FREELANCE AND CONTRACT WORK

Get Yourself FinLit

Freelance and Contract Work

Freelance and contract work is forecast to be the way of the future. There’s a massive shift happening right now and the workers of tomorrow will increasingly be freelancers. The freelance lifestyle has its perks, but the biggest one is probably that you get to be your own boss. You set your own schedule, you decide when you want to work and, most importantly, you get to decide when you don’t want to work.

But if you ask any freelancer about the downsides, most of them will probably bring up the plethora of personal admin that they have to do. Instead of simply going to work and getting paid for it, freelancers have to log their own hours, organise their jobs and deadlines and then bill their customers for the work they’ve done. It can be a whole lot more administrative effort than your average job, but then again, that’s the trade off when you’re your own boss. 

Invoicing

As a freelancer or contractor, the first thing you need to learn is how to write an invoice. An invoice is basically a bill that you send to a business once you’ve done some work for them. It’s kind of a receipt, except you email it to the company and they pay afterwards.

As a freelancer, you are essentially your own business . This means an invoice needs to include your business name (which may just be your full name), your ABN, your bank account details, a short description of the work you’ve done and a note on whether or not you’re registered to collect GST. Your invoice should also have a unique number so that it’s discernible from any other invoices that you’ve sent or received. There are loads of different invoice templates online that you can download for free.

Claiming

Your invoices are designed to keep a record of the money coming in, but you’ve also got to keep track of the money you’re spending while doing your work. Depending on your industry, this might include office rental, internet, phone bills, petrol, public transport expenses, shoes, tools or whatever else you need to work as a contractor. You’ll need to keep all the receipts until tax time.

One great way to keep track of all your ingoing and outgoing money is to open up a separate account that is exclusively for your business stuff. This way you can get all your invoices paid into your business account and you can pay all your business expenses from that account. When tax time comes around, you’ve then got a really clear record of all your earning and spending and it means that doing your taxes is much simpler.

Tax

Tax is a little more complicated when you’re a freelance or contract worker, as it can be more of a manual process. Essentially, you just need to add up all your invoices (incoming funds) and add up all your spending (outgoing funds). When you subtract your outgoing funds from incoming funds, you’ll get a figure that is your income – your profit. Once you’ve that worked out, you just enter the figures into MyTax and it will generate the amount of tax you have to pay.

The major difference is that when you have a regular job, the ATO will collect a percentage of your income via your employer regularly throughout the year as a “prepayment” of tax – this is the “withholding”.  When you’re a contractor though, the ATO requires you to estimate your own income each quarter, apply a rate set by the ATO and pay that amount.  After you file your tax return at the end of the year, the difference is “trued up” – which may either be an additional payment or a refund.

It’s a good idea to have a direct debit coming from your account which will put aside all that money until tax time, because you wouldn’t want to accidentally spent it all and then owe the government a whole bunch of money…

Superannuation

Superannuation is another little bit of admin that self-employed freelancers are expected to sort out for themselves. In reality though, a lot of self-employed freelancers don’t contribute to a super fund because contributions are voluntary if you’re self-employed with an ABN. This is a big problem for the future, because it may mean that a significant chunk of the community won’t have any super to help them with their retirement. If you’re a freelancer, do yourself a favour and set yourself up with a super fund ASAP and make regular contributions. If you get into the super habit early, you won’t miss the money now and you’ll thank yourself when you’re older. Remember too that you may be able to claim a tax deduction for your super contributions.  

Bear in mind that if you operate through your own company, then your company has to make super contributions for you.

Remember that the situation with superannuation depends on the agreement between the person and the employer. If you are effectively employed full time for your labour, the ATO considers you to be an employee for superannuation purposes, so the employer should be paying the superannuation guarantee.

This information is intended to be general in nature and should not be relied upon for personal financial use.
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