What business structure is right for a Salesforce consultant?
We’ve been very lucky to help hundreds of people find their first Salesforce contracting role. It’s at this stage, though, that each contractor is faced with the decision about what business structure they will use.
The purpose of this article is to help you understand the key differences between the two most commonly used business structures. We’re certainly not accountants (although our own qualified accountants have collaborated with us on this piece), so hopefully this simply guides the discussion you have with your own accounting expert.
The two most common business structures for a Salesforce consultant:
Contracting as a PAYG contractor:
Should you choose this option, your experience will be as if you are a standard employee. You’ll submit timesheets according to your contract assignment, and you’ll be paid per a typical payslip. For example, you’ll have had PAYG tax withheld, superannuation paid on your behalf and HECs/student loan repayments withheld (if applicable). Your employer will also handle your insurances (workers compensation, professional indemnity and public liability).
This is by far the simplest option for you as it means you have no additional administrative tasks associated with your contracting work.
At the end of the year, including this income in your own tax return will be very straightforward as your employer will have submitted your income details directly to the ATO.
This all sounds like it’s the obvious choice, right? There must be a catch? Well, the reality is that this option suits many individuals well, depending on their circumstances. However, there’s a commonly held belief that there are better tax advantages when using a Pty Ltd company – so let’s look into that option now
Contracting as a Pty Ltd company:
Setting up your own company means you have additional tax and compliance responsibilities (when compared to a PAYG contractor). The question is, are there enough benefits to outweigh these responsibilities?
Let’s take a look at the extra responsibilities first…
As an owner of a company you will:
- Need to have the company setup by an accountant or solicitor
- With the help of your accountant:
- Register for GST and report quarterly Business Activity Statements (BASs) to the ATO
- Register an ABN
- Register as an employer and setup payroll for yourself (you’ll be an employee of your own company)
- Handle your bookkeeping
- Prepare a company tax return each year, in addition to your own personal tax return
- Prepare financial statements each year
- Pay your own superannuation contributions
- Purchase your own insurances (workers compensation, professional indemnity and public liability)
- Attend to your responsibilities as a company director (including obtaining a Director ID Number)
Phew! That’s a lot!
But what benefits can you expect from choosing the company option?
Again, depending on individual circumstances, sometimes there actually is no benefit.
There’s a common misconception that using a company can help lower your income tax – whether that be via accessing the (lower) company tax rate or by splitting income with a non-working spouse. For many contractors, however, neither of these are a possibility. This is because most contractors will be earning Personal Services Income (‘PSI’). PSI is a tax concept that is over 20 years old. It’s basically a way for the ATO to ensure that someone that acts and ‘looks’ just like an ordinary employee, is not able to access special business or company tax advantages. (After all, if it was that easy, everyone would do it!)
If the PSI rules apply to you then the company becomes pretty much meaningless. Instead, any income that is paid to the company is simply attributed to you personally, almost as if the company didn’t even exist.
Note: there is one instance where a company might be useful. If you are only residing in Australia temporarily and fully expect to return overseas to a home country, then using a company might mean that you don’t have so much of your earnings tied up in an Australian superannuation fund when you leave Australia.
Also, it’s worth mentioning that there are businesses that can help you manage your company (known as ‘Management or Service Companies’). They help you administer your company (you can think of them as a very hands-on accountant) – but obviously at a fee.
What about being a sole-trader?
This is generally not an option when Salesforce contracting. That’s because your client will be much more comfortable if you are paid as a PAYG contractor or as a company. When you are a sole-trader there are too many unnecessary loose ends in terms of compliance, tax, superannuation and insurance. Nonetheless, it would be no better for you than the options outlined above.
It’s hard to overlook PAYG contractor as a suitable option for many Salesforce contractors. It’s simple, easy to understand, comes with no cost and you can just focus on doing what you do best. Everybody’s individual circumstances are different, and this doesn’t take into account a host of variables which could shape your situation – and so whilst there’s no one size fits-all, we do hope that some of this information provides a starting point for you to seek advice from your own accounting professional.
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We’d love to help you with any other questions you may have, and so don’t hesitate to leave yours in the comments section below for us to do our best to answer.