FINANCE AN RESOURCE INEPENENT SERVICES CONTRACTOR PROCEURE Parent Policy Title Independent Services Contractor Policy Associated ocuments Staff Conduct and Compliance Policy Staff Conduct and Compliance Procedure Conflict of Interest Procedure Personal Outside Work Policy and Procedure Preamble Procedures to assist staff to differentiate between situations when it is appropriate and allowable to engage an independent services contractor to perform a task rather than appoint an employee to perform the task. Whether a person is an employee or contractor, LTU needs to examine the terms and circumstances of the contract between them, by reviewing the key indicators. An independent services contractor typically contracts to achieve a result, whereas an employee contracts to provide labour (typically to enable the employer to achieve a result). There are often many relevant facts and circumstances that need to be considered. Whatever the facts of each particular case may be, there is no single feature which is determinative of the contractual relationship. Rather, the totality of the relationship between the parties must be considered to determine whether, on balance, the worker is an employee or independent services contractor. When goods make up more than 80% of the value of the contract refer to Purchasing and Payments, Finance ivision website, Engaging a Contractor https://intranet.latrobe.edu.au/finance/purchasing/contracts General Procedures for engaging an independent services contractor to perform services for the University. Table of Contents Item Section Exceptions 1 Trade Services Contractors Service Provider who are employees 3 Service Providers who are Independent Services Contractors 4 Prohibited Engagements 5 Conflict of Interest 6 General Procedures 7 Sole Trader and Partnerships 8 Small Companies 9 V013-1-13 Independent Services Contractor Procedure Page 1 of 1
FINANCE AN RESOURCE Large Companies and Public Institutions 10 Payroll Tax / WorkCover Explanatory Notes 11 1. Exceptions The following providers of services can be engaged as independent services contractors after the Taxation Unit has determined the service provider is a contractor. 1. Guest Speakers, presenters, developers of curriculum, facilitators or sessional teachers who are engaged to perform a function involving skills, qualifications or industry experience that does not reside in the department, faculty, if the following applies: a) The University does not exercise control over such professionals, b) It is for a specific project, one off or short term in their field of expertise, c) They are not engaged for any more than 6 days (one hour is rounded to one day) per semester or term, d) They are not acting as substitutes for academic lecturers, tutors or teachers in the delivery of course curriculum, e) There is written communication (email or letter) regarding their engagement and the services they are providing, and f) They have an ABN and GST registered if required by the ATO. Where no ABN is provided withholding tax will be deducted.. In cases where goods comprise more than 80% of the purchase price or if the service provider sells goods only, do not proceed any further as this policy does not apply. In most cases a purchase order should be raised. 3. Minor repairs and couriers (no long or short form contract required). 4. La Trobe gift valuations provided there is a prior quotation (no long or short form contract required). 5. Service providers who are non core service providers in which eg lawyers, architectures, auditors, engineers etc 6. Preferred list of consultancy firms, as approved by the FRC. 7. External legal firms and patent attorneys as their professional conduct are governed by legislation including the requirement for Professional Indemnity certificates of currency. 8. Labour hire firm appointees (eg from rake) who are supervised by University staff because the contract is between La Trobe University and the Labour Hire Firm not the appointee. (no long or short form contract required). 9. Visiting academics and other professionals who are non-resident core service providers must be referred to the Taxation Accountant to examine the implications of ouble Taxation Arrangements and other taxation issues (no long or short form contract required). 10. Thesis examiners from other universities requesting a personal cheque must either have a current ABN or a valid Statement by Supplier otherwise Accounts Payable will deduct 48.5% withholding tax (no contract required). V013-1-13 Independent Services Contractor Procedure Page of 1
FINANCE AN RESOURCE If any of these independent services contractors are sole traders and none of the exemption as per Section 8 applies, superannuation must be paid to the service provider s superannuation fund.. Trade Services Contractors All maintenance requests (i.e. plumbers, electricians, cabinet makers etc.) must be requested via Infrastructure and Operations. The Maintenance epartment will complete the Small Works Trade Services Contractor Payroll Tax /WorkCover Schedules to determine Payroll Tax, WorkCover and Superannuation liabilities before the contractor commences work. This will also enable Buildings and Grounds to complete the induction procedures relating to: Occupational Health and Safety and the verification of qualifications and license, and to ensure their contractors work in a safe manner. Any exemption to the procedures must be approved by the irector, Corporate Finance, Finance ivision. 3. Service Providers who are employees Core services are services required to delivery and or support teaching and learning programs that allows the University to fulfil its objectives. The University exercises control over these staff to ensure the services are delivered in an appropriate manner. They are required by law to be treated as employees not as independent services contractors. 1. Academic core-services include but are not limited to lecturers, tutors, researchers, teachers, course writers or developers, editors and exam supervisors.. Individuals who provide administrative support, technical support and professional support to the teaching and research areas of the University. 3. Individuals who are presently employed by the University and past employees who provide similar services to those performed whilst an employee and have been determined by the Taxation Accountant to be an employee. (These requests will be referred to Human Resources for assessment in relation to Conflict of Interest, refer section 6). 4. An arrangement with an entity that does not genuinely provide to a range of clients, the services that they provide to the University. 5. Students who receive part-time scholarships or other educational allowances as these are taxable in the hands of the recipient and subject to PAYG. 6. Honorarium recipients that are paid as: a) Remuneration or as a consequence of employment, or b) the payment has connection to the recipient's income-producing activities or services rendered, or c) The payment is relied upon or expected by the recipient for day-to-day living, or d) The payment is legally required or expected, or e) There is an obligation on the part of the payer to make the payment, or f) The payment is not a token amount compared to the services provided V013-1-13 Independent Services Contractor Procedure Page 3 of 1
FINANCE AN RESOURCE or expenses incurred by the recipient. If it is determined that the payment is assessable income as the above factor do not exist then you will need to determine whether the recipient is an employee. If they are LTU should deduct any PAYG withholding required. Alternatively if the payment is assessable income but the recipient is not an employee, the ABN rules need to be considered. If the payment is in excess of $75 and is assessable income, the recipient needs to either provide an ABN or the LTU needs to withhold tax at 46.5%. If the recipient is registered for GST, they should provide a tax invoice. Further information covering honorarium and treatment of PAYG is available from the ATO link. 4. Service Providers who are Independent Services Contractors Sole Trader (individuals), partnerships and small companies engaged in noncore services of the University may be determined to be contractors pursuant to the procedures. They will be paid through the Accounts Payable system provided they are: a) Genuine businesses that have been assessed as contractors by etermination pursuant to these procedures, b) Genuinely provide to the public the services that they provide to the University, and service a range of clients, and c) Have a valid ABN (withholding tax will be deducted from invoices with no ABN). d) The University does not exercise control over such professionals. Independent Services Contractors can be known as either a consultant or a contractor. Consultants are engaged to provide expert analysis and advice to assist in decision making. It is usually to perform a specific one-off task or set of tasks or a task involving skills which would not normally be expected to exist within the University. They can be an individual or an organisation. Contractors are engaged to provide services to assist in decision making. It is usually required to assist the University in achieving its operational functions and systems processes involving skills which would not be expected to exist in within the University. They can be an individual or an organisation. 5. Prohibited Engagements The following engagements are prohibited: 1. An arrangement with an entity which is owned by employees and has been determined by the Taxation Accountant they are employees. These requests will be referred to Human Resources for assessment in relation to Conflict of Interest. Refer section 6.. Arrangements with past employees who provide similar services to those performed as employees within three months of termination of engagement. 3. An arrangement with a service provider who provides core services except for exceptions listed in Section 1 of these procedures. 4. An arrangement that does not genuinely provide their services they provide to the University to the public and service a range of clients. V013-1-13 Independent Services Contractor Procedure Page 4 of 1
FINANCE AN RESOURCE 5. Engagement of a contractor without completing a Independent Contractor Checklist. Any exceptions to the above must be approved by the irector, Corporate Finance. 6. Conflict of Interest As an employee, there is a requirement to seek approval to engage in paid outside work as defined in the Outside Work Policy and Procedure. One of the stated circumstances relates to the possibility of doubt about the relationship between a particular activity and that staff member s position at or duties for the University. Staff Conduct and Compliance Policy which covers Conflict of Interest, depending on how the interaction occurs, may be a perceived as a conflict of interest. It is important to note that an actual conflict does not need to exist, there just needs to be the possibility that it could be perceived to exist. 7. General Procedures Prior to any undertaking being made by a sole trader, partnership, company or institution the University will examine each situation in order to determine whether a service provider is to be engaged as an employee payable through the Payroll system (individuals), or as an independent services contractor, and payable through the Accounts Payable system. The Administrative Officer (AO) must determine whether a service provider is a sole trader, partnership, company or public institution entity. It is recommended to key-in the service provider s Australian Business Number (ABN) at: http://www.abn.business.gov.au. This website will confirm the ABN, the entity name and trading name and the type of entity. Each organisational area of the University (eg. faculty/division/institute) shall nominate an AO to liaise with Legal Services, Finance ivision and/or Human Resources in relation to service providers. Before engaging the services of a sole trader, partnership, company or institution the nominated AO must read Section 3, 4 and 5. The engagement must be compliant with Independent Services Contractor Policy. A contractor must quote a valid ABN or tax will be withheld (refer http://www.ato.gov.au/businesses/content.asp?doc=/content/19178.htm and tender compliant invoices. The AO must complete the Independent Services Contractor Checklist and forward the completed checklist and the appropriate documentation listed in the Checklist to the Taxation Accountant for a determination. Once a etermination has been made that a service provider is a contractor, the AO should arrange for a contract. For contracts less than $5,000, obtain a signed short-form contract and mail a copy to the Taxation Accountant, Finance ivision. To download a short-form contractor s contract, go to: http://www.latrobe.edu.au/legalservices/contracts.html. Queries on a final etermination by the Taxation Accountant may be made to the irector, Corporate Finance, Finance ivision. Contact Legal Services for contracts that are $5,000 and over only after receiving the final determination from the Taxation Accountant that the service provider is a contractor. V013-1-13 Independent Services Contractor Procedure Page 5 of 1
FINANCE AN RESOURCE The Short Form or Long Form Contract can only be signed by the appropriate signing authority as per Legal Services Contract Signing elegation Procedures. Refer http://www.latrobe.edu.au/legalservices/contracts.html. The Quotation/Tender threshold must be reviewed prior to engaging the services of a contractor. https://intranet.latrobe.edu.au/finance/purchasing/po#thresholds A new contractor checklist and agreement (contract) must be entered into if the existing contract has expired. 8. Sole Trader and Partnerships Refer Section 3 and 5 of these procedures with regards to core services not to be undertaken by contractors. When the contractor is set up as a sole trader and the person is only providing these services to La Trobe University, there can be an argument that the reality is that the person is an employee, especially where La Trobe University controls the activities of the sole trader. There could be future claims for back payment of wages, superannuation and leave entitlements. The University should be aware of these issues when engaging individuals (sole traders) as independent services contractors Before engaging the services of a sole trader or partnership, the AO must completing Q1 to Q18 of the Independent Services Contractor Checklist. https://intranet.latrobe.edu.au/matrix/ data/assets/pdf_file/0011/15995/indepe ndent-contractor-checklist-august-011.pdf. The results (at Q19) should indicate to the AO whether the service provider is an employee or a contractor. Those service providers deemed to be an employee must have the appropriate Human Resources forms completed. Those service providers deemed to be a contractor by the AO must then complete Q0 to Q34 on the Services Contract Checklist and submit (online or hardcopy) the Checklist with the following supporting documents to the Taxation Accountant: a) ABN Registration details (copy); b) Copy of the certificate of currency for WorkCover (or exemption certificate); c) Copy of the Public liability and professional indemnity certificates of currency; d) Service provider description, and; e) An outline (3 paragraph maximum) of the service to be provided. AO may obtain (written) insurance waivers from the University Insurance Manager via the Taxation Accountant in certain circumstances. Superannuation Guarantee Charge (sole traders only). La Trobe University assess its obligation to remit superannuation to the sole traders superannuation fund on the tests provided under the super guarantee law, under the Superannuation Guarantee Act 199 and not the under the V013-1-13 Independent Services Contractor Procedure Page 6 of 1
FINANCE AN RESOURCE Income Tax Assessment Act which refers to "Personal Services Income'. Payments to sole trader contractors are considered employees in the SGC context and subject to the SGC when: a) The contractor cannot engage others to perform the work under the contract, b) The contract is wholly or principally (at least 50%) for the personal labour of the contractor. For the purposes of the SGC, labour includes mental and artistic effort as well as physical work. Payments to individual contractors are exempt from Superannuation Guarantee Charge (SGC) in all circumstances when: a) The contractor reserves the right and is completely free to engage others to perform the work under the contract, or b) The payment is dependent on the performance of the contact and not based on period of time worked, or c) Payments are to a part-time (ie. not more than 30 hours per week) person under 18 years of age, or d) Payments in total are less than $450 in a particular month, or e) Payments are made to non-resident contractors who are paid for work undertaken outside Australia, or f) The contract is with a partnership or company. Where superannuation guarantee charge is applicable, the AO must complete Q35 & Q36 and; a) The fee charged by the sole trader will be inclusive of Superannuation and GST by a GST registered sole trader. b) Obtain their complying superannuation fund details. Accounts Payable will pay Superannuation on the GST exclusive amount into the contractor s superannuation fund each quarter. The Services Contractor Checklist and the supporting documentation must be forwarded to the Taxation Accountant, Finance ivision, who will make a final etermination and will formally advise the AO of the outcome of the determination. Finance will retain the original Checklist and correspondence. (The AO will hold a copy). Once a etermination has been made that a service provider is a contractor, the AO should arrange for a contract (Q37 of Services Contractor Checklist). For contracts less than $5,000, obtain a signed short-form contract in duplicate and mail a copy to the Taxation Accountant, Finance ivision. To download a short-form contractor s contract, go to: http://www.latrobe.edu.au/legalservices/contracts.html Contact Legal Services for contracts that are $5,000 and over only after receiving the Finance ivision final etermination. Payment of invoices will only be made upon receipt of completed checklist, supporting documentation and a Short or Long Form Contract by Accounts Payable. V013-1-13 Independent Services Contractor Procedure Page 7 of 1
FINANCE AN RESOURCE 9. Small Companies Small companies are defined as two or less directors/employees Refer Section 3 and 5 of these procedures with regards to core services not to be undertaken by contractors. The Administrative Officer must complete Q1 to Q6 and Q0 to Q34 and Q37 to Q43 of the Services Contractor Checklist and submit (online or hardcopy) to the Taxation Accountant with the following attachments. a) ABN Registration details (copy) b) Copy of the certificate of currency for WorkCover (or exemption certificate) c) Copy of the Public liability and professional indemnity certificates of currency d) Service provider description and e) An outline (3 paragraph maximum) of the service to be provided. Small companies are not required to complete Q6 to Q18 of the Services Contractor Checklist because the services are being provided by employees of the company and the company is responsible for PAYG payment. AO may obtain (written) insurance waivers from the University Insurance Manager via the Taxation Accountant in certain circumstances. The Services Contractor Checklist and the supporting documentation must be forwarded to the Taxation Accountant, Finance ivision, who will make a final etermination and will formally advise the AO of the outcome of the etermination. Finance will retain the original Checklist and correspondence. (The AO will hold a copy). Once a etermination has been made that a service provider is a contractor, the AO should arrange for a contract (Q37 of Services Contractor Checklist) For contracts less than $5,000, obtain a signed short-form contractors contract in duplicate and mail a copy to the Taxation Accountant, Finance ivision. Contact Legal Services for contracts that are $5,000 and over only after receiving the Finance ivision final determination. Payment of invoices will only be made upon receipt of completed checklist, supporting documentation and a Short or Long Form Contract by Accounts Payable. 10. Large Companies and Public Institutions Large companies are defined as having three or more directors/employees. For amounts less than $5,000, arrange for a signed short-form contract in duplicate to be prepared. A copy must be forwarded to the Taxation Accountant, Finance ivision. For amounts $5,000 or over, arrange for a long-form contract to be prepared by Legal Services. A copy must be forwarded to the Taxation Accountant, Finance ivision. Payment of invoices will only be made upon receipt of a Short or Long Form Contract by Accounts Payable. V013-1-13 Independent Services Contractor Procedure Page 8 of 1
FINANCE AN RESOURCE 11. Payroll Tax / WorkCover Explanatory Notes Q0 to 6 of Checklist There are several exemptions available when Payroll Tax payments made to contractors are exempt from Payroll Tax. They are as follows: Exemption 1 Under section 3 () (b) of the Payroll Tax Act 007, payments made to contractors are exempt where the contractor provides services to La Trobe on no more than 90 days in a financial year. Under Revenue Ruling PTA014 A calendar day on which work is performed under a contract is counted as a day in determining the number of days on which work is performed by a contractor, regardless of the amount of time worked on that day. Further, the days worked do not have to be consecutive days. Exemption Under section 3 () (c) of the Payroll Tax Act 007 payments made to contractors are exempt where some or all of the work is performed by two or more persons who are employed by or who provide services for the contractor (eg subcontractors), in the course of a business carried on by the contractor. In 004 the State Revenue Office (SRO) has indicated that it has interpreted the Small Work Contract as one full year contractor, rather than a series of separate contractors relating to each job. On that basis, the SRO considers that it is sufficient if two persons perform some of the work which is the subject of the contract throughout a financial year. Importantly, it is not necessary that all work be performed by two persons. Also refer PTA03. In addition, we note that Revenue Ruling PT 076 also requires that: a. The work in question is a normal part of the contractor s business and not once off in nature; b. The contractor must carry on a business; c. The contractor must have the overall responsibility for the work/job; d. The persons must be engaged by the contractor and not by La Trobe; e. The persons must perform the work which is the object of the contract with La Trobe (eg a spouse performing administration work for the contractor s business is not enough). Exemption 3 Under section 3 () (a) of the Payroll Tax Act 007 payments made to contactors are exempt if the provision of labour by the contractor is ancillary to the provision of materials and equipment. Revenue Ruling PTA033; where the amount in relation to the provision of materials and/or equipment under a contract is more than 50% of the total contract amount, as evidenced on the contractor s invoice. Exemption 4 Under section 3 () (b) (ii) of the Payroll tax Act 007, payment made to contactors are exempt where they relate to services which are of a kind ordinarily required by La Trobe (regardless of whether the service has been provide by contractors and/or employees) for less than 180 days in a financial year. Revenue Ruling PTA00 indicates that this exemption is concerned with the number of days upon which the particular type of service (eg carpentry, painting) is required by La Trobe. V013-1-13 Independent Services Contractor Procedure Page 9 of 1
FINANCE AN RESOURCE Exemption 5 a Under section 3 () (b) (i) of the Payroll Tax Act 007, payments made to contactors are exempt where they are for services which are of a kind not ordinarily required by La Trobe and are rendered by a contractor who ordinarily renders services of that kind to the public generally. In relation to the first limb of the test the SRO indicated in 004 (ABL report) that services which are frequently required by La Trobe (for example once a day) suggests that the main business of Latrobe cannot continue without services of that kind. Exemption 5 b and c Payments made to contactors are exempt whether the contractor ordinarily renders services of the kind provided to La Trobe, to the public generally. At the outset, it needs to be confirmed that the contractor has clients in addition to La Trobe. If the contractor does not have other clients, La Trobe has to make an assessment of the proportion of the contractor s time spent on La Trobe work. PTA0 indicates that the test which should be applied is whether the contractor provided service of the type to La Trobe for an average of ten days or less per month. The SRO has indicated in 004 (ABL report) that this test is too narrow and a more appropriate test is whether the contractor provides services to La Trobe on no more than three days per week. This is, if a contractor provides services to La Trobe on no more than three days per week the exemption will be available. In addition, a contractor may satisfy the second limb of this test, even if the contactor only provides services to La Trobe in a given year, provided that had the contractor had spare capacity, it would have provided services to others. Approval Body Vice-Chancellor on the recommendation of the Planning and Resources Committee. Status Reviewed with minor changes ecember 013. Prior approvals: Updated with minor change, May 01. Contractor Procedure and Checklist revised into new Procedure template and approved by the Planning and Resources Committee, ecember 011, Minute 43.9. Prior approvals: July 009; reviewed with minor changes in August 011. The implementation of the latest version of this policy supersedes all previous versions. Initiating Body Finance and Resource Planning efinitions ABN Australian Business Number AO Administrative Officer Person nominated as a contact point in relation to the service providers engagement. Employees are individuals engaged by the University to provide personal services and paid through the payroll system. Non service provider is an individual, partnership or company that supplies the University with goods only or goods and service where the value of the V013-1-13 Independent Services Contractor Procedure Page 10 of 1
FINANCE AN RESOURCE goods is more than 80% of the total contract. Service provider is an individual, partnership or company that supplies the University services only (non tangible goods) or goods and services where the value of the services is more than 0% of the total contract value. Sole Trader is a business entity which legally has no separate existence from its owner. This is the most basic structure for a business. Essentially it means the business decisions are made by one person. The sole trader is responsible for the liabilities of the business. Partnership is an arrangement between two or more individuals to carry on a business jointly. A partnership is not a company. All partners share profits, risks and losses according to the partnership contract. Companies are entities that have been incorporated in accordance with Corporations Action 011 and have an ABN and in most instances are GST registered. LTU have defined a Small company as having two or less directors/employees and a Large Company is defined as having three or more directors/employees. It is the most common form of company. It has more regulatory requirements than a sole trader or partnership and is a legal entity. Superannuation Guarantee Charge (SGC) is a levy imposed by the Australian Taxation Officer on employers as a contribution to the provision of future Superannuation benefits for employees. Workers Compensation Sole Trader/Partnership Accident Compensation (WorkCover Insurance) Act 1993 Vic Requires employers to take out a workers compensation insurance policy to cover their workers. When employers take out a workers compensation policy with an insurer, this policy covers any of the employers workers in the event of them suffering a work related injury. Workers Compensation Company Small or Large A company requires workers compensation policy to cover the working director and any other workers they may have. Public Liability Insurance This covers you against claims by third parties who may suffer injury or damage to their property due to your negligence while on your premises, or while you are working at their premises. It is required by sole traders, partnerships and small and large companies. Professional Indemnity Insurance Businesses which supply advice of any kind can be sued by customers/clients who suffer financial loss due to errors or omissions of the Business. Professional indemnity insurance provides indemnity to the Business against compensation arising out of such legal action. It is required by sole traders, partnerships and small and large companies. Core Business Services Providers are employees of the University. The perform core services of University to achieve its mission. Core Business services includes Lectures, teachers, editors, tutors, researchers, Editors, Curriculum developers. This list is not exhaustive. These services assist the university in teaching and research. Independent Services Contractors: Can be either consultants or contractors to the University. Consultants assist with providing expert analysis and advice to assist with decision making. Contractors assist with providing services to V013-1-13 Independent Services Contractor Procedure Page 11 of 1
FINANCE AN RESOURCE assist with implement a decision. Independent services contractors are usually engaged because their skills do not usually exist within the University. Past Employees are former employees who ceased to be employed by the University less than 3months prior to the engagement as an independent services contractor. Principal: A client who awards a contract to a contractor for completion of a job or project in accordance with terms of the contract. ate Effective July 009 Next Review ate ecember 014 Keywords Independent Services Contractor, Consultant, Core Business services, Sole Trader, Partnership, Small Company, Large Company, Payroll Tax, Superannuation Guarantee Surcharge, Contractor Checklist, Short Form Contractor Agreement, Long Form Contractor Agreement. Owner/Sponsor irector, Corporate Finance Author Taxation Accountant Contact person or area n.delromano@latrobe.edu.au V013-1-13 Independent Services Contractor Procedure Page 1 of 1