Thinking of Employing Staff?

If you are employing staff in Australia for the first time, this information will help you understand your tax and superannuation obligations.

When a new worker starts, you first need to determine whether they are an ‘employee’ or an ‘independent contractor’ as different tax and superannuation obligations apply. Because a worker has an ABN does not automatically mean they are an independent contractor. Below is a table with a range of tests to help you decide if the worker is an employee or a contractor.

When you engage a new employee, you need to organise payment of their income tax, superannuation and possibly also fringe benefits tax. Below are the steps to take.

PAY AS YOU GO (PAYG) INCOME TAX

1. Register for PAYG withholding (if not already registered) by phoning 132 866 or contacting us.
2. Provide a Tax File Number Declaration Form to new employees for them to complete and return to you.
3. Complete Section B of your employee’s Tax File Number Declaration Form and forward the completed original to the Tax Office within 14 days of the employee’s start date.
   
4. Keep the necessary PAYG withholding records. These include wages records, voluntary agreements, employment, tax and withholding declarations and copies of payment summaries.

FRINGE BENEFITS TAX (FBT)

Salary packaging enables Australian employers to improve the remuneration of their employees through potential tax savings but also involves strict FBT documentation requirements.

Broadly your FBT obligations are:

1. Determine if any fringe benefits will be provided to the employee.
2. If entering into a salary packaging arrangement, ensure the arrangement is agreed to by both parties and documented

SUPERANNUATION

All employers must pay superannuation contributions on behalf of their eligible employees into a complying superannuation fund. The amount of superannuation is prescribed by law and is currently 9.5% of an employee’s earnings base.

Under Australian law, all employers must provide employees with the option to choose their own superannuation fund if they prefer. Broadly the steps to take are:

1. Determine who is an employee and if they are eligible for the superannuation guarantee.
2. Select a superannuation fund to use, and check whether the superannuation fund complies.
3. Complete the Employer section of the “Choosing A Super Fund” form and give it to your employee to complete. This gives them the option to choose their own super fund.
4. Determine an employee’s earning’s base.
5. Register for SuperStream and transmit data and payments electronically.
6. Pay contributions by the quarterly cut-off dates (28 days from end of each quarter).
7. Understand the superannuation guarantee charge and how to calculate it.
8. Ensure you meet requirements to report superannuation contributions to your employees.
9. Keep the necessary superannuation guarantee documents.

IF YOUR WORKER IS AN INDEPENDENT CONTRACTOR

If you employ an independent contractor, you are required to withhold tax from payments to them only where the contractor:

• Has entered into a voluntary agreement with the payer to have amounts withheld
• Provides their work or services for a client of the payer under a labour hire arrangement, or
• Has not quoted their Australian Business Number (ABN) to the payer.

When you engage an independent contractor, broadly your obligations are:

PAY AS YOU GO (PAYG):

1. If entering a voluntary agreement: Register for PAYG Withholding (if not already registered), and complete a voluntary agreement for PAYG withholding form.
   
2. Keep the necessary PAYG withholding records.

SUPERANNUATION

In some cases, the superannuation guarantee laws may apply to payments for work or services by an independent contractor (where the contract is wholly or principally for their labour – that is, more than half the dollar value of the contract is for their labour, not just to achieve a specific result and where they cannot delegate the work).

Determine whether the contractor is eligible for superannuation and follow the steps as for employees above.

You can find out more at www.ato.gov.au/business – Paying Staff. You may also be affected by other federal, state and territory legislation. Alternatively, please contact us for further information.