Working for yourself has its benefits. Flexible work hours, and controlling your own business can be liberating. Accordingly, starting your own business can be an enticing option, and you have every right to pursue it. However, affixed to most rights, come responsibilities. These can include tax requirements, fair work and trading obligations, worker entitlements, and superannuation. If you are a sole trader, you generally do not have to make super guarantee payments for yourself. However, because you can legally employ people as a sole trader, you are nonetheless required to make super contributions. By law, sole traders have to pay superannuation to employees. If you work on your own, super can affect you in different ways. We have listed some things for you to consider below.
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Employee entitlements
If you employ staff as a sole trader, it is important you satisfy the following legal requirements in respect of employee entitlements:
- Firstly, minimum wage, leave entitlements and notice periods for termination. Fair work laws and the related awards schemes outline the requirements for these. Your employment agreement should cover these.
- Secondly, contributing 9.5% of your workers ordinary time wage to their superannuation account. This falls within the purview of Super Guarantee system. You will need to pay the superannuation at least four times a year by the quarterly due dates. Late payments will incur a fee.
- Thirdly, you must ensure that your workers are covered by the requisite insurance standards, and your work environment is in compliance with professional Workplace Health and Safety Regulations.
Making super contributions to yourself
One of the drawbacks of working for yourself is that it can be harder to save for the future. However, depending on your situation, you may be able make your own super payments as a way of saving for your retirement. Most people will be able to claim a full deduction for contributions they make to their super until they turn 75. This is different if you are between the ages of 65 and 74. Provided you satisfy the work test, you might be eligible to make a contribution and claim a tax deduction. Therefore, reading up on the tax guidelines is very useful. It can mean the difference between saving and losing.
Tax implications
These personal contributions can impact on your tax situation. It is therefore important to consider the following points throughout this process:
- Contributions you make may attract extra tax if they exceed the limit for that year
- Your super fund should have a tax file number (TFN)
- If it does not have a TFN, your super payments will be taxed an additional 34%
- You may also be eligible for the super co-contribution payment. This helps low-to-middle income earners save for their retirement with combined payments. However, without a TFN, your own contribution payments made by you, as well as any co-contribution payments will not be accepted.
- Without a TFN, you super can be quite hard to keep track of, and may get lost
Whilst the freedom of owning your own business gives you great autonomy, it is important that you are aware of the legal requirements that accompany this. Given sole traders have to pay superannuation to employees, failing to adhere to these standards can result in undesirable outcomes. If you are unsure about what is required of you or need to seek clarification on superannuation as a sole trader, it is recommended you seek the advice of an employment lawyer.
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