Hiring staff? These are your obligations as an employer

Hiring your first employee can be a minefield for small business owners and it pays to get it right from the start to avoid penalties down the track. Mark Chapman, Director of Tax Communications at H&R Block, explains what you need to know about your tax and super obligations as an employer.

Unless your business relies entirely on kind-hearted family and friends to run it, you’ll need to employ staff. Unfortunately, doing so brings with it a whole host of tax and superannuation obligations that you’ll need to comply with.

Here’s my rundown of what you need to do about tax and super when you take on staff.

Record-keeping

You’ll need to keep records of who you paid wages to, how much, and when.

PAYG (pay as you go) withholding

You must register for PAYG withholding. This means you will need to deduct tax from each wage or salary payment to your staff and pay it to the ATO through the PAYG system. You’ll also need to withhold PAYG if you make payments to other businesses which don’t disclose their ABN.

You can register for PAYG through the Australian Business Register (ABR) website or if you already have an ABN, you can register through the business portal of the ATO website.

TIP: You need to deduct income tax from wages and salary payments you make to all your staff, even if the payments are made to family members. You need to remit those tax payments to the ATO at the same time that you pay your GST.

Tax File Number Declaration

You must get new employees to complete a Tax File Number Declaration form. If they don’t, you need to deduct tax at the highest marginal rate (45 per cent).

Single Touch Payroll

If you employ staff, you must have payroll software that is Single Touch Payroll (STP) compliant. This is a legal obligation for all businesses that pay staff, even if you only have one staff member. You’ll report the following information through STP-ready payroll software:

payments to employees such as salaries and wages
pay as you go (PAYG) withholding
super information

Employees can now view their payroll information online from their MyGov account after the employer files pay details to the ATO through STP payroll software. The payroll information is then pre-filled in the employee’s individual tax return at financial year end.

Employers will have to ‘finalise’ the employees’ EOFY payroll information through the STP-enabled software by 14 July following the year end.

Superannuation

You must pay superannuation contributions on behalf of each employee, into the fund of their choice. These payments must be made at least four times a year at a rate of 10.5 per cent of the amount they earn from their ordinary hours of work.

From 1 July 2022, employers will be required to make super guarantee contributions to their eligible employee’s super fund regardless of how much the employee is paid. This includes all employees, including temporary and casual staff, over the age of 18. Previously, staff earning less than $450 per month were excluded.

In some cases, you also need to pay super on behalf of contractors who provide labour to your business, even if they have an ABN.

Employees vs contractors – get it right

Don’t try to treat people who are really employees as contractors. The burden of getting that decision right rests with the hiring business. If you incorrectly – based on the facts – deem someone to be a contractor when they are really an employee, you will still be liable to account for PAYG on wages, pay superannuation and give annual leave and long service leave.

The Fair Work Act prohibits “sham contracting arrangements”, where an employer treats a worker as an independent contractor in an attempt to avoid meeting employee entitlements. It is illegal for a business owner to convert staff into contractors. Employers who try it can face prosecution for tax evasion and can be penalised for flouting superannuation laws and avoiding workers compensation laws.

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