The Team at NOW bring you topics of interest to owners of small businesses. Please feel free to leave a comment or let us know if there are particular topics you'd like us to cover.

Looking For Opportunities In 2011 Federal Budget

Penny Elbery - Monday, May 23, 2011

Business Success Is In Your Hands

Predictably, there was little direct help for small business in the recent federal budget. In spite of the contribution small businesses make to the general economy and to employment, the small business sector is widely ignored at budget time by federal governments of all political persuasions. As we've said before, you can't expect the government to contribute towards the viability of your business (you're not a bank after all). That's your job.

Tough or All Talk?

The government has stuck doggedly with its plan to bring the budget into surplus by 2012/13 – I'll leave it to the economists out there to discuss whether that's in the best interests of the country.

The government spruiked the budget as being "tough" but there was very little in the way of hard or controversial decisions.  It's clear that a minority government is going to steer a steady path through controversy (carbon tax and offshore refugee processing aside).

Look Strategically Beyond the Cuts and Handouts

Our advice to small business owners is to look past the immediate handouts and see whether the economic landscape has been reshaped in a way which offers indirect benefits to the strategically canny businessman.

Thinking strategically means looking at the spending as well as the savings to see what opportunities exist for your business.

There Are Opportunities

One way or another, Australia's population will have to increase to cope with the demand for labour, and all associated services will have to catch up with demand. As a business owner you need to ask yourself if you have an opportunity to supply growth areas and travel in the fast lane of WA's two-speed economy.

Looking at the budget in terms of strategic opportunities, here are some pointers:

• There is going to be spending on roads, rail, ports, health care, especially mental health.

• There are structural changes to training and workforce participation and, wait for it, a program for the installation of digital set-top boxes for pensioners.

• Education and training is a major initiative in this budget and $558m has been made available to provide training opportunities for 130,000 skilled workers.  

The Labour Outlook Remains Bleak

The education and training initiative may not be a major benefit to small businesses (unless you're in the skills training arena) because 130,000 new workers is a drop in the ocean compared to the 2.4 million skilled workers that Skills Australia estimate will be needed by the mining industry alone by 2015. So don't expect any supply driven labour cost savings in the next 10 years.

Not Only Wage Costs Will Go Up

Any strategic planning you do against the backdrop of this spending should also take into account that interest rates will probably rise - at least once over the next 6 months - and power costs will continue to increase.

Here's The Small Print

Many of the direct tax adjustments for small business are timing differences which offer short term cash flow positives but no absolute savings.  Changes include:

• lower PAYG instalments with PAYG payments set at last year's taxable income plus 4% (rather than 8%) but this only applies in the 2011/12 year.

• Businesses have the ability to claim an immediate $5,000 deduction on the cost of motor vehicles purchased in 2012/13 (plus 15% on the remainder in the first year and 30% per annum thereafter)

• In 2012-13 small business will be able to claim an immediate deduction for assets costing less than $5,000 (previously $1,000)

• Changes to the statutory formula for the calculation of FBT on motor vehicles will be phased in over the next 4 years to replace the four tier structure based on mileage with a flat 20%. If you are supplying a vehicle to employees as part of their salary package you may need to revisit the way you are calculating FBT and ensure you are minimising any cost impacts on your business.

Not a lot of cheer I'm afraid but there is little doubt that we are on the cusp of a major resources boom and substantial private funds will flow into major infrastructure. Supply to the resources sector will see continued demand and lifting State Royalties will not appreciably affect this growth. All business owners need to consider the opportunities.

John Thompson commented on 24-May-2011 01:12 PM
Hi Jon, Thanks for this information – very interesting and certainly flags the need to shift ones view and access opportunity if one wants to engage with the top tier of the two speed economy. It seems to me that there will be plenty of opportunity for
those companies and businesses who are already experienced in dealing with this level of corporate business activity. There appears to be urgency around the upcoming resources boom and I guess efficiency of providing services and getting the job done will
be important. Under normal circumstances I would expect the corporations directly involved in the boom utilizing the familiar networks and companies they have depended upon in the past. However, it sounds like not only will there be a shortage of skilled workers
but there will be a shortage of businesses who can provide the support and services the corporations need. So in the way they are looking outside of the normal networks for skilled workers (I heard an interview on radio national where this was being discussed
– The Canadians are concerned the Australians are going to Poach back the workers they previously poached from Australia, and more.) do you think they will be looking outside of their normal business networks for services and support. If that is the case it
presents a challenge to small businesses. Whilst there is plenty of training and support to transition skilled and unskilled workers from their old jobs into the resource work requirements and culture, I am not aware of two much training and support being
available to small business to assist them with gaining an entry point into providing services to this huge market. For example I have a product and service that can increase the efficiency and productivity of staff individually and collectively and there
must be a need for this. However I am not skilled in talking to people at this level about my products and services or even have experience with gaining an entry point for the discussion to take place. Are their government agencies or I courses available that
can assist those of us in small business who would like to access this booming industry. Surely this would benefit all involved. John Thompson Neurotribe.
Jon commented on 26-May-2011 10:34 AM
Hi John, Thanks for your comments. You raise a number of interesting points here: 1) It is usually the larger businesses that contract directly with the Chevron's and BHP's but once a contract is let, there is a filtering down to second, third and fourth
rung contractors. So although small business may find it hard to deal direct at the source, they need to network at the appropriate level based on their relative size and capability 2) I think that the short supply of skilled workers is going to be a problem
for many years to come. The Federal Government is speeding up the process of 457 visas and there is no doubt that skilled migration is an imperative. There are (and have been for many years) recruitment agencies working overseas specialising in recruitment
for the Australian market. 3) The last point you raise is how, if you have a new product do you get heard above the chatter and find an entry point to the multi-national businesses that might benefit from knowing about your capabilities. There are a number
of Government agencies and consultants who can help with marketing to a certain level of understanding but what you probably need to do is think outside the norm and look at specifically targeting entities that you know will benefit from your offering. This
takes planning and persistance. You have to find a contact who can give you access to an appropriate level, you have to educate and enlighten and make that first sale. It sounds difficult and there is plenty of other low-hanging fruit out there but it may
be that the more difficult targets give a more substantial result in the long run. Jon Elbery

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Independent Contractors or Employees

The Team - Tuesday, January 11, 2011

Independent Contractors or Employees

It is your responsibility as a small business owner to ensure that you comply with the law regarding contractors vs employees. With a few exceptions, employees now have to be paid strictly in accordance with the Fair Work Act 2009.

In many cases, businesses also legitimately engage contractors, but the ground rules on employment and contracting are changing and failure to comply with the legislation could be expensive for small businesses.

If you have any concerns about your employment practices it would be a good idea to get some assistance to ensure you comply.

Many businesses are not protected

Under the Fair Work Legislation and under the tax act you have to treat contractors and employees correctly or risk incurring fines and additional costs in back pay.

Many individuals prefer the flexibility of being paid as a contractor, and many employers strike mutually satisfactory deals with contractors which cost employers less than treating those contractors as employees.

Employers complain to us that:

a)   they can’t get people to work for them as employees and have to engage them as contractors and
b)   they’d be uncompetitive in their highly competitive market where everyone else pays their workers as subcontractors.

It’s not only the hourly rate which is at issue, there is also the matter of worker’s compensation insurance, PAYG tax, GST and superannuation and leave payments.

Sham Contracting can be expensive

Sham Contracting is where you pay people as contractors when they are really employees. The risks are substantial and you need to be aware that not only can you be fined up to $33,000 for each offence but you might receive a claim for unpaid PAYG tax and superannuation. An employee might also claim for back pay, including penalty rates, superannuation and leave entitlements.

So how do you determine whether someone is a true contractor or should be treated as an employee?

There is no definitive test to determine whether a subcontractor should be an employee and each set of circumstances needs to be examined. There are, however, certain guidelines

The Federal Government has published booklet titled “Independent Contractors: The Essential Handbook” (available as a free download from the Australian Government website)

This booklet is a comprehensive resource for both contractors and employers. In its own words: “This plain-English handbook goes a long way towards giving businesses and the independent contractors they engage a simple guide to the rules and regulations and the rights and obligations on both sides.”

Also on this web page is a link to a contractor decision tool to help you assess whether contractors are correctly classified.

There are a number of “tests” as to whether a contractor is a true contractor or an employee. One of the more significant tests relates to the question of who bears the risk. A contractor operates a business that produces a result for an agreed price and bears the risk. They are free to delegate the work to their employees (or other contractors) and are obligated to produce goods or services to a specification and a timeframe. If they fail to deliver they don’t get paid, whereas employees do not carry full risk and will (with some exceptions) in the short term continue to receive wages.

On the “Executive Stress Office Support” web site there is an excellent blog which sets out the current criteria for the classification of contractors. This is an extract

“Currently, the rules are that independent contractors (ICs) need to meet certain criteria before they can be deemed to be independent contractors. These include things like the services should be available to the public at large, not just the person/company to whom the services are currently being provided; the IC should be able to hire others to perform the work (sub-contractors); the IC should be able to work on more than one contract at a time; the client has little input into how the IC actually performs the services; and of course, the 80% rule: the IC should not receive more than 80% of their income from the one client.”

Read the full article by clicking here

This area of conflict between employment and contracting is important for many businesses and is subject to change and re-interpretation from time to time by both government and the Tax Office. Small business owners should check compliance from time to time to ensure that their practices are still correct.


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Back In Black - Are Small Business Owners Celebrating After This Week's Budget?

The Team - Thursday, May 13, 2010
The Main Budget Issue

The main deliverable from this budget is a return to surplus in 3 years instead of the forecast 6 years.

However, this budgeted result is dependent on the strength of our trading partners - something over which the Government has no control - and the belief that the new resources rent tax will deliver a whopping increase in revenue within 3 years, without reducing economic activity by causing the miners to head elsewhere.

Responsible Economic Management or Luck?

As no one was expecting much in the way of handouts from Tuesday's budget, apart from all the usual interest groups who feel compelled to put out a press release following the annual budget, no-one was particularly surprised or disappointed.

The main message the Government wants to spread is its claim to responsible economic management. And it is now removing the stimulatory measures which pump-primed the economy during the GFC (and which may have protected Australia from the kind of economic basket case much of Europe has become) and reducing the budget deficit so that Australia is forecast to be back in the black within 3 years

Forget about smokes, $8 extra take home pay and all the marginal issues, the main game is the elimination of the current budget deficit of $57bn within 3 years instead of the 6 years previously forecast.

Although the economic cards may have fallen in Australia's favour, whether this is due to the stimulus package or largely because we are a resource based economy with a strong banking sector, many commentators believe that the Government's inability to transact basic business (insulation, school building program) without reeking havoc will not be easily forgotten of forgiven.

So what's in it for small business?

Directly, not very much:

- Company tax for small businesses will reduce from 30% to 28% from the 2012/13 tax year
- Also in that year, there will be some accelerated depreciation benefits, the main one being the ability to write-off assets under $5000 in one hit. This is not a cash benefit as such, but has a cash flow timing advantage.

Employment Costs Will Increase

Commencing on 1 July 2013, superannuation contributions are to gradually increase from the current level of 9% to 12%. Meanwhile wages are expected to grow by 3.75% in the 2010/11 year and 4% in the following year. The theory is that employees wear the cost of the increased super contributions in lower wage increases. In the real world, where small business is competing for quality employees, the cost of employment will go up.

In addition, unemployment rates are forecast to be around 5% in the coming 3 years which means a tight labour market for most small businesses

Of course, the health of the small business sector is largely in the hands of big business and small business owners rely on big business continuing to grow, invest, employ and spend.

Finding and retaining qualified staff remains a major problem for many small businesses. The proposed investment in training and apprenticeships is welcome but any benefits are likely to take several years to percolate down to you as a small business owner.

Still Waiting For the Government to Provide Real Small Business Assistance

Overall not much direct help for you in this budget.  As a small business owner we're sure you that you have never expected much from any government. Your business fortunes rise and fall based on your strategic insight and your ability to provide quality goods and services at the right price to a willing market. And you have to be expert at all aspects of running a small business in order to succeed!

There are some niche businesses which stand to benefit. These include training, primary health care, renewable energy and education and if you can see some tactical advantage in aligning your business with the potential winners from this budget then there may be some long term gains to be made.

The best any of us can hope for is that successive Governments will get out of the way and allow us to continue to do what we do best with a minimum of red tape and interference.

We would welcome your comments below on how the current economic climate and the budget initiatives may affect your business.

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