Hiring a new employee for the first time (or any time) is such an exciting milestone to reach for a business. Your business is expanding, and it’s time to extend your employee base. But, there are lots of responsibilities that come with taking on staff members.
We list the top responsibilities you need to consider when embarking on the hiring process.
Know the difference between an employee and a contractor
While hiring someone as a contractor can be tempting to avoid obligations like PAYG, annual leave and superannuation, some criteria must be met for the person to be considered a contractor.
The ATO state the difference between an employee and a contractor comes down to these factors:
- Ability to subcontract. An employee must do the work themselves, whereas a contractor is free to pay someone else to complete the work on their behalf.
- Basis of payment. An employee is paid for their time, per item delivered or on a commission basis. A contractor is paid for the deliverable, which is usually based on a quote.
- Ownership of tools and equipment. An employee uses the businesses assets, whereas a contractor uses their own equipment.
- Commercial risk. An employee is not responsible or liable for errors in the work, whereas a contractor is.
- Control. The business dictates how and when an employee works, whereas a contractor is free to decide how they complete the work — subject to their contract with the business.
- Independence. An employee is a part of your business. A contractor is working independently of your business and can choose whether they take on more work.
Accurately record and pay wages, superannuation, PAYG tax and leave entitlements
If you hire an employee as a casual, part-time or full-time worker, you’ll be responsible for working out their pay, superannuation, PAYG withholding tax and leave entitlements.
- Wages. In Australia, employers must pay their employees the minimum wage or a relevant award rate. The Fair Work Ombudsman has a tool you can use to accurately identify the right award rate for your employees.
- Superannuation. Employers can choose what rate of superannuation they pay, with the minimum rate set at 10% of their wage. Superannuation is compulsory, so if your employee doesn’t specify where to pay their super, you must establish a super account on their behalf.
- PAYG withholding tax. Pay As You Go (PAYG) withholding is a legal requirement where employers must withhold income tax from their employees' wages. The employer pays this tax directly to the ATO on the employee's behalf.
- Leave entitlements. All employees except for casual workers are entitled to paid annual leave. This amounts to at least four weeks of paid leave per year, and accrues as the employee works. There are other different types of leave entitlements to be aware of, such as maternity and paternity leave, sick leave, carers leave and bereavement leave.
As an employer, it is your responsibility to keep on top of your tax and super obligations while keeping an accurate record of each of these different factors.
Uphold your duty of care
As an employer, it is your legal responsibility to ensure that the workplace is safe for everyone, including visitors.
To ensure you comply with your duty of care, it’s important to:
- Provide training on OH&S and ensure your processes align with OH&S standards.
- Ensure all equipment is well maintained and safe to use — this includes providing suitable desks and chairs.
- Provide adequate training and supervision to ensure all work is completed without risk to the employees.
- Monitor the workplace periodically to identify any risks.
- Investigate hazard reports and ensure they are adequately dealt with.
- Your legal obligations under the primary duty of care vary from state to state. Be sure to check the rules for your state.
Keep on top of payroll
With all the calculations and recording you need to do, payroll can be time-consuming and sometimes tricky! If you have employees, it makes life so much easier if you invest in accounting software. With the right software, you don’t need to worry about crunching the numbers when it comes to your employees’ salaries. The program can automatically calculate and record the figures for you — so you can spend your time in more productive areas of the business.
Under Single Touch Payroll (STP), wage, PAYG tax and super details must be sent to the ATO every time you pay your employees. This can be done two ways:
- Through your STP compliant payroll accounting software.
- Through a third-party bookkeeper or accountant reporting on your behalf.
STP makes reporting easier by sending relevant information to multiple government agencies every time you conduct payroll.
If you find yourself short on cash at the time you’re due to pay staff wages, consider unlocking the funds in your clients' unpaid invoices. That way, you don’t need to wait for them to make their payment.
Keep up to date and accurate business records
While this isn’t strictly exclusive for businesses with employees, it’s essential to keep up to date, accurate business records. Using accounting software to keep track of your inventory, accounts payable and receivable, payroll and taxation obligations, can save you a significant amount of time and can ensure the risk of errors is significantly reduced.
Employers are currently required to submit a tax file number (TFN) declaration to the ATO detailing the tax information for new employees and any existing employees where their tax situation changes. STP phase 2 will incorporate employee tax information via STP reporting. This STP report will eliminate the need to separately send a tax file number declaration to the ATO.
With the mandatory start date of STP phase 2 just around the corner, now is a great time to upgrade your accounting software if you haven’t already done so.
While all of these obligations might have made taking on employees seem a little bit daunting, it could be the step you need to take to reach your next level of success. If you have any questions about your employer obligations, be sure to speak to your accountant.
To learn more about Single Touch Payroll phase 2 compliant software, check out Xero.