In every start-up business there comes a transition point when you will need to increase your workforce. The good news is that getting to that point provides validation for the hard work you’ve put in so far and may mark the start of a growth phase for your business.
Before hiring an employee for the first time, you’ll need to work through a few things: from clarifying the kind of position you are offering, to working out the entitlements and wages you’ll need to provide, as well as meeting the legal requirements of being an employer. This guide will assist you by outlining some of the issues you’ll need to consider.
What type of employment should you offer?
You can meet your business needs, and keep your arrangements flexible, by employing staff under different working arrangements.
Depending on the requirements of your business, you might consider taking on:
- A full-time or part-time permanent employee
- A casual employee
- A trainee or apprentice
- A contractor, or
- A temporary employee through a labour hire firm
The difference between employees and contractors
Contractors are well suited to fixed-term project work or for work you don’t have time to do yourself (such as bookkeeping or marketing). Generally speaking, you will have less of an administration burden if you hire a contractor and, if the relationship doesn’t work out, you can easily terminate the agreement.
However, contractors and employees have different rights and obligations, so as an employer it’s important to be clear on the distinction. In fact, getting it wrong can have far-reaching effects and be a costly experience due to fines and penalties.
Your definition of a contractor relationship might be different from the viewpoint taken by the ATO so it pays to be certain on what the differences are between employees and contractors before you enter into any kind of agreement. You can read more on the distinction between employees and contractors here or ask your accountant if you are in any doubt.
The ATO independent contractors decision tool can be useful for businesses to clarify what the working relationship is, and detail the tax and super obligations that need to be met. You can access the tool here – https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/
Your employer obligations
As an employer, it’s important that you understand your obligations to your employees as well as employment-related legislation. Wages, tax, leave and time off, and the rights of parents are all covered by employment legislation and must be applied to employees across your business.
Before you take on an employee or enter into a contract you’ll need to:
1. Confirm they are legally allowed to work in Australia. Australian citizens, permanent residents and New Zealand citizens are legally allowed to work here.
2. Confirm whether they will be an employee or contractor.
3. Register for PAYG withholding to:
- Withhold tax from your employees’ wages
- Withhold tax from payments to contractors if they don’t quote an ABN or have a voluntary PAYG withholding agreement with you
4. If you’re hiring under working holiday visa provisions (subclass 417 or 462) you must also register as an employer of working holiday makers.
5. Set up an accounting system to manage wage payments, superannuation payments, provide payslips and to keep records for your employees.
6. Ensure you are paying the correct wages and entitlements:
- An employee’s minimum wages, including penalty rates and overtime, will come from the award or registered agreement that covers their employment
- You can’t use or include any conditions in an employment contract, enterprise agreement or other registered agreement that provides a rate that is lower than the relevant award or is less than the national minimum wage
- You can access the Fair Work Ombudsman’s Pay and Conditions Tool (PACT) to find the correct award and calculate your employees’ pay rates and leave entitlements if you are unsure
7. Check if your employees (and some contractors) are eligible for superannuation and:
- Select a default super fund
- Set up to report and pay super electronically using the SuperStream standard
- Provide your employee with a Superannuation Standard Choice Form
- Pay the minimum amount (super guarantee) which is currently set at 9.5% of ordinary time earnings
8. Organise a Workers Compensation Insurance policy:
- As an employer, you must have insurance to cover workers (and possibly contractors) if they are injured at work or become ill due to their work
- Workers’ compensation is covered by legislation in each state and territory
- Queensland employers can find out more information about polices at WorkCover Queensland
9. Ensure you comply with The National Employment Standards.
The National Employment Standards
There are 10 National Employment Standards (NES) that apply to all employees regardless of the award, registered agreement or employment contract that applies. They cover:
1. Maximum weekly hours: 38 hours per week for a full-time employee plus reasonable additional hours.
2. Requests for flexible working arrangements: certain employees can ask for a change in their working arrangements (eg. hours of work, location of work).
3. Parental leave: up to 12 months unpaid leave per employee, as well as the right to request an additional 12 months leave.
4. Annual leave: 4 weeks paid leave per year, plus an additional week for some shift workers (pro rata for part-time employees).
5. Personal/carer’s leave and compassionate leave – 10 days paid personal/carer’s leave per year, 2 days unpaid carer’s leave and 2 days compassionate leave (pro rata for part-time employees).
6. Community service leave – unpaid leave for voluntary emergency management activities and leave for jury duty.
7. Long service leave – paid leave for employees who have been with the same employer for a long period (laws vary in each state or territory).
8. Public holidays – a paid day off on a public holiday.
9. Notice of termination and redundancy pay – from 1 to 5 weeks notice of termination depending on length of service and redundancy when a position becomes unnecessary.
10. Provision of a Fair Work Information Statement to all new employees.
Setting up payroll in your accounting system:
Xero:
https://help.xero.com/au/PayrollStart
MYOB:
https://help.myob.com/wiki/display/ar/Set+up+payroll
Further help:
Marsh & Partners offer a complete bookkeeping service. We offer fixed price packages tailored to your needs. You can be confident that your records and responsibilities are accurate as the work is carried out by degree qualified accountants and CPAs. As well as basic bookkeeping, BAS preparation and reporting, our bookkeepers are payroll experts and offer expertise in:
- Payroll set up
- Payroll calculations and payments
- Payroll Tax advice and calculations
- Payment summaries
- Superannuation
- WorkCover
- Superannuation for contractors
- Taxable Payments Reports for contractors
Find out more about our Bookkeeping Services.
If you would like advice on hiring an employee, you can reach us on 07 3023 4800 or at mail@marshpartners.com.au
Share this article on LinkedIn:
Subscribe to our newsletter:
Get tax updates, business advice and seminar invitations delivered straight to your inbox.
