There is a large learning curve for first-time employers, and it can be difficult to find the information in one place. This post is an introduction to the compliance issues and contains lots of links to further information.
Some of this information may be familiar to business owners who have been employees themselves. This information is subject to change, so contact your tax accountant or follow the relevant links below.
The Award System, Wages, Employment Conditions and Regulations
Australia has a system of industry-specific Awards that covers minimum rates of pay, classifying employees, overtime, allowances and similar pay-related issues. “Award” has a different meaning than “trophy” or “certificate”. There is a helpful calculator on the Fair Work website that helps you find the minimum pay rate for your employees.
Some employees are not covered by Awards, but all employees are covered by the National Employment Standards (NES). The NES are 10 minimum entitlements that must be provided to all employees. They include maximum weekly hours, requests for flexible working arrangements, leave obligations, public holidays, termination/redundancy and providing an information statement.
There are other rules for all employees relating to hiring, managing, promotions and termination.
When an employee begins to work for you, you must submit a Tax File Number Declaration to the Australian Tax Office (ATO). This can be a paper form, or through electronic methods such as your accounting software.
If you have not already done so, you will need to register for Pay-As-You-Go Withholding with the ATO. Your tax accountant can help you with this.
Unless your employee is earning only a small amount, you must withhold tax from their wage payments. There is a relatively-simple calculator on the ATO website, or you can use the simpler calculator included with the ATO smartphone app. Alternatively, your accounting software may have helpful payroll functions, or you could outsource your payroll processing.
Withheld tax is paid to the ATO monthly or quarterly on your Business Activity Statement or Instalment Activity Statement.
After 30 June each year, you must prepare a payment summary for each employee. You must provide a copy to your employees by the 14th of July and to the ATO with a summary report by the 14th of August. The ATO website has further information on payment summary obligations. There are extensions for the ATO report if you use a tax agent and satisfy certain conditions.
If an employee earns above $450 per month in ‘wages’, you must contribute 9.5% of their ‘wages’ to the employee’s superannuation fund by the 28th day after the end of the quarter.
For the purposes of calculating superannuation contributions, ‘wages’ is a broad definition that includes ordinary hours plus commissions, shift loadings and allowances, but excludes overtime payments. The term ’employee’ is also similarly broad and can include contractors.
If you are late paying superannuation, you must lodge a particular form with the ATO and will be liable for an interest charge and flat administration fee. As a director of a company, the ATO can demand that you pay for the company’s superannuation obligations.
For further information on superannuation, check out the Employers Super guide on the ATO website.
Safety and Workers Compensation
Workers compensation is a state-based scheme to improve safety in the workplace, compensate employees who are injured, and assist injured employees back to work.
As an employer, you must satisfy various Workplace Health and Safety (WH&S, formerly Occupational Health & Safety) rules, including safety training for employees, signs around the workplace, providing safety equipment, incident reporting policies, and similar safety issues. Some larger employers may also have a WH&S committee and full-time WH&S staff.
Employers must also pay Workers Compensation Insurance premiums. This is an insurance policy that pays for employee rehabilitation if there is an accident in the workplace. The premiums are calculated based on your industry (higher-risk industries pay more), claims history, efforts to improve workplace safety, and other factors.
If an employee is injured in the workplace, contact your workers compensation insurer immediately to ensure that you follow the correct procedures. Don’t just send your employee to their doctor and ignore the issue, as even good employees have turned on their employers with disastrous consequences.
Your employee’s doctor will develop a rehabilitation plan to ensure that your employee returns to work as soon as possible, even if only on reduced duties such as filing paperwork. Your insurer will pay your employee’s wages while they are unable to return to work.
For further information on workplace safety and workers compensation schemes, check out your state government’s WorkCover website, e.g. WorkCover NSW.
Payroll tax is a state-based tax, calculated as a percentage of your payroll costs.
This tax is being phased out over time and is only applicable to larger businesses that pay wages over a certain threshold. In NSW, the threshold for 2014-15 is $750,000.
For further information on payroll tax, check out the website for your state government’s revenue office, e.g. NSW Office of State Revenue.
Fringe Benefits Tax
Fringe Benefits Tax (FBT) is a tax paid by employers who give their employees benefits instead of cash wages. Before the introduction of this tax, employers could ‘pay’ their employees by providing a company car and save all of the taxes and obligations discussed earlier in this post. The benefit to employees was a reduction in their on-paper wage, which affects calculations for income tax, child support and government benefits.
FBT is based on benefits provided from 1 April to 31 March, not the financial year. Employees can contribute to the cost of the ‘fringe benefit’ to lower the employer’s FBT bill. Some non-profit organisations can provide a significantly larger amount of fringe benefits to each employee before they are liable for FBT.
There are separate rules to determine the taxable value of each type of ‘fringe benefit’. The most common fringe benefits are company cars and Christmas parties.
Unless your employee is earning a high wage, the simple rule of thumb is: pay the employee extra rather than providing fringe benefits. It is less costly financially and takes less administrative resources to simply pay the employee more money and have them purchase the fringe benefit(s).
There is a lot to know, but hopefully this overview helped. The good news is that there is some information that you will not need to know initially, such as Payroll Tax.
The really good news is that you can outsource most of this to qualified professionals, so long as you check in with them before important decisions and events, such as determining pay rates and firing staff.
As with anything tax, it’s best to ask your tax accountant about your specific situation.