The Client is a specialist provider of management consultancy services to enterprise customers around the world.
The Client, whose primary base is the UK, had setup a satellite office in Australia which was administered by head office. It was originally planned that the Australian operation would grow to a size where it would have a local administrative capability that would cover the region. Due to rapid growth in Asia it was decided Singapore was a better location for the regional hub and so the Client was seeking a way to reduce the administration and compliance requirements of the Australian business.
There were a dozen consultants employed in Australia with a combination of local consultants on permanent salaries, local consultants working as ltd company contractors and foreign consultants who were sponsored on 457 visas. The Client needed a third party company to employ and pay these consultants including all regulatory compliance. It was crucial that the third party employer could sponsor foreign workers under the 457 scheme.
The Client was scaling back their presence in Australia and wanted to continue to service clients without requiring employing them through their Australian company. The Client requested Contractor Taxation assist them with an outsourced employment, sponsorship and payment solution for Australia.
We recommended the Client to use a single Contractor Management Company. A CMC could handle invoicing and payment for the ltd company contractors, they could take on the outsourced employment of the payg (Pay As You Go) consultants and they could sponsor the expat consultants on 457's. They would handle in-country payroll, filing of taxes and superannuation contributions.
We worked with our local partner to provide quotes on net earnings and total employment cost for all 12 existing consultants for the prospective employee. Total employment cost included labour cost, employers social security (medicare), superannuation, tax and management fee. The Client used these to do a cost benefit analysis of outsourcing the employment. The analysis showed that the Client would actually increase their profit margin by reducing employment costs!
The Client had to revise their contractual agreements because under the terms of the 457 Labour Hire Agreement with our local partner, there needed to be a direct contract between the company holding the 457 and the end client. This meant their framework agreement with the end client needed to be edited - in the end they dediced to route the framework agreement through the contractor management company who would handle all invoicing with the end client and then pay the profits to the Clients head office in the UK. There was some initial resistance to this process as the Client's business model depends heavily on a close relationship with their end customer, but these concerns were alleviated by closely evaluating the credentials of our local partner and speaking to some of their existing customers.
The end customer is invoiced in arrears on a monthly basis. Our local partner sends all invoices and accounts payable communications through the Client for approval. When approved they are forwarded to the end customer. When funds are received the partner processed them within 24 hours sending profits to the Client, payment to the ltd company contractors and funding the monthly payrolls for the remaining consultants. The consultants receive a detailed payslip and annual tax report. The Client also received copies of the statutory taxes filed on behalf of their consultants at the end of every reporting period.
Additionally employees process their expenses through our local partner who submitted the expense reports for approval with the Client, who forwards it on to the customer. The Client is included on all communications from the local partner to the employees and the end customer.
The Client was able to transition their consultants smoothly with no disruption to the consultants or the end client. Their work permits were processed in country so there was no need for them to leave Australia. Profits increased for the existing Australian business and by reducing the administrative overhead the Client has been able to spend more time on sales and customer care. This has resulted in 3 more staff coming onboard through the new setup.
Products and services your company used
- Local Payroll
- Work Permit Sponsorship
- Outsourced Employment
- Calculation of net earnings and total employment cost
- Reporting and payment of taxes
- Payment and Expense Processing for Employees
Services provided by other groups or companies
Contractor Taxation used the services of one of our specialist local partners in Australia to act as the outsourced employer, sponsor the work visas of the consultants and run their local payroll.