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Government payroll backflip

By 17 June 2014 52

During questions from the opposition during yesterday’s estimates hearing, ACT Treasurer Andrew Barr revealed the government is reconsidering its proposed payroll tax amendments to remove the genuine employer exemption, due to their affect on ACT small businesses and contractors. Only after an outcry from small business and the Canberra Liberals has Mr Barr acted, Shadow Treasurer Brendan Smyth said today.

“The Treasurer conceded that consultations after the budget was announced revealed the difficulties this bill has caused ACT businesses. I am astounded at the lack of forethought the government has put into this bill,” Mr Smyth said.

“The government seemed unaware that most of the negotiations for contracts for the coming financial year, especially with the federal government, have in the main been concluded.

“It is amazing that at a time that the government has funded a program to assist federal public servants moving into private enterprise, they are taking away the exemption that will in many cases make that move viable.

“Additionally, the proposed changes have a short term impact of favouring multinational companies.

“At a time when we should be making it easier for ACT small businesses and contractors, this is yet again an ill-conceived and ill-timed proposal by the government simply to raise extra revenue to pay for the government’s addiction to spending,” Mr Smyth concluded.

(Media Release Jeremy Hanson)

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52 Responses to Government payroll backflip
#1
VYBerlinaV8_is_back12:21 pm, 17 Jun 14

It’s really just another example of ACT government meddling in the commercial world without any idea what they’re doing.

#2
watto2312:35 pm, 17 Jun 14

That said I’m not opposed to the changes. Lets face it contractors get remunerated pretty well. It just needed to be planned better. I’ve been there and the payroll company is just another way to dodge tax and maximise your earnings, which is why the current federal government are so unloved. They are unwilling to close loopholes like this, but willing to take from the less well off in a so called budget emergency/crisis.

The ACT government to implement these changes ideally need to give at least a years notice such that contractors can make an informed decision. Whether you agree that its all fair that a contractor has the ability to dodge payroll tax, whereas someone employed for a company has that payroll tax paid and in reality deducted from your salary all for the apparent security of job is just rubbish. These days terminating a full time employee is easier than a contractor.

#3
Andrew Barr MLA1:15 pm, 17 Jun 14

The Government will be continuing with this Budget measure, as I made clear numerous times yesterday. We will, however, give consideration to amending the starting date of the change to the second quarter of the 2014-15 fiscal year in response to consultation with the sector in the past few weeks.

Never a good idea to rely upon Brendan Smyth press releases for factual content.

#4
dungfungus1:42 pm, 17 Jun 14

Andrew Barr MLA said :

The Government will be continuing with this Budget measure, as I made clear numerous times yesterday. We will, however, give consideration to amending the starting date of the change to the second quarter of the 2014-15 fiscal year in response to consultation with the sector in the past few weeks.

Never a good idea to rely upon Brendan Smyth press releases for factual content.

Can’t help feeling this “budget measure” is the ACT’s version of the MRRT and we all know what a success that was.

#5
dailyfauxpas1:48 pm, 17 Jun 14

How gracious of you Andrew.

Considering the majority of contractors would have already signed contracts for the next financial year.

A decision like this, if implemented, should be done in FY15/16 when contractors have the capability of cancelling contracts, modifying their terms or juggling other finances commitments during this hard time. Not half way through a fiscal year or 1 month from the new financial year.

Thanks for the tax hike, which essentially means some will be paying a rate of 51.85%. Recruitment agencies aren’t going to wear these costs.

What a disgrace!

#6
CUNNINGSTUNTS2:51 pm, 17 Jun 14

dailyfauxpas said :

How gracious of you Andrew.

Considering the majority of contractors would have already signed contracts for the next financial year.

A decision like this, if implemented, should be done in FY15/16 when contractors have the capability of cancelling contracts, modifying their terms or juggling other finances commitments during this hard time. Not half way through a fiscal year or 1 month from the new financial year.

Thanks for the tax hike, which essentially means some will be paying a rate of 51.85%. Recruitment agencies aren’t going to wear these costs.

What a disgrace!

+1 you nailed it dailyfauxpas

#7
farout3:00 pm, 17 Jun 14

Has the ACT Government considered the legal issues with contracts having to be broken and re-signed? Given the timing of this move, most contractors already have contracts saying they will get paid $x per hour till the end of June 2015. Now, someone needs to pay almost 7% tax, and the options are:
- Recruitment agencies pay it from their pocket – not likely to happen.
- Recruitment agencies violate their contracts to withhold a further 6.85%, so that the contractor gets $x – 6.85% of x, which is in violation of the signed contracts.

Couldn’t the ACT Government could have avoided this unpleasantness by giving adequate notice or timing the new measure to start from the 2015-16 FY? Or will the legislation change include a clause stating that the tax shall not be passed on to contractors?

#8
giulia3:04 pm, 17 Jun 14

Yes, this is a disgrace.

The ACT has the highest payroll tax rate in the country at 6.85%. Why not align this with other states and territories, say Queensland at 4.75%?

What this amendment actually means is that*:
– many contractors will get a very big pay cut, ~$12,000 a year;
– some contractors will leave Canberra;
– many of those who stay will not vote for the ACT Labor Party in the next election;

Those who benefit from this change are big companies on government panels such as IBM, CSC, Accenture, Oakton. Are these the agencies with whom the government consulted on this over the past year?

*This was taken from a sample of 46.

#9
VYBerlinaV8_is_back3:10 pm, 17 Jun 14

The timing of this makes it quite clear that either deals with mates in business or incompetence are to blame.

I’m guessing the latter. Where the hell was the consultation?

#10
giulia3:15 pm, 17 Jun 14

Don’t forget that the contractors who work for the federal government through small agencies, actually cost the government much less (on the order of 3 times) than those who are employees of big companies like IBM, CSC, etc.
This amendment will mean that the government will end up spending much more money for the same amount as work, as they will now pay IBM $300/hour for a contractor who currently costs the government $100/hour.

#11
Mark of Sydney3:23 pm, 17 Jun 14

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

Yet not one of the outraged posters has bothered to respond to the following points that I posted on the other thread:

“If you’re operating a genuine business why would you be engaged through an employment agency? Sounds like employment to me.

As I understand it, the payroll tax exemption for small businesses is designed to encourage business activities. I’m not making a judgement on the OP’s specific arrangements, but how many of the arrangements caught out by the new rules involve people working full-time on a client’s premises, using the client’s systems and equipment, and not really taking on any additional risks than an employee doing similar work, other than the lack of security associated with a fixed-term contract? How would this be any more a business activity than working as a casual employee whose pay rate reflects the fact that their employer is liable for payroll tax?”

#12
VYBerlinaV8_is_back3:44 pm, 17 Jun 14

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

Holiday pay
Sick leave
Training
Administrative support
Support of professional memberships
Long service leave
Access to corporate knowledge
etc etc etc

Yeah, they’ll be exactly the same.

#13
spoonalious3:49 pm, 17 Jun 14

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

Mark, the difference here is that contractors negotiate a rate directly with the employment agency – say, $60/hour. This has been factored as a comparison to full time work – for instance, a contractor on $60/hour is on equivalent of $87,000 permanent factoring in leave, superannuation liabilities, personal indemnity insurance etc. So that’s all built into at contract renegotiation time to ensure a suitable rate is there for the contractor equivalent to a permanent staff member.

It’s not really a gravy train when you consider a lot of contracts have hard caps at approx 44 weeks a year, forcing the contractor to take off 8 weeks unpaid (14 days p/h, 10 days sick, 20 days holiday pay is generally the rule). Consider this in conjunction with the uncertainty that contracts will be renewed and the increased risk factor of being a contractor means that the hourly rate is definitely in line with what you could expect as a APS6/EL1 technical (in the ICT stream). It is more that some people prefer to be a contractor because it allows them to rapidly shift roles, departments etc to achieve whatever their career goals are.

Lastly, and to directly reply to your comment, it’s not putting them on equal footing with employees as payroll tax changes affect the employer. That tax isn’t factored into salary negotiations whatsoever whereas these rapid changes affect contractors after their rates for FY13/14 have already been negotiated.

If it was proposed for FY15/16 then it would be much easier to wear as a lot of contractors would figure the additional payroll tax liability into their negotiations for the contract.

It is a kick in the teeth to get a surprise reduction of almost 7% of your wage, no matter what language you speak, contractor or salaried. Especially considering most contractors wouldn’t have had a rise in 3 years at a lot of agencies out there.

#14
justsomeaussie3:51 pm, 17 Jun 14

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

You seem to be under the common misperception that contractors cost more than a salaried government employee. I’ve personally had to do the numbers and once you factor in pay, benefits, annual leave, sick leave, parental leave, education, increased super, training courses and promotions and of course redundancy payouts, it turns out that contractors can be a lot cheaper than employees.
For those people that don’t get sick, are already educated, don’t require promotions, recognition or time off work contracting can and does pay better than an average salary. With a win-win for both parties.

Of course contractors are also commonly the sole ones left in the departments past 4:30 grinding out paperwork that no one else wants to do.

As always contractors should be engaged for set projects with allocated funds, where at the end of the engagement they can be let go or kept for other projects UNLIKE the public service where it can take months to redeploy people after projects have finished let along months to years to fire someone.

#15
GetRealPlease3:53 pm, 17 Jun 14

Can anyone find the a link to Jeremy Hanson Media Release?

What is the Liberal Postion on the payrol tax changes?

Mr Barr can you please correct your Budget Media release

“We have also raised the threshold for payroll tax, meaning businesses will pay less, with around 40 businesses removed from the system altogether”

http://apps.treasury.act.gov.au/budget/budget-2014-2015/budget-paper-2/growing-the-economy

Thousands have now been added to the system not 40 removed.

#16
farout3:56 pm, 17 Jun 14

Andrew Barr MLA said :

Never a good idea to rely upon Brendan Smyth press releases for factual content.

How about an Andrew Barr press release then, that we can rely on for factual content? Something that clarifies:
- Whether wages earned in June, but paid in July (typical for contractors) will be subject to the new arrangements
- What will be the starting date for the new arrangements
- Where contracts have already been signed for the 2014-15 FY and rates / margins already finalised, where does the Government expect the 6.85% to come from?
- How does the Government propose to prevent Employers from passing on their payroll tax obligation to contractors?
- What kind of consultation / industry engagement were these amendments based on?

With less than ten working days before the new FY kicks in, surely its not too early for some clarity?

#17
giulia4:01 pm, 17 Jun 14

VYBerlinaV8_is_back said :

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

Holiday pay
Sick leave
Training
Administrative support
Support of professional memberships
Long service leave
Access to corporate knowledge
etc etc etc

Yeah, they’ll be exactly the same.

Also:
Professional Indemnity Insurance
Public Liability Insurance
Workers Compensation

#18
dailyfauxpas4:02 pm, 17 Jun 14

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

I don’t recall the last time an APS employee paid payroll tax, as far as I was aware the department does. If the APS were slugged with another 7% tax there would be public outrage!

#19
Mark of Sydney4:14 pm, 17 Jun 14

But as I understand it, casual employees don’t get these types of benefits either. Yet their pay is still subject to payroll tax if their employer is above the threshold. And I bet the people who are complaining here at not on casual employee rates.

If you want to be treated as a genuine business, why work through an employment agency? Perhaps you don’t want to take on all the myriad tasks and risks with running your own business? But you still want the tax advantages of being in business?

VYBerlinaV8_is_back said :

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

Holiday pay
Sick leave
Training
Administrative support
Support of professional memberships
Long service leave
Access to corporate knowledge
etc etc etc

Yeah, they’ll be exactly the same.

#20
VYBerlinaV8_is_back4:29 pm, 17 Jun 14

Mark of Sydney said :

But as I understand it, casual employees don’t get these types of benefits either. Yet their pay is still subject to payroll tax if their employer is above the threshold. And I bet the people who are complaining here at not on casual employee rates.

If you want to be treated as a genuine business, why work through an employment agency? Perhaps you don’t want to take on all the myriad tasks and risks with running your own business? But you still want the tax advantages of being in business?

Casual employees are paid rates that include the various leave types, but they also get superannuation (which contractors don’t), as well as some other benefits.

And why work through an employment agency? Because the employment agencies are the ones on the government supply panels, so if you don’t go through them you can’t be engaged. The contractor has no choice.

#21
spoonalious4:37 pm, 17 Jun 14

Mark of Sydney said :

But as I understand it, casual employees don’t get these types of benefits either. Yet their pay is still subject to payroll tax if their employer is above the threshold. And I bet the people who are complaining here at not on casual employee rates.

Nah, the important difference with casual employees is that if the legislation changes which affects payroll tax, the employer still has to stump up costs there. Whereas the changes that Andrew Barr is pushing through is taking that 7% right out of the pocket of working families instead of employers.

#22
Garfield4:45 pm, 17 Jun 14

dailyfauxpas said :

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

I don’t recall the last time an APS employee paid payroll tax, as far as I was aware the department does. If the APS were slugged with another 7% tax there would be public outrage!

Governments don’t pay payroll tax. Payroll tax is a state level tax so they don’t pay it on their own employees and the federal government is exempt from paying state taxes.

#23
Garfield7:12 pm, 17 Jun 14

The ACT’s liquidators will be rubbing their hands together over this one. The Federal Government has no incentive to modify contracts and the individual contractors have no incentive to take less money so the middleman companies will go bust, because their margins will not cover an additional 6.85% of the wages paid out. Way to go Labor when they want to promote private sector growth to make up for reduced Commonwealth spending, they’re trying to send 300* payroll management companies broke. As they seem determined to bring this in, they have to delay it until 1st July 2015 so as to allow existing contracts to expire.

* per: http://www.canberratimes.com.au/act-news/offer-to-delay-payroll-tax-changes-not-enough-to-save-us-say-it-firms-20140617-zsapw.html

#24
TaxedContractor7:28 pm, 17 Jun 14

Mark of Sydney said :

Oh yes, what a disgrace that contractors will now be put on an equal footing with employees.

watto23 said :

That said I’m not opposed to the changes. Lets face it contractors get remunerated pretty well. It just needed to be planned better. I’ve been there and the payroll company is just another way to dodge tax and maximise your earnings, which is why the current federal government are so unloved. They are unwilling to close loopholes like this, but willing to take from the less well off in a so called budget emergency/crisis.

watto23 said :

Whether you agree that its all fair that a contractor has the ability to dodge payroll tax, whereas someone employed for a company has that payroll tax paid and in reality deducted from your salary all for the apparent security of job is just rubbish.

It appears that neither of you have a grasp of what is actually happening here.

This is a change to the payroll tax exemption. It is a tax levied on businesses with a payroll of over $1.85million. As a contractor I do not earn over $1.85million, therefore how can I possibly be taxed at the rate of 6.85%, of my total gross income??. Even if I was a sole entity business and I payed myself (let’s dream a little here) $1.9million, I pay 6.85% of $50,000. Not 6.85% of $1.9million…

Secondly, again for the dummies, this is a business tax only. You seem to think that it is OK for the business to then pass this on (and this is an interesting argument) to me as a cost of doing business. What is next? As a contractor should I now also pay for the cost of the electricity to run the businesses offices? Should I pay a workers comp levy (also an employers cost). Can the boss make me pay for his car? Where does this passing on “business expenses” stop?

Fairly certain that if your employer tried this to you would be a tad upset? And yet us “greedy contracting bastards” are expected to take it on the chin, with little to no time to negotiate any sort of an increase? Really?

At the end of the day our wonderfully adept (COUGH!!) local council has failed to realise the full impact of sneaking this change in without adequate consultation.

I fully understand the requirement to bring these taxes into a standard rate across Australia, however it is the failure of said council to previously and properly legislate the tax in the first place. They were no doubt most impressed when they initially legislated for the exemptions – how many businesses moved to Canberra and took advantage of this “offer” in the early days. Once said businesses are rooted here (unintended pun) the govt remove any exemption without warning and force the business to (possibly illegally) pass the tax onto the workers.

Given some of the additional questions raised it is obvious that little to no thought has been put to the likely impact. Well done Mr Barr – hope this pay for your big boys train set. Guess that will be one way to ensure future generations never forget the absolute incompetence of our Govt. At least, for those that are still left around…

#25
dks00k8:16 pm, 17 Jun 14

Garfield said :

* per: http://www.canberratimes.com.au/act-news/offer-to-delay-payroll-tax-changes-not-enough-to-save-us-say-it-firms-20140617-zsapw.html

Mr Barr ….. also pointed out that the ACT charged one of the lowest rates of payroll tax in the country.

Seriously???

Either mr Barr or CT have no idea what they are talking about! From lowest to highest….

QLD 4.75%
VIC 4.85%
SA 4.95%
NSW 5.45%
WA 5.5%
NT 5.5%
TAS 6.10%
ACT 6.75%

Looks like one of the lowest rates to me or am I missing something?

#26
catdog9:00 pm, 17 Jun 14

dks00k said :

Garfield said :

* per: http://www.canberratimes.com.au/act-news/offer-to-delay-payroll-tax-changes-not-enough-to-save-us-say-it-firms-20140617-zsapw.html

Mr Barr ….. also pointed out that the ACT charged one of the lowest rates of payroll tax in the country.

Seriously???

Either mr Barr or CT have no idea what they are talking about! From lowest to highest….

QLD 4.75%
VIC 4.85%
SA 4.95%
NSW 5.45%
WA 5.5%
NT 5.5%
TAS 6.10%
ACT 6.75%

Looks like one of the lowest rates to me or am I missing something?

Definitely lowest – not!! Interestingly in the article Mr Barr is quoted as saying 6.5%.

ACT revenue office says 6.85%, http://www.revenue.act.gov.au/duties-and-taxes/payroll-tax/calculation-of-payroll-tax

So does my agent in their recent communications.

So……how much is it Mr Barr?

#27
aaa1239:14 pm, 17 Jun 14

catdog said :

dks00k said :

Garfield said :

* per: http://www.canberratimes.com.au/act-news/offer-to-delay-payroll-tax-changes-not-enough-to-save-us-say-it-firms-20140617-zsapw.html

Mr Barr ….. also pointed out that the ACT charged one of the lowest rates of payroll tax in the country.

Seriously???

Either mr Barr or CT have no idea what they are talking about! From lowest to highest….

QLD 4.75%
VIC 4.85%
SA 4.95%
NSW 5.45%
WA 5.5%
NT 5.5%
TAS 6.10%
ACT 6.75%

Looks like one of the lowest rates to me or am I missing something?

Definitely lowest – not!! Interestingly in the article Mr Barr is quoted as saying 6.5%.

ACT revenue office says 6.85%, http://www.revenue.act.gov.au/duties-and-taxes/payroll-tax/calculation-of-payroll-tax

So does my agent in their recent communications.

So……how much is it Mr Barr?

It is 6.85% percent, this comes out of the contractors GROSS REVENUE before costs such as insurances and admin fees, and other business expenses.

My recruitment agency advised me today that they would deducting 6.85% of my gross income from 1 July.

#28
aaa1239:24 pm, 17 Jun 14

Andrew Barr MLA said :

The Government will be continuing with this Budget measure, as I made clear numerous times yesterday. We will, however, give consideration to amending the starting date of the change to the second quarter of the 2014-15 fiscal year in response to consultation with the sector in the past few weeks.

Never a good idea to rely upon Brendan Smyth press releases for factual content.

Mr Barr, you are a labor member correct? If so, can you please explain how it is within your parties values to impose an additional tax which by your own figures will average $10,000 per contractor, onto ordinary families budgets? Myself I put aside extra money to try and handle these kinds of catastrophes but my money won’t last forever and there are many other contractors who are WORKING FAMILIES (as the labor government always quotes) who may not be able to handle this huge cut in their income. Perhaps you and your fellow members would be happy to have a 7% cut in your income in order to share the budget pain?

Could us contractors at least be sent a few free tram tickets? I would like to ride that baby day and night until I get my $10,000s of extra taxes back that I will pay on top of my tripled rates and so on…

#29
aaa1239:33 pm, 17 Jun 14

An addition to my many previous posts: if you oppose this payroll tax change get in touch with Shane Rattenbury (green), I understand he holds the balance of power. Send him a letter/email and explain how this tax will impact directly on you/your family and will NOT be born by big business as payroll tax was intended to do. As a green he supposes to support social justice…

#30
anton91610:10 pm, 17 Jun 14

TaxedContractor said :

This is a change to the payroll tax exemption. It is a tax levied on businesses with a payroll of over $1.85million. As a contractor I do not earn over $1.85million, therefore how can I possibly be taxed at the rate of 6.85%, of my total gross income??. Even if I was a sole entity business and I payed myself (let’s dream a little here) $1.9million, I pay 6.85% of $50,000. Not 6.85% of $1.9million…

Secondly, again for the dummies, this is a business tax only. You seem to think that it is OK for the business to then pass this on (and this is an interesting argument) to me as a cost of doing business. What is next? As a contractor should I now also pay for the cost of the electricity to run the businesses offices? Should I pay a workers comp levy (also an employers cost). Can the boss make me pay for his car? Where does this passing on “business expenses” stop?

Well said. A business passing on their liabilities onto another business entity (contractor) is beyond belief. Let alone the stupid, proposed timelines to implement this.
I’m bemused how people vote for these incompetent governments and as a new resident operating a small business here, I personally can’t wait to start voting these imbeciles out.

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