Hiring an employee for the first time is an exciting time for any developing business. Here’s a comprehensive guide and a list of resources to help with this process.
Contractor or employee?
It is important to understand the legal differences between a contractor and employee to determine which option is best for your business.
Hiring an employee ensures you have direction and control over the work and it is usually continuous and ongoing in nature. You have the responsibility to ensure salary is paid regularly, the correct income tax is deducted, superannuation is paid to a nominated fund and you have the obligation to provide paid leave. You will also bear the risk of work being performed including the financial risk of making a profit or loss on tasks.
Hiring a contractor on the other hand relinquishes you from much of the financial risk and responsibilities that come with hiring an employee. Contractors pay their own superannuation*, tax and GST and do not receive paid leave.
For more information, download the Fairwork Australia’s fact sheet Contractors and employees – what’s the difference
*There are exceptions where contractors are paid superannuation, for more information visit ATO’s Working out if you have to pay super to Contractors
Registering for PAYG Withholding
All businesses who need to withhold payments to employees to send to the ATO (e.g. income tax) must register for pay as you go (PAYG) withholding with the ATO.
There are a number of ways to register:
- Online through the ATO Business Portal
- Through your registered tax agent or BAS agent
- Using your Standard Business Reporting compatible software
- If you’re an authorised business contact with the ATO, you can phone their business line 13 28 66
For more information visit ATO’s Pay as you go withholding page
Record keeping obligations
Businesses who have employees under their charge have a legal requirement to keep complete reports of all the time they have worked and wages paid. They are also required to issue pay slips to each employee.
Employee records must be private and confidential and only accessible to the employee, employer and relevant payroll staff. Other requirements include:
- Be in a form that is readily accessible to a Fair Work Inspector
- Be in a legible form and in English (preferably in plain, simple English)
- Be kept for seven years
- Not be altered unless for the purposes of correcting an error
- Not be false or misleading to the employer’s knowledge.
For more information, download the Fairwork Australia’s fact sheet Record keeping and pay slips
Hiring an employee
From July 1, 2019 businesses are required to report tax and super information to the ATO using Single Touch Payroll (STP). This marks the end of the paper based system commonly known as group certificates/payment summaries.
Accounting programs such as MYOB and Xero have already adopted STP and will automatically send salary and wage information such as pay as you go (PAYG) withholding and superannuation information to the ATO each time a payroll is performed.
More information is available on the ATO’s Single Touch Payroll for Small Employers Factsheet
Superannuation is money businesses are legally obligated to contribute towards employees’ retirement into their chosen superannuation fund. The legal minimum amount or super guarantee (SG) is 9.5% of an employee’s original time earnings.
Generally businesses must pay super if an employee is paid $450 or more (before tax) in a calendar month. Superannuation must be paid to all full-time, part-time or casual employees and all temporary residents including backpackers.
For more information visit ATO’s Super for Employers page.
Minimum employment standards
It’s important for businesses to familiarise themselves with all the legal responsibilities that come with hiring employees. All employees are covered by the National Employment Standards (NES) and the national minimum wage. Additionally, employees may be covered by Modern Awards or Enterprise Agreements.
We hope this article has been helpful. The Trendsight team are eager to support your business growth. Book a free call to see how we can assist.