The University of New South Wales - Sydney - Australia
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 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 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.
As a result of some of these engagements, UNSW may become liable for some (or all) of the following 'Indirect Taxes':
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 enure 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 will now need to complete the 'eFSD01 questionnaire' prior to being engaged by UNSW, as this will allow UNSW to determine:
- - If UNSW owes Payroll Tax
- - If UNSW should pay SGC
- - How to 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
- - 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
Paragraph to be inserted with hyperlinks to location of Standard Contracts
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 sec 32(2) of the NSW Payroll Tax Act 2007. UNSW has categorised the exemptions as either:
Pay As You Go (PAYG) Withholding
Section 12-35 of the Taxation Administration Assessment Act 1953 that requires an 'entity' to withhold tax from payments they make to employees.
It 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 that 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.
The legislation surrounding this issue is outlined in sec 12(3) of the Superannuation Guarantee (Administration) Act 1992.
Workers Compensation Payments
The Workers Compensation Act 1987 requires all NSW 'employers' to have a workers compensation policy to insure themselves against compensation claims for workplace injuries.
UNSW therefore requires all Contractors and Consultants to have their own Workers Compensation or equivalent insurance cover in place prior to being engaged.
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', you will be required to prove the exemption is valid, by providing further evidence when requested.
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
NSW Payroll Tax legislations provides 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 the invoice, a default number of days will be used in applying the Ongoing Payroll Tax Exemption. The default number of days is 40 per invoice.
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 for 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.
An example of the Vendor Classification field is shown below.
Note that 'Supplier' is the standard default vendor classification and indicates that this vendor is required to complete the 'eFSD01 questionnaire' prior to receiving any further payments.
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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 Payroll Tax is via the 'Vendor Classification' field in the Vendor Master File within NS Financials.
The Vendor Classifications will also indicate whether or not UNSW should pay Superannuation Guarantee Contributions ('SGC') on the payments it makes to Contractors and Consultants who are engaged as Sole Traders to UNSW.
What are the new Vendor Classifications?
The table below shows the new Vendor Classifications being implemented within NS Financials. The 'Short Name' column shows the Vendor Classifications that you will see instead of 'Supplier'.
The Vendor Classification will be determined by the results in the 'Office Use Only' section when Contractor or Consultant has completed the 'eFSD01 questionnaire'
What are the new Vendor Classifications?
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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.
'Refer HR' classification
The 'Refer HR' Vendor Classification indicates that SGC is payable, and as a result, the Contractor or Consultant 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.
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.
In order for UNSW to ensure that it meets is legal obligations with regards to Payroll Tax and Superannuation Guarantee Contributions ('SGC') new payment processes will be implemented.
The main changes to the previous payment process are:
1) Sole Traders who have been assessed as requiring SGC (ie 'Refer HR' Vendor Classification), will now be paid via HR Salaries
2) Purchase Orders will not be raised in NS Financials in order to pay the invoice amount
3) Sole Traders paid via HR Salaries will not receive an automated payment notification
1. Paying via HR Salaries
The reason that HR Salaries will be paying these individuals, is that HR Salaries is the only way that UNSW can ensure that any SGC UNSW is required to make, is paid to a complying superannuation fund within regulatory requirements.
To assist in this process, Sole Trader contractors and consultants that UNSW will be paying SGC for, will be able to choose the superannuation fund that they wish to have the contributions paid into, by completing the UNSW Choice of Super Form, which can be found at https://www.hr.unsw.edu.au/hrforms.html
2. Replacing Purchase Orders
The reason that Purchase Orders will not be raised in NS Financials in order to pay an invoice for these Sole Traders is because Purchase Orders are linked to the Accounts Payable function, which will no longer be used.
Rather, in order to pay these Sole Traders via HR Salaries, the 'HR Sole Trader Appointment/Payment form' will now be used.
3. Automated payment advices no longer available
As these Sole Traders are being paid via the HR Salaries system, they will no longer receive confirmation of payment via email, as occurs for payments processed via Accounts Payable.
These Sole Traders will need to check their bank statement to confirm payment has been received by UNSW for their invoice.
How will you know if SGC is required for these Sole Traders?
These individuals will have the 'Refer HR' as the Vendor Classification as a result of completing the 'eFSD01 questionnaire'. They will also have a Vendor Classification of 'Refer HR' in NS Financials.
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.
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: g.mathi@unsw.edu.au
Please click on the link below to complete the eFSD01 Questionnaire.