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Insurance

Contractors should get their own income protection insurance, as hirers don’t generally cover them for:

  • paid sick leave
  • workers compensation.

Income protection insurance may cover a contractor’s costs if they can’t earn income because of illness, injury or a work-place accident.

In the sharing economy, some companies offer free or discount income protection insurance to contractors who use their platform.

Other insurance contractors should consider includes:

  • liability insurance to cover damage or injuries a contractor causes to people or property while working
  • asset and revenue insurance to cover the loss, damage or theft of work-related assets (such as a contractor’s bicycle or car) or revenue.

Licensing

Contractors are generally responsible for any licences or other qualifications they need. For example, contractors must have the correct licence to do electrical work in Australia.

Superannuation

Under the super guarantee (SG) law:

  • contractors must pay superannuation for any staff they employ
  • hirers must pay a contractor super when the contractor is considered an employee for SG purposes.

Contractors are ‘employees’ for SG purposes when their contract:

  • is mainly for labour (labour must be more than 50% of the contract’s dollar value)
  • is for the contractor’s personal labour or skills, not to achieve a specific result
  • specifies the contractor must do the work themselves (they can’t hire someone else to do the work).

Contractors are generally responsible for paying their own super when they have a contract to achieve a specific result.

Voluntary super contributions

Contractors who don’t get super from a hirer can pay personal super contributions to a fund of their choice.

Find out how to make personal super contributions on the Australian Taxation Office (ATO) website or phone them on 13 10 20.

Tax

Tax file number

A tax file (TFN) is a unique number issued by the ATO and used to administer tax.

Contractors operating as a sole trader must use their individual TFN.

Contractors who are in a partnership or a registered company need to apply for a separate TFN.

Australian Business Number

Contractors should check their eligibility before they register for an Australian Business Number (ABN). Most contractors need one, but some, such as labour hire workers, aren't eligible.

Hirers may legally withhold the top rate of tax from a contractor's pay if they don't give them an ABN when they start a job.

Goods and services tax

Contractors registered for goods and services tax (GST) must add GST to the price of their services.

Contractors must register for GST if they:

  • have a business with a GST turnover of $75,000 or more
  • are a non-profit organisation with a GST turnover of $150,000 or more
  • provide taxi or rideshare services (regardless of GST turnover)
  • are a business claiming fuel tax credits.

Sharing economy

Contractors working in the sharing economy need to consider how income tax and GST applies to their earnings.

Personal services income

Personal services income (PSI) is income that mainly comes from a person’s own skills or efforts.

Contractors receiving PSI need to work out if the PSI rules apply to that income. When the rules apply, they affect how a contractor reports their income and which deductions they can claim.

Pay as you go instalments

Pay as you go (PAYG) instalments help contractors avoid a large tax bill. They are regular payments (usually made every 3 months) towards an expected income tax obligation.

Contractors earning over a certain amount of income must make PAYG instalments. The ATO will write to contractors who need to pay.

Voluntary withholding tax agreements

Eligible contractors can make a voluntary agreement with a hirer to withhold tax and simplify their tax management.

Payroll tax

Payroll tax is a state tax on the wages paid by a business. If a contractor employs someone, they may have payroll tax obligations.

Contractors should check with their state or territory revenue office to find out if any wages they pay are subject to payroll tax.

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