Pty Ltd Company versus Contractor Management CompanyIndividual Contractors and freelancers often ask us what’s the best thing to do, set up their own Pty Ltd company or run through a contractor management company….??
The table below stipulates some of the individual things that you must be aware of running your own Pty Ltd company versus running through a Contractor Management Company.
|Your Pty Ltd
|A Contractor Management Company
|Setting up your Pty Ltd with an ABN would cost you approximately $1000-2000
|A contractor management company has ‘No Cost Setup’ for you, as it is an already established Pty Ltd.
|Invoicing yourself would cost you approximately $1000 to $2000 per year (Your valuable time spent raising invoices and chasing the funds, during evenings and weekends).*
|A Contractor Management company raises the invoicing and chasing funds for you. Giving you your spare time (your evenings and weekends) back.
|As the owner of the company, you have to look after the accounts yourself or hire an expert Book-keeper. ($$$..??)
|A Contractor Management company has experts in Accounting and Payroll activities. They do it for you with no additional cost.
|You have to produce and take care of the Quarterly ATO BAS returns and/or pay your accountant to lodge them for you. ($$$..??)
|No need for Quarterly BAS reconciliations or returns. A Contractor Management company removes that hassle for you.
|Being a Pty Ltd, you can claim expenses.
|Contractor Management company allows you to claim expenses just the same as your Pty Ltd.
|Insurances- You will have to get your own Professional Indemnity and Public Liability Insurance $1500-$2000 per annum.
|All insurances are included plus the added value or workers compensation just in case you get a work injury.
|You have to make sure you are fully compliant for all government departments.
|A Contractor Management company makes sure you are 100% compliant.
|When you take a holiday you still have to think about invoicing and chasing your money plus BAS returns and any other accounting/ paperwork issues.
|A contractor Management Company looks after all of those while you enjoy your holiday.
|You have all the liabilities of the Director of your company.
|Under a Contractor Management company, you have no liabilities yet all the rewards of contracting.
|When you are going for a loan or applying for a credit card, the banks are more stringent on proof of earnings for what or how much they may lend you if anything at all.
|A contractor management company, they can provide proof of earnings that the banks or other loan companies will acknowledge as actual earnings.
|Cash flow- you may have to wait several weeks even months for payments.
|A Contractor Management company can organise quicker payments of your hard-earned income to be paid when you want to be paid.
|Superannuation – you do not have to put any money aside for super running your own company, which may impact in your retirement age and funding.
|A Contractor Management company would maintain the minimum 9.5% super and or increase that with you on your financial advisor’s recommendation, so you have money ready for your retirement.
|Contracts need to be organised, read and understood by you, or you have to engage a lawyer to look at them all individually for every contract. ($$$..??)
|A Contractor Management company take care of all of that. You just turn up for work.
Based on an average of $100,000 yearly income, the cost to run through a Contractor Management company would be around $2500 which includes all the insurance cost plus all the invoicing and payroll compliance. The cost to run your own Pty Ltd would be approximately $2500 to $5000 per annum minimum.
If you are looking to become a Contractor, then don’t forget to get your daily rate right.
*Here is an example of that: How to calculate your hourly rate based on an annual salary of 100k. Divide by 220 days which is the average number of days you will work in a year (you cannot work every day all year…), don’t forget weekends and public holidays or maybe some sick time and you obviously will require holiday time…
Take your Yearly Salary Number (YSN) 100k; i.e., YSN = 100k; divide this by 220 to get your daily rate ($454.54) divide that by 7.6 hours in a day, and you reach an hourly figure $59.81 (which is the minimum your charge out rate should be…).
Be aware of the Payroll tax law as you may need to add on payroll tax for the relevant state and of course GST on the total invoice. This will give you your total charge out rate.
Pendragon can help you run your business more efficiently, saving you time and money.