This is the first article in our series on the gig economy, where we explore the changes in the employment market, and the related tax and financial issues that workers and employers face.
What is the gig economy?
The gig economy is characterised by freelance and project-based work. Its players inhabit a constantly changing workscape and juggle a pastiche of jobs.
In some circumstances, gig economy workers have very little connection with their “employers”. This is typical for the “share economy” workers of Uber, Airtasker and similar companies, where the platform owner facilitates jobs through a technological medium like a website or an app, and the workers pay a percentage of their earnings for access.
But many gig workers make their living through a combination of employee and freelancer jobs. Sometimes known as “slashies” (for the slashes in their multifaceted career descriptions), these people often work across multiple industries and offer a diversity of skills and experience. A slashie might be, for example, a university tutor/web designer/bartender.
If you are a solopreneur, a casual employee, a contractor or a slashie, the chances are that you are part of the gig economy.
Got a gig?
While recent changes in the labour market have brought flexibility for both employers and workers, they have also brought risk and uncertainty. For many, too, there is an increase in the amount of administration they must do for contracts, recordkeeping and their income stream, as well as greater complexity in planning a financial future.
Each employment type, task and industry has unique characteristics and implications for tax and financial planning. But regardless of the category, similar tax, superannuation and income contingency planning considerations apply. We can help you manage these.
The impact of the gig economy on the employment market and the economy as a whole is yet to be realised, as are the social effects, yet it is touted as the future of work. Many more of us are likely to find ourselves as players. So why not have an advantage? Understanding your obligations and entitlements and having a plan for stability in this dynamic market is critical for success.
Are you an employee, a contractor, self-employed – or is your work a combination?
If you are part of the gig economy, then it is essential to establish your status for each job. Fair Work Australia provides a clear summary based on the level of control you have in carrying out the work and responsibility for statutory obligations such as taxes and benefits.
As an employee, you will have pay-as-you-go (PAYG) tax deducted from your wages, and superannuation and other benefits will be paid by your employer. Your contract will specify if you are a casual, fixed-term, or permanent employee. Employees also have the benefit of workers compensation if they are injured on the job.
For any work you undertake as a contractor, you have responsibility for managing your own obligations, including your tax, superannuation and insurance.
Determining your tax status will be more complex if you have multiple gigs.
If you are a PAYG employee but also use an Australian Business Number (ABN) to invoice for other work, you will need to lodge an annual personal tax return and may also have to lodge a regular Business Activity Statement (BAS) and pay tax instalments. You will need to set aside funds out of the income from your invoiced work to make your BAS payments. These tax instalments are usually required quarterly, and it’s a good idea to set aside around 35% of each income payment you receive.
To further complicate things, if you derive income from your individual skills or personal efforts – for example, if you are an entertainer, engineer or IT consultant – you’ll need to work out if you are classified as a personal services business (PSB) and/or you earn personal services income (PSI). This is significant, as there are substantial differences between the corporate and personal tax rates and the deductions claimable for the different income types. Accurately identifying your PSI/PSB status can be tricky, depending on your profession, how you are contracted and the scope of your work, especially where you have multiple contracts.
If you earn more than the $75,000 threshold through your ABN, you need to register for Australian GST. And if you earn income as an Uber driver, you are now required to register for GST no matter how much (or little) you earn from that work. If this applies to you, talk to us about whether you can use your existing GST registration.
For everyone else who works in the platform economy – watch this space! The Federal Government is setting its sights on better ways of capturing GST on consumption, as we’ve seen with the introduction of the “Netflix tax” on digital products and services and the proposed low-value imported goods tax.
You’ll also need to manage your own superannuation for your gig-economy income, whether you divert money into an existing fund or set up a self managed super fund (SMSF). An SMSF may be worth considering if you’re looking for greater portability and diversity in investments.
PAYG employees are covered for workers compensation by their employer. If you are a contractor or run a small business you will have to take out you own insurance to cover loss of income, illness, disability and death, and possibly other insurance types if you also employ people (workers compensation), sell products or provide certain services (professional indemnity).
Negotiating entitlements for cross-industry work and a variety of tasks can be bamboozling. We can help make sure that you’re claiming appropriately for your types of work and business.
Some common issues faced by gig economy workers include distiguishing between revenue and capital expenses, and apportioning claims where assets are for both personal and professional use. Don’t forget that if you’re undertaking project work, you might be entitled to claim for coworking space hire, software that allows for collaboration across a team, travel expenses and equipment depreciation.
As always, good recordkeeping is essential – hold onto all of your receipts!
Charging clients and low season contingency plans
If you’re a sole trader or casual employee, the level of control you have over the rates you charge will vary according to your profession and from gig to gig. Nonetheless, it is essential to build into your fee structure the amounts you need to cover your tax, superannuation, insurance, purchasing new equipment, training, any certification fees, repairs.
Balancing current work while chasing future work and keeping up with tax and other obligations can be extremely challenging. You should also plan how you’ll deal with periods when you’ll have less work and income, and think about how to fund some holiday time. Talk to us if you’d like help developing a contingency plan.