Hiring employees for the first time can be a challenging exercise. Not only do you have to invest a lot of time and resources into recruitment process to make sure you are hiring the best person for the role, but you also need to consider your legal obligations.
This checklist contains essential steps to guide you through the process of hiring workers.
1. Confirm that your prospective employee has right to work in Australia.
If a person is not an Australian citizen, a permanent resident or a New Zealand citizen, you need to check if they have a a valid visa with work rights. Certain classes of visa may have conditions prohibiting working in Australia or imposing restrictions on rights to work. To check your worker’s current visa details, you can ask them to provide their records from VEVO website or you can register and check VEVO yourself.
2. Check Award Wages and other Fair Work requirements
Make sure you are aware of Fair Work regulations, such as minimum wage set by the Award, as well as other employee entitlements and employer’s obligations.
Fair Work Ombudsman website provides range of resources, including online courses for new employers.
3. Register for PAYG Withholding
Employers have an obligation to withhold amounts of tax from payments to their workers and remit those amounts to the ATO. The process is administered through Pay As You Go (PAYG) Withholding System. To start withholding amounts from payments, you must register for PAYG Withholding with the ATO. Your Tax Agent can register for PAYG Withholding on your behalf.
4. Get your employee to complete Tax File Number Declaration
The Tax File Number Declaration form can either be downloaded from the ATO website and filled out by hand or completed in electronic form using ATO Online Services. Paper forms should be sent to the ATO within 14 days after completion, and you need to retain a copy of the form for your records.
The answers provided in the form are used to determine the amounts of tax to withhold from payments. The payee will be asked, among other things, to provide their Tax File Number (TFN) in the form. You, as an employer, are authorised by the Tax Administration Act 1953 to request their TFN, however, they may choose not to provide it. Keep in mind that if your payee fails to quote their TFN, you are required to withhold the top rate of tax from their payment.
5. Work out how much tax to withhold
The amount of withholding can vary for each employee, depending on their circumstances (e.g. more than one employer, HECS/HELP Debt, Medicare Entitlement, visa class, etc). The ATO produces a range of tax tables, formulas and calculators to help you work out the amounts you are required to withhold. The Tax Tables are available for download from the ATO Website.
6. Set up Single Touch Payroll
Single Touch Payroll (STP) is a new way to process payroll, which enables the data to be reported to the ATO in real time when payments are processed. From 1 July 2019, STP became compulsory for all employers.
To report through Single Touch Payroll, you need an STP-enabled software or a third-party STP reporting solution. STP reporting is offered by major accounting software providers (such as Xero or MYOB) as part of a package or as a stand-alone solution.
Depending on your choice of a solution, you or your Registered Agent may need to provide your Software ID to the ATO to complete set up.
If all of your payroll data during the income year was processed via Single Tough Payroll, you do not need to issue PAYG Payment Summaries to provide to your employees at the end of the year.
Find out more about Single Touch Payroll.
7. Comply with PAYG Reporting Obligations
You will need to report amounts of gross payments and withholdings on your Business Activity Statement (BAS) or Instalment Activity Statement (IAS) and pay the amounts withheld to the ATO. The frequency of reporting depends on the size of withholdings. Small withholders who withhold $25,000 or less a year can report and pay the amounts quarterly. Entities withholding from $25,000 to $1million a year are required to report and pay on monthly basis.
Keep in mind that even when you process payments through Single Touch Payroll, you still need to report gross payments and PAYG withholding when lodging your BAS or IAS.
Note: from 1 July 2019, if you fail to withhold amount of tax from your worker’s payments, you will be denied tax deductions for such payments.
8. Give your employee a Standard Choice Form to nominate their super fund
Employees can choose a superannuation fund or retirement savings account to which their superannuation contributions are to be paid. They can nominate their choice by completing the Superannuation Standard Choice Form available for downloading from the ATO website. Alternatively, super funds may provide their own nomination form.
Your employee may nominate their Self-Managed Super Fund (SMSF) to receive super contributions. In that case, they must also provide:
- a document confirming that the fund is regulated, and
- a letter from the trustee of the SMSF confirming that the fund will accept contributions from their employer.
If the employee does not nominate their super fund, you are required to nominate your own default choice of super fund to which you will pay super contribution on their behalf.
9. Set up SuperStream compliant payments
SuperStream is a standard of processing superannuation contribution payments and transmitting data electronically to super funds and the ATO in a prescribed format.
All employers must comply with SuperStream standard. To meet SuperStream requirements, you can process payments using one of the following options:
- Using SuperStream compliant payroll software (e.g. Xero or MYOB)
- Using the ATO Small Business Super Clearing House (SBSCH). It is a free service available for businesses with 19 or fewer employees or an annual aggregated turnover of less than $10 millions. You can register for SBSCH via Business Portal or your Tax Agent may be able to help.
- Paying directly to a super fund using their online payment services (not available for all super funds)
10. Ensure Super Contributions are paid by the due dates
You must make payments at least on quarterly basis by the following due dates:
- For the period 1 July to 30 September – by 28 October
- For the period 1 October – 31 December – by 28 January
- For the period 1 January – 31 March – by 28 April
- For the period 1 April – 30 June – by 28 July
Missed and late payments attract Super Guarantee Charge (SGC) and administrative penalties, which are not tax deductible.
11. Organise Workers Compensation Insurance
Most employers must have Workers Compensation Insurance to protect themselves and their employees in case their employees are injured at work. Workers Compensation Schemes are regulated by each individual state and territory. To find out more, check out the links applicable for your state:
Australian Capital Territory: https://www.accesscanberra.act.gov.au/
South Australia: https://www.rtwsa.com/
Western Australia: https://www.workcover.wa.gov.au/
Northern Territory: https://worksafe.nt.gov.au/workers-compensation
Fines apply for failing to take out workers compensation insurance and employers could be liable for compensation should an employee suffer a work-related injury.
12. Check if you need to register for Payroll Tax
Payroll Tax is a state tax payable on the total wages if they exceed certain threshold. The threshold is different for each state or territory. You can check the payroll tax wages thresholds for the current year on the state or territory revenue office websites.