Pros and Cons of Pty Ltd vs PAYG.

Exploring the different contracting options.

There are several pros and cons to consider when deciding whether to contract as a PAYG (pay as you go) individual or through a Pty Ltd (proprietary limited) company. Since everybody’s individual situation differs, we tried to give as much of a detailed overview as possible.

Pros of PAYG contracting

Starting as a PAYG contractor is the most common and often easiest way to start your contracting journey.

Simplicity

You don't have to worry about setting up a separate legal entity or keeping track of company finances and compliance.

Fewer compliance obligations

You won't need to worry about paying your own superannuation, keeping your PI (professional indemnity) and PL (public liability) insurances up to date, or preparing and lodging annual financial statements.

Lower costs

There is no need to pay for things like company registration, accounting fees and additional insurances.

Cons of PAYG contracting

Higher tax rate

Contracting as a PAYG individual may result in a higher tax rate compared to operating through a Pty Ltd company. This is because companies are taxed at a lower rate than individuals.

Lack of flexibility

As a PAYG individual, you'll be limited in terms of how you structure your business and income.

Limited earning potential

You might not be able to take on additional projects or clients as easily and in the most tax effective way.

Pros of Pty Ltd contracting

Potential for growth and expansion

By establishing your own business you might have the opportunity to take on additional clients and project and expand your operations, therefore you are also increasing your earning potential.

Tax benefits

You might be able to structure your finances ins a more tax efficient wau and take advantage of tax deductions and write off certain business expenses, which can result in a lower overall tax burden.

Cons of Pty Ltd contracting

Higher set up costs and operating costs

Some of the additional costs can be the company registration fee with ASIC, various insurances such as PI (professional indemnity) and PL (public liability) and workers compensation.

More responsibilities and liabilities

You will be responsible for paying your own superannuation, prepare financial statements, keep all your records up to date and manage an overall most likely more complex financial situation.

In conclusion, whether to contract as a PAYG individual or through a Pty Ltd company will depend on your specific circumstances and needs. If simplicity and lower costs are your main priorities, contracting as a PAYG individual may be the right choice. However, if you're looking for greater flexibility and higher earning potential, setting up a Pty Ltd company may be the better option.