1% PAY Processing Charge for Contractors, Worth It?

• 

  SBOB on 19/12/2019 - 07:31

  +3

  Depends what kind of insurances you need to be a contractor whose consulting as senior management in fintech.

  Can you get that yourself for less than the cost of 1 percent of your the contactor rate?

• 

  slickaz on 19/12/2019 - 07:41

  +1

  So, I checked, and it’s approximately 200$ a month for both Liability and prof indemnity if I go outside.
  This model will cost be just about 300$ A month, so a 10$ difference.
  But for the 300$ I get the insurances and I get the luxury of payment through weekly or fortnightly, as opposed to monthly. (Not that that matters)

  I also found out that I don’t need either professional indemnity or public liability, it’s just a safety net to have.

  Thank you for your insights.

  • 

    JimmyF on 19/12/2019 - 08:44

    +2

    I also found out that I don’t need either professional indemnity or public liability, it’s just a safety net to have.

    Who told you this? As its wrong.

    senior management role in the fintech industry

    You should have it. If you screw up badly, and they come after you, you're up for all costs relating to your screw up.

  • 

    loulou1 on 19/12/2019 - 09:34

    difference between $200 and $300 is $100. Not $10.

    • 

      HighAndDry on 19/12/2019 - 13:04

      +6

      I feel OP might need that prof indemnity insurance lol… /jk

      • 

        kiitos on 20/12/2019 - 20:14

        Looks like his FinTech skills are skewed towards the "Tech", not the "Fin". :-)

• 

  Skramit on 19/12/2019 - 08:10

  -1

  If you don't need insurances then just go the free option. 1% is a lot to pay for…. fortnightly pay.

  By the way, you can guarantee that the agency is making a hefty margin on the 1% fees. So consider this as well. How do you feel about simply handing them insurance fees where a hefty portion of it is pure profit?

  • 

    JimmyF on 19/12/2019 - 08:41

    If you don't need insurances then just go the free option

    You NEED insurances.

    By the way, you can guarantee that the agency is making a hefty margin on the 1% fees.

    I use to take my own policies out, but you might be surprised. If you're contracting yearly rate is under $100k, then its just as cheap to have them do it all. You only work 44-46 weeks a year anyhow.

    • 

      Skramit on 19/12/2019 - 08:44

      -3

      You NEED insurances.

      No you don't. It depends on the role & industry & company etc.

      • 

        JimmyF on 19/12/2019 - 08:47

        senior management role in the fintech industry

        He'll need it. His in the technology and financial services market. All technology workers generally need this cover, to protect themselves from screw ups. financial services also has lots of dollars at play.

        • 

          Skramit on 19/12/2019 - 09:10

          @JimmyF: Nope. It 100% depends on the role and company. If you investigate these insurances properly, you'll find that they are only required if you're in a decision making role directly affecting customer outcomes where you can be individually blamed/sued for unintended outcomes. In many cases, companies have their own insurance for this which includes contractors.

          There's nothing in the OP that says that he needs insurance, you have clearly just assumed that every manager in fintech needs it which is 100% wrong.

          All technology workers generally need this cover,

          Absolute garbage.

          I am in tech, contracting and managing and I 100% do not need these insurances.

          • 

            HighAndDry on 19/12/2019 - 13:08

            @Skramit:

            if you're in a decision making role directly affecting customer outcomes

            If OP is a contractor, isn't the company contracting him technically also a customer who might make claims against him in the worst case scenario?

        • 

          Skramit on 19/12/2019 - 09:22

          @JimmyF: Google what professional indemnity insurance is for. It's for giving bad "advice" in a professional advice giving role e.g. financial adviser, accountant, lawyers, doctors etc.

          It's not for contractors in the IT or 'Fintech' industry managing people etc. So it's highly dependent on OP's role inside fintech.

      • 

        JimmyF on 19/12/2019 - 08:47

        +1

        Also thanks for the negs.

        • 

          Skramit on 19/12/2019 - 09:07

          +1

          @JimmyF: likewise haha

• 

  JimmyF on 19/12/2019 - 08:38

  +4

  1. Free option: Monthly pay cycle + NO professional indemnity or Public Liability.

  Err no, if you go this option, you have to provided them with the insurance certificates to show you have your OWN professional indemnity and Public Liability insurance. You can't contract without them by just saying you'll do this. As part of their contract with who you're working for, they say they have this coverage for you.

  3. Your own ABN.

  As above, you are now acting as a business, and will need to have your OWN professional indemnity and Public Liability insurance. Plus you might need to pay workcover under certain conditions and you will have to arrange your own super payments and pay all your own taxes etc. Hint if more than 80% of your income comes from one source, then you're treated as a PAYG employee in the tax mans eyes, plus have to do all the business tax overheads.

  2. 1% a day cost option

  You need to work out if 1% of your wage is more or less than what it costs to take out your own policies. hint contracting yearly rate should be worked out on 44 weeks, NOT 52 or 48 weeks. (52 weeks - 4 weeks leave - 2 weeks sick leave and I use ~2 weeks public holidays for keeping the numbers easy). If 1% of this is more/less or about the same then you know what to do.

  Also the polices are for 12 months, so if you're only going to be there 6 months, then it might be best to pay the 1%. It is normally taken out BEFORE tax, so you can't claim it at tax time, but get that instant saving.

  If you go buy your own policies, don't forget to claim it at tax time.

  Source - I've done all this before.

• 

  chumlee on 19/12/2019 - 08:50

  Can't you just be an employee and be covered by the company's insurance?

  Seems a strange way to go about it unless you are a company director

  • 

    JimmyF on 19/12/2019 - 08:55

    Can't you just be an employee and be covered by the company's insurance?

    OP is contracting, as a contractor, you're not a direct employee of the company your work at daily, so your not covered by the company your working at polices normally. You need to be covered by the company that you signed the contract with, aka the one that pays you.

    Agents now try to pass this cost onto the contractor as a way of making some 'extra' money on top.

    As above, you need to work out if 1% of 44-46 weeks pay is more or less than taking your own policy out. Sometimes it is, sometimes it isn't.

• 

  slickaz on 19/12/2019 - 08:54

  Holy cow! So much great info here.

  So, I thought I needed it too, I asked the agent, and she said:
  “No you don’t need it, it’s a safety net Incase, just like any insurance”

  Which means, brace yourself and pucker up at your own cost.
  I read through that easily.

  I’ve never done the ABN route before, so I dunno if it’s better in the long run and tax reasons to go ABN or PAYG.
  The role is in senior management for financial services company specifically in the technology unit. From my early understand, it’s open to some risk if anything goes south.

  They have also said I can pick one option and change it in 2 months.

  Due to the urgency (Holiday season and everyone is going away) I’m going to go the safe route and get the 1%. This is a lot of money, given that I can change it in the new year, I’ll get in touch with a good wealth management advisor in the new year.

  The other perks for the 1% is the extra perks like discounted gym membership and ironically, personal, home and auto insurances.

  • 

    JimmyF on 19/12/2019 - 08:59

    Which means, brace yourself and pucker up at your own cost.

    Correct, you take on the 'risk' and if someone comes after you, the agent will step aside and say you went the self insure path. Its rare for anything to ever happen but when it does, you're talking big screw up and big money.

    The role is in senior management for financial services company specifically in the technology unit. From my early understand, it’s open to some risk if anything goes south.

    Then you you need some arse covering, take out a policy. They're $1000-1200 a year normally, you can claim them on tax. So brings them down by 30-48% depending on your tax rate.

    If you're on the big contracting dollars, its worth it for piece of mind. Just like having house insurance most people have never used.

  • 

    Skramit on 19/12/2019 - 09:13

    The other perks for the 1% is the extra perks like discounted gym membership and ironically, personal, home and auto insurances.

    Not unusual. Agencies usually go to a big provider of these insurances and buy a package which has everything at a massive discount which they can do at scale. Then they charge you 1% and probably take 50% of your 1% fees for themselves as profit.

    “No you don’t need it, it’s a safety net Incase, just like any insurance”

    Listen to your agent. They will know the industry and role better than Jimmy saying you need it regardless. Bad advise for him to assume you need it just because you said fintech manager.

    • 

      JimmyF on 19/12/2019 - 09:20

      +1

      Listen to your agent. They will know the industry

      Agents know nothing, they just match up key words.

      Bad advise for him to assume you need it just because you said fintech manager.

      Yeah bad advice would be not having insurance to save yourself $600 a year, and then get sued for $50M dollars! hahaha

      Skramit, I guess you don't have house insurance either, and live in a bush fire area. I mean it hasn't burnt in 30 years, what are the chances of it burning now.

      • 

        Skramit on 19/12/2019 - 09:25

        Skramit, I guess you don't have house insurance either, and live in a bush fire area.

        Heh

        Look, OP hasnt given enough specifics on the house (role) to determine if bushfire (professional) insurance is required. You're making huge assumptions.

        Sure he can get insurance that he doesn't need. :P

        shrug

        • 

          JimmyF on 19/12/2019 - 09:48

          @Skramit:

          OP hasnt given enough specifics on the house (role) to determine

          This is enough

          senior management role in the fintech industry.

          Sure he can get insurance that he doesn't need. :P

          Sure when you're earning $360k a year contracting (based on ops figures), go cheap and don't get the $600-900 after tax cost for insurance and roll the dice.

          • 

            Skramit on 19/12/2019 - 09:55

            @JimmyF: Given he says this:

            I will be a desk and meeting jockey that will help deliver fintech solutions.

            I'm tipping the answer is 'no'. That doesn't smell like providing financial or other 'advice' based on an established advice giving discipline.

            But sure, he can insure himself up the wazoo anyway haha.

• 

  slickaz on 19/12/2019 - 08:58

  They’ll make an extra ~100$ A month to provide me with the insurances and pay cycle flexibility I like. If that helps.

• 

  MS Paint on 19/12/2019 - 09:24

  +1

  200$ a month for both Liability and prof indemnity if I go outside.
  This model will cost be just about 300$ A month, so a 10$ difference.

  And you are providing financial direction?

  • 

    loulou1 on 19/12/2019 - 09:36

    +3

    and that is EXACTLY why OP needs the insurance!

  • 

    slickaz on 19/12/2019 - 10:40

    That was a typo, I missed the last 0, my error

• 

  Seraphin7 on 19/12/2019 - 09:45

  +1

  You will be able to source the required insurances yourself for MUCH less than 1% (I have in broadly similar roles). I'm paying less than $1k a year for all required insurances.

  So, you reckon the agency in question will charge you $3.6k a year. Subtract the $1k noted here and you're paying $2.6k+ a year just to get paid weekly??? Your call …

• 

  No on 19/12/2019 - 11:52

  I had the same offer with an agency, I took option 1 and they gave me option 2 for free.

• 

  SydBoy on 20/12/2019 - 07:49

  +1

  Normally, if you work on PAYG then agency has to pay all type of insurance at no cost as legally you are their employee ( casual or fixed term contract).

  If you pays insurance then you will be charging GST on your invoice to agency as you are a business(sole trader or company).

  Weekly or monthly pay run has nothing to do with whether you pay insurance or they. It is something you can negotiate based on who want job !

  There are agency still working in old practice of screw the candidate!

  If you are not keen for the job then make your condition clear to him/her.

  Agent gets pay out of your work so they also need you particularly for skilled jobs.

• 

  farknos on 20/12/2019 - 09:32

  hopefully there is enough advice above for you to realise contracting is not feasible at that rate, but if you are still thinking about it, worth checking with the tax department to see if they see the role is legitimate as a contracting type roll, i know in the past of people that have been working as contractors, deriving all income from one company and having their lurks and perks of contracting removed by the tax department after an audit as tax dept has deemed the role to be payg/wages. i am no tax expert, this is just something i came across in the past, might not be relevant but worth checking in case.

  • 

    blawler05 on 20/12/2019 - 10:04

    +1

    This is referred to as the 80% rule. Only 80% of your income as a contractor can come from one source.

    https://www.ato.gov.au/Business/Personal-services-income/Wor…

    This is where a lot of contractors come unstuck.

    • 

      kiitos on 25/12/2019 - 19:32

      Only 80% of your income as a contractor can come from one source

      Not true, you can earn 100% of your income as a contractor from one source.

      You just can't claim the same sort of deductions that you could if you hadn't exceeded that threshold.

      • 

        blawler05 on 07/01/2020 - 09:52

        Contracting as PAYG vs Contracting as ABN, You cant contract with an ABN as your own sole trader if 100% of your income is derived from one source.

        Sorry I wasn't clear in my statement.

        This is why I PAYG as a contractor because I often have multi year contracts.

• 

  nignucial on 20/12/2019 - 10:18

  Beware some agencies will deduct an extra percentage on your day rate to cover payroll tax in addition to super and processing fees.

• 

  OzHunterNSW on 20/12/2019 - 10:39

  When are you going to the guy… now let's be honest.
  Look for some one else!