The following instructions ensure that contractors are set up correctly after setting up the employee record for a new or existing contractor.
An ABN is required for reporting in STP2 in two situations:
When voluntarily reporting superannuation liabilities for individuals who normally are not in the scope of STP reporting (Non-Employee)
When withholding tax from payments made to contractors by Voluntary Agreement
ABN declarations in Definitiv are hidden by default. To display this information in the employee's Tax Information tab, an employment type must be created and linked to either the Non-Employee or Voluntary Agreement employment basis.
To do this navigate to Admin, Configuration, Employment Type.
Note: If you currently do not have a contractor set up in an employment type you will need to manually add this so you can then link the relevant employment basis code required.
On the employee record
Each employee role must have an employment status selected. This is how you would define the types of employment specific to your organisation.
They can be named according to your own requirements.
For STP, Definitiv uses the employment status assigned to the employee’s primary role to report the ATO defined employment basis. The link between employment statuses and employment basis is configured in the Employment Types screen.
Non-Employees
A non-employee is a payee who is not in the scope of STP for payments but may be included in STP for voluntary reporting of superannuation liabilities only.
Generally, if you pay your contractors under a contract that is wholly or principally for labour, you must pay super contributions for them. This is even if the contractor quotes an Australian business number (ABN). These contractors are considered your employees for Super Guarantee purposes and are an example of a Non-Employee.
To record an ABN for a non-employee:
Click Add ABN Declaration on the Tax Information tab when viewing an employee.
The voluntary agreement question should be answered No.
Additional Notes:
Non-Employees fall under the ATO Defined tax treatment.
When reporting non-employees, their primary role must have an employment status that is linked to the Non-Employee employment basis.
Voluntary Agreements
Usually, you do not have to withhold amounts for payments you make to contractors. However, you and a contract worker can enter into a voluntary agreement to withhold an amount of tax from each payment you make to them. It is a good way to help independent contractors meet their tax obligations.
To record ABNs for voluntary agreements, follow the same steps and answer yes to the voluntary agreement question.
You can configure a commissioners’ instalment rate in the record if required, otherwise payments made will be taxed at 20%.
Additional Notes:
When reporting voluntary agreement payments and PAYG, the individual’s primary role must have an employment status that is linked to the Voluntary Agreement employment basis.
Only pay items that are assigned to the Voluntary Agreement income type must be used when making payments. This will normally mean a new pay item needs to be created.
Gross Payments are the only payment type that is reportable in the Voluntary Agreement income type.
Any automatically generated PAYG amounts will need to be manually removed from pay runs and replaced with a taxation pay item assigned to the Voluntary Agreement income.