First Time Employers - Prior to the Hire
Before you hire your first employee, you will need to ensure you have the correct registrations attached to your Australian Business Number (ABN). This may include:
- Registering for pay as you go withholding (PAYGW)
- Setting up Single Touch Payroll (STP) enabled software
- Ensuring you are set up to pay super
- Reviewing your requirement to register for payroll tax
Now that you have the required registrations to enable you to hire employees, it is time to start the hiring process. This would involve deciding the type of employment you are offering (Part time, Full time, Casual), interviewing potential candidates and reviewing the correct pay rates and conditions.
The Fair Work Ombudsman website is a great place to start to review pay rates, general employer obligations and record keeping requirements. If more specific information is required such as an employment contract, a lawyer who specialises in employment matters would assist here.
Another useful free resource is the new Employer Advisory Service for small business employers (less than 15 employees). This Fair Work service provides free tailored advice to assist small businesses in meeting their obligations including confirmation of pay rates etc.
When your business is officially employing staff, you need to ensure you are meeting your tax and super obligations which may include:
- Pay As You Go Withholding (PAYGW) – PAYGW refers to the process of withholding a proportion of a payment as tax. In this instance, we are referring to withholding from employee gross wages.
It is mandatory to have each employee complete a Tax File Number Declaration form upon commencement of employment. This will determine your withholding obligation for each employee.
PAYGW withheld from employees must be reported and paid to the ATO in your monthly or quarterly activity statements. A credit for amounts withheld will be available within the employee’s tax return to offset the taxes payable on their wages.
- Superannuation Guarantee - Superannuation Guarantee refers to the compulsory superannuation contributions that employers are obligated to pay on behalf of their employees.
The current superannuation guarantee rate is 10% of your employees’ ordinary times earnings (OTE). OTE includes salary and wages, most allowances, bonuses and leave payments, but not overtime payments. The super guarantee rate is set to steadily increase as currently detailed within on the ATO website.
Employers are required to make superannuation contributions to their employees’ superannuation funds at least quarterly and failure to comply with your Superannuation Guarantee obligations can also lead to penalties being imposed by the ATO, including general interest charges, administrative penalties and Director Penalty Notices.
- Fringe Benefits Tax (FBT) - FBT is a tax payable by employers who provide employees with non-cash benefits that are outside their normal salary and superannuation.
If fringe benefits are provided to the employee, the employer must value the benefits in accordance with the legislation and pay FBT at the rate of 47%.
The employer would need to register for FBT once they start providing the non-cash benefits and will need to lodge a Fringe Benefit Tax Return annually for the business.
When an Employee Leaves
- Payments made on termination – An employee’s final pay may include a variety of components including lump sum and redundancy payments. These payments may be taxed and reported differently to your employees usual wages and may include:
- Employment termination payments (ETPs)
- Unused leave payments
- Genuine redundancy payments
The taxation of termination payments can be found here. As the application can be complicated, our office is often involved to assist employers with a review of the taxation of termination payments.
- Super on termination payments – Employment termination payments and unused leave payments do not typically form part of an employee’s ordinary times earnings meaning that super guarantee is usually not paid on these amounts.
- Finalise STP data – Once an employee has received their final pay, you will need to update your STP software to notify the program that the employee is no longer working in your business.
This finalisation process will create a tax ready income statement which the employee can use when preparing their tax return. You can complete this finalisation process following the employee’s final pay and do not have to wait until the end of the financial year.
Fair work has a great section of their website dedicated to the ending of employment. This resource provides more specifics on the rules around ending employment, required notice periods, redundancy and final pay. The small business Employer Advisory Service can also be used here for free tailored written advice (for businesses with less than 15 employees). For larger employers who require specific advice, an employment lawyer may need to be engaged.
Although we are not employment lawyers, we are able to assist with tax and super-related payroll queries. We can put you in touch with the right people for employment contracts, suggest payroll software solutions and ensure your ATO registrations and super obligations are up-to-date. As always, don’t hesitate to reach out for a chat so that we can assist you in this important area of your business!