Your employees are one of the most valuable assets in your business so it is important that you hire the right person for each job. Of course, hiring staff adds expenses and responsibilities, so you need to ensure that you manage the process before and after hiring.
1. The type of employee you hire determines your obligations.
Before you start hiring, think about what your business really needs. A full-time staff member can be a great benefit, but if they are not fully utilised then you are paying more than you need to. Many businesses are now employing part-time and casual staff so that employee expenses are lower and staffing is more flexible to meet the needs of the business. Your tax obligations also depend on if you hire an employee or contractor so be sure you know the difference. Use the free, anonymous online tool from the Australian Tax Office (ATO) website if you need help. Most importantly, hire someone who is legally allowed to work in Australia.
2. You must register each new employee and fulfil tax and super requirements
If you’ve hired a new staff member, you will need to register them with ATO as an employee of the business. Each new employee will need to fill out a tax file number declaration. Start the registration process right away, as you must apply to register by the date on which you are first required to withhold tax from a payment.
PAYG: Pay as you go (PAYG) is tax that is withheld from an employee’s pay and paid to the ATO. You will also need to complete a PAYG authorisation form for each employee. PAYG is reported and paid on your Business Activity Statements (BAS). You will also need to send annual summaries of payments and withholdings to employees and the ATO.
Superannuation: Generally, you will be required to deduct superannuation payments for full-time and part-time employees if they are over 18 and you pay them $450 or more (before taxes) per month in salary or wages. Some new staff members may have a superannuation account already, or, if they are eligible, they can nominate a superannuation fund. Use the Superannuation guarantee (SG) eligibility decision tool to determine if you are required to pay super for your new employee.
Other requirements: If you are providing any other benefits to the employee, such as payment of school fees, you may also need to pay fringe benefits tax. Before you employ new staff make sure you understand your legal obligations. A good place to start is to look at the ATO website www.ato.gov.au and search “new employees.” Note: all states and territories also have a payroll tax.
3. Record keeping is very important
Once you have staff in your business it is extremely important to keep accurate payroll and employee records, and the ATO requires businesses to keep these records for five years. Even if you only have one staff member, use an accounting system to record all payroll and employee details. MYOB AccountRight allows the user to enter in all the details for an employee — such as tax file number, contact information, wage and deductions, superannuation fund information and employee bank account details — and you will only need to input the information once. The system also allows for you to set up for automatic calculation of annual leave. If you have casual staff, you will need to add hours worked for each pay period before you run your payroll.
AccountRight will generate pay summaries for employees detailing gross pay, tax withheld, payment to superannuation and any other deductions or allowances. You can also choose to email the payslips to your employees by setting up their email address in their employee records. The system will also summarise PAYG for each pay period, generate automatic payments to each employee for each pay period and record pay history by time period and by employee. Essentially, cloud accounting systems make payroll, tax obligations and record keeping much easier.
Hiring and managing new staff will definitely add to your responsibilities, but if you automate your payroll, it will save time and ensure that you are meeting your obligations as an employer.
For more helpful tips on paying staff and managing your employer obligations visit myob.com.au/businesstips.
The information provided here is of a general nature for Australians and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary.