contractors & Consultants
v Why is an ABN required to engage a Contractor or Consultant?
v Who do I contact for further information?
v eFSD01 Questionnaire
v The engagement process and HRC involvement
v Standard Contracts to use when engaging Contractors or Consultants
v What are the 'Indirect Taxes'?
v How will UNSW determine if Indirect Taxes Apply?
v How is Payroll Tax Assessed?
v Why do the 'Number of Days Worked' need to be shown on Invoices?
v How will UNSW record 'eFSD01 Questionnaire' results?
v Vendor Classifications
v New Vendor Creation
v Payment of Invoices
v GL Accounts to use for Contractors & Consultants
v Why is an ABN required to engage a Contractor or Consultant?
v Who do I contact for further information?
v eFSD01 Questionnaire
UNSW Faculties/Schools/Divisions/Units engage contractors in a number of different ways and for a variety of different roles/requirements. The engagement can occur both formally (with a signed written agreement) and informally (via email or verbal). The method of engagement is currently at the discretion of the Faculty/School/Division/Unit.
The information on this page is designed to provide a brief understanding of the 'Indirect Taxes' that UNSW may be liable for as a result of Contractor or Consultant engagements, and if so, what action needs to be undertaken in order to ensure that UNSW meets its obligations within regulatory requirements.
The diagram below outlines the process that is required to be undertaken when a Contractor or Consultant is being engaged by UNSW:
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As shown above, Contractors and Consultants now need to complete the 'eFSD01 questionnaire' prior to being engaged by UNSW, as this will allow UNSW to determine:
- - If an exemption applies for Payroll Tax
- - If UNSW should pay SGC
- - How UNSW will pay the Contractor or Consultant
- - If the Contractor or Consultant should be hired as an employee instead
When the Contractor or Consultant has completed the 'eFSD01 questionnaire', it will generate results and email them to the UNSW representative engaging the Contractor or Consultant.
The UNSW representative will then be required to review the results in conjunction with their HR Consultant. The HR Consultant will review the proposed engagement to ensure it is acceptable to UNSW from an 'employment' perspective to ensure that when the nature of the engagement is more likely to be one that is reflective of an employment arrangement, that the Contractor or Consultant is engaged appropriately.
The HR Consultant will also ensure that all of the relevant documentation has been provided, such as:
- - UNSW Standard Contract of Engagement has been executed by both parties
- - 'eFSD01 questionnaire', results reflect the nature of the engagement
- - Insurance requirements are in place
- - OH&S requirements have been addressed
When the HR Consultant is satisfied with the proposed engagement they will inform the UNSW representative to finalise the engagement and ensure the Contractor or Consultant is ready to start
UNSW requires all Contractors and/or Consultants to complete one of the standard agreements below.
The Guide to using the Contractor Agreement provides further information on when and how the UNSW Standard Contract Agreements should be used.
If the engagement with UNSW is with a 'Sole Trader' then you will need to use the:
If the engagement with UNSW is with a 'Company, Partnership or Trust' then you will need to use the:
Payroll Tax
This is a state based tax and is payable on all payments made to contractors who have a 'Relevant Contract'. A Relevant Contract is a contract of engagement with a contractor that does not meet one of the exemptions to Payroll Tax.
If UNSW has a Relevant Contract with a contractor, then UNSW will be liable for payroll tax on amounts paid to that contractor.
The exemptions are outlined in the various State & Territory Payroll Tax Acts. UNSW has categorised the exemptions as either:
Pay As You Go (PAYG) Withholding
The Taxation Administration Assessment Act 1953 - Schedule 1 Section 12-35 requires an 'entity' to withhold tax from payments it makes to employees.
PAYG Withholding will also apply to payments made to independent contractors, where the contractor:
- has entered into a voluntary agreement with the entity to have amounts withheld
- provides their work or services for a client of the entity under a labour hire arrangement, or
- has not quoted their Australian Business Number (ABN) to the entity
Superannuation Guarantee Contributions ('SGC')
Commonwealth legislation requires an 'employer' to make superannuation contributions for their 'employees' into a complying superannuation fund.
The definition of 'employees' also includes a person who works under a contract that is wholly or principally for their labour. Therefore SGC can potentially apply when UNSW is entering into an engagement with a Sole Trader Contractor or Consultant.
The legislation surrounding this issue is outlined in sec 12(3) of the Superannuation Guarantee (Administration) Act 1992.
Workers Compensation
The Workers Compensation legislation requires all 'employers' to have a workers compensation policy that covers their all of their workers.
If a Sole Trader or Partnership has 'workers', then they must take out a workers compensation insurance policy. However, the Sole Trader and Partners would not be covered by this insurance policy.
UNSW therefore requires all Contractors and Consultants, who have 'workers' to have their own Workers Compensation cover in place prior to being engaged.
If the Contractor or Consultant is a Sole Trader or Partnership without workers, and they suffer from any illness or injury arising from the performance of their Services to UNSW, then the Contractor or Consultant is solely liable and the Contractor or Consultant is therefore responsible themselves for effecting any personal accident and illness insurance to cover such circumstances.
In order to determine if UNSW is liable for any of the 'Indirect Taxes' outlined above, an online form, the 'eFSD01 questionnaire' has been developed.
Upon completing the eFSD01 questionnaire, results will automatically be generated to show which (if any) 'Indirect Taxes' apply. This will include a Vendor Classification which will be a quick reference for what Indirect Taxes will potentially apply, and which will be recorded in the Vendor Master File with NS Financials
The UNSW representative will then organise for the relevant forms to be completed to ensure the Contractor or Consultant is engaged appropriately and established in UNSW systems so that any applicable Indirect Taxes are paid when required.
As mentioned above, UNSW owes Payroll Tax unless it proves that an exemption exists. In implementing the eFSD01 questionnaire, UNSW has looked to simplify the process required for proving a payroll tax exemption and where this exemption will be recorded. As a result UNSW has categorised the Payroll Tax exemptions as follows:
- Upfront Exemptions
- Ongoing Exemption
UNSW will assess all Contractors and Consultants to determine if they meet one of the following 'Upfront' Payroll Tax Exemptions:
- 2 or more suitably qualified people, perform the work under the contract
- The Contractor or Consultant is being engaged via a Recruitment Agency
- The contract is primarily for the provision of Goods and/or Materials
These questions are asked in the 'eFSD01 questionnaire'. If the Contractor or Consultant answer 'Yes' to any of these three exemptions, then a Payroll Tax exemption is met and UNSW is not required to pay Payroll Tax on the engagement.
When these exemptions are selected in the 'eFSD01 questionnaire', the Contractor or Consultant will be required to prove the exemption is valid, by providing further evidence when requested by UNSW.
If a Contractor or Consultant does not meet any of the 3 Upfront exemptions outlined above, then UNSW will look to apply the Ongoing Exemption which requires the Contractor or Consultant to work less than 90 days in a financial year (ie 1 July to 30 June).
Other Payroll Tax Exemptions
Payroll Tax legislation may provide for some other exemptions not included above. UNSW can review special circumstances to determine if these apply on a case by case basis. Please contact your 'HR Consultant' should you wish to discuss this further.
In order for UNSW to apply the ongoing payroll tax exemption, UNSW needs to record the 'Number of Days' a Contractor or Consultant works. To do this, UNSW now requires all contractors and consultants to record the number of days that they have worked on their invoices (for the period of that invoice).
The Accounts Payable and HR Payment systems now have a 'Payroll Tax Days' field, which will be used to record the numbers of days worked when paying each invoice. The UNSW Tax Team will, on a monthly basis total the number of days worked during the financial year (ie 1 July to 30 June) and when 90 days has been reached, Payroll Tax will be remitted as required.
What will happen if the number of days is not provided?
If the number of days is not provided on an invoice, a default number of days will be used in applying the Ongoing Payroll Tax Exemption. The default number of days per invoice is 40 days.
Management Reporting
The number of days field will also be required for any payments made to Recruitment/Employment Agencies (ie those vendors classified as 'Recruitmnt'). This information will then be included as people costs for management reporting purposes.
UNSW will record the results of the 'eFSD01 questionnaire' by using the 'Vendor Classification' field in the Vendor Master File within NS Financials.
As shown in the example below, this Vendor has a Vendor Classification of 'Contractor'.
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As shown above, the way that UNSW will record the results of whether or not payments UNSW makes to a Contractor or Consultant will be liable for any 'Indirect Taxes' is via the 'Vendor Classification' field in the Vendor Master File within NS Financials.
What are the new Vendor Classifications?
The table below shows the new Vendor Classifications being implemented within NS Financials, along with the entity type the Vendor Classifications apply to. It also outlines which Payroll Tax Exemption will apply and if SGC is required.
The 'Short Name' column shows the Vendor Classifications that will be shown in the Vendor Master File in NS Financials.
The Vendor Classification will be determined by the results in the 'Office Use Only' section when Contractor or Consultant has completed the 'eFSD01 questionnaire'
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All new Contractors and Consultants are now required to complete the 'eFSD01 questionnaire' prior to being established in NS Financials or the HR Payments system. The reason that this assessment is required is to enable the correct Vendor Classification to be assigned prior to making any payments.
As mentioned above all 'Refer HR' Contractors and Consultants, will need to be set up in the HR system using the SAL 4000 - HR Sole Trader Appointment/Payment form.
For the majority of Contractors and Consultants, there will be no change in the way that their invoices are paid. They will still invoice UNSW and be paid via Accounts Payable through the raising of a Purchase Order.
'Refer HR' Classification
However, the 'Refer HR' Vendor Classification indicates that SGC is payable, and as a result, these Contractors or Consultants will need to be paid via HR to ensure that any SGC is made to a complying Superannuation Fund within regulatory requirements.
All 'Refer HR' Contractors or Consultants will also be required to provide UNSW with a 'Choice of Super' form to facilitate the payment of any SGC.
All current 'Refer HR' Contractors or Consultants already established in NS Financials with this Vendor Classification will be made 'Inactive', so that no new Purchase Orders can be raised from 1 July 2009.
This also means that an existing 'Refer HR' Contractor or Consultant, will need to be set up in the HR system to facilitate future payments. To do this, a HR Sole Trader Appointment/Payment form will need to be completed.
For the timing of payments via HR please refer to 'Claims Schedule'
In order to ensure UNSW meets its legal obligations with respect of Payroll Tax & SGC, restrictions will be placed on the GL Accounts available to use when paying a Contractor or Consultants Invoice. This will also assist in providing more reliable and accurate Management Reporting.
The restrictions will be based on the vendor classification of the Contractor or Consultant, as shown in the table below:
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Note that 'Refer HR' will be paid via HR Salaries and therefore you will need to specify these GL Accounts on the HR Sole Trader Appointment/Payment form
The UNSW Tax Team will then review and calculate the amount of Payroll Tax to be remitted to the Government each month as part of the Payroll Tax lodgement process. This review will incorporate calculating the number of days each contractors and/or consultant works for those that do not meet an 'upfront' payroll tax exemption.
The HR Payment System will also calculate any SGC obligation and remit any contributions to the nominated Superannuation Fund of a 'Refer HR' Contractor or Consultant.
UNSW is now requiring all Contractors and Consultants to have an Australian Business Number (ABN) in order to be engaged at UNSW.
The reason for this requirement is:
- 1) The ABN provides evidence of the legal entity the Contractor or Consultant is using when engaging with UNSW
- 2) The ABN provides evidence of whether or not the Contractor or Consultant is registered for GST
- 3) By having an ABN and providing UNSW with a valid tax invoice ensures UNSW is not required to withhold 46.5% of the payment for amounts greater than $75 (plus GST)
The 'eFSD01 questionnaire' has been linked to the Australian Business Register (www.abr.business.gov.au). When entering an ABN into this register, it provides information as shown below:
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This screen shot shows that the ABN 19 836 189 662 applies to an Individual/Sole Trader that is not registered for GST.
As this person is operating as a Sole Trader, UNSW is required to assess for:
- Payroll Tax, and
- Superannuation
Furthermore, any invoices UNSW receives from this individual should have no GST included.
Another example, this time for an Australian Private Company, is provided below:
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This screen shot shows that the ABN 29 092 916 259 applies to an Australian Private Company that is registered for GST.
As this entity is an Australian Private Company (ie not an Individual/Sole Trader), UNSW is required to only assess for:
- Payroll Tax
In addition, any invoices UNSW receives from this company should have GST included.
Without having an ABN to verify the Entity Type and GST Status, UNSW cannot accurately determine if it is required to pay any SGC on the contract or if a Payroll Tax exemption applies.
If you have any questions or would like further information then please contact:
- Your 'HR Consultant', or
- The UNSW Tax Team - Phone: (02) 9385 1204 or Email: UNSW Tax Team
The eFSD01 Questionnaire can be found 'here'.
This page is maintained by Matthew Vial.