Hiring Employees: What You Need to Know About Your Legal Requirements

One of the first hurdles a first-time entrepreneur would face is the whole process of employment. Hiring employees can be costly, time-consuming, and stressful if you do it incorrectly. Before hiring a new employee, it is important to know your legal responsibilities and obligations relating to pay, tax, superannuation, hours, entitlements, etc.

What Type of Employee Do You Need?

A variety of employment types exist in Australia. You can mix and match these until you find the correct combination that will help your business run smoothly.

  • Full time

This type of employment requires employees to work on a regular basis. This can be daily, weekly or monthly, except for holidays, leave, and emergencies. This arrangement lasts until the contract is terminated by the employer or the employee choses to resign and look for another job.

  • Part time

Their role and benefits are the same as full-time employees, however, their working time is less than a full time employee’s standard working hours.

  • Casual

Casual employees work on an irregular basis, most likely on terms and hours stipulated between them and their employer. This nature of employment tends to be used for special business occasions such as warehouse sales, when the business may need an extra helping hand to accommodate increased customer traffic.

  • Contract

Contract employees work for a fixed term, as agreed between them and the employer, usually for a special project. They enjoy the same benefits as full-time employees, albeit proportional for the duration of their work.

You can find the entitlements for each employee type in detail on the Fair Work website. The Australian Government also provides a basic checklist of compliance obligations for all employees.

Want help organising the bookkeeping side of managing your employees? Darcy Bookkeeping & Business Services can sort you out. Give us a call at 1300 728 875 or fill out a contact form to get started. 

Your Obligations When Hiring Employees

Fair Work Information Statement

Under the national workplace relations system, you must provide all new employees with a copy of the current Fair Work Information Statement (FWIS).

The statement provides basic information for workers on their employee rights and where they can find out more on terms and conditions of employment

Tax File Number (TFN) and PAYG

After hiring employees, you must get them to complete a tax file number (TFN) declaration. The information submitted will enable you to work out how much tax you need to take out of their pay. You must pay withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to the Australian Tax Office (ATO). You can download the form from the ATO website. 

If the employee does not provide a TFN declaration, their pay will be subject to the top tax rate.

Superannuation

A new employee may select either the default super fund you offer or their own super fund. If your employee is eligible for a super fund but does not select one, as from 1 November 2021, employers are required to check with the ATO if the employee has an existing super account, known as a 'stapled super fund', to pay the employee's super guarantee into. You can learn more about this on the ATO website.

You need to pay contributions to a super fund for eligible employees at least quarterly.

Fringe Benefits Tax (If Required)

Fringe benefits tax (FBT) is a tax you need to pay if you provide certain types of fringe benefits to your employee. It is separate to salary or wages and includes things like entertainment, car parking, car leasing, living away from home, etc.

If you provide any fringe benefits to your employees, you must:

  • Be registered for FBT
  • Lodge an FBT return if you’re liable to pay FBT during an FBT year (1 April to 31 March)

Minimum Wages

It is your obligation to keep up with minimum wages, including penalty rates and overtime rates, set out in the relevant award or enterprise agreement. The national minimum wage is reviewed each year. Changes usually take effect around 1 July. Read more about awards and agreements on the Fair Work Commission website.

Record Keeping

The ATO requires that businesses keep employee financial records for 5 years. These must include information about employment, payments, superannuation, PAYGW, and fringe benefits (if applicable). Below are the main records which must be kept. See the ATO website for full details. 

Payment Records

Employee payment records must include:

  • Salaries and wages (including bonuses)
  • Allowances or other kinds of payments, including
    • Tips and gratuities
    • Termination payments
    • Redundancy payments
    • Leave payments

Super Records

You must also keep records that adequately explain your super transactions for your employees. You must be able to show:

  • How you worked out the amount of super you contributed for each employee
  • Factors that affect the amount of super you must contribute
  • Salary sacrifice amounts, including information about how they're calculated and employee's choice

For employees eligible to choose which super fund they want you to pay into, you will need to keep records:

  • Showing you have offered eligible employees the choice
  • Of the written information provided by an employee nominating their chosen fund or RSA

PAYG Records

PAYG information must include the amounts you withheld from payments to employees:

  • Salary, wages, commissions, bonuses and allowances paid
  • Retirement payments, termination of employment payments, annuities and benefit or compensation payments

Other Records

The Fair Work Act 2009 legally requires you to keep some other employment records for 7 years. These include:

  • Pay, leave, dates and hours of work
  • Employment start and end date or their contract end date
  • Payslips
  • Reimbursements of work-related expenses
  • workers compensation insurance for each employee
  • Superannuation contribution amounts
  • The award, workplace agreement or contract that covers their employment

Complying with your obligations when hiring employees and keeping your documentation up-to-date will protect both you and your employees. Your employees will feel comfortable knowing you are doing things correctly and you will feel comfortable knowing you have everything at hand if the ATO ever asks.

Need someone to set up your employer requirements, such as payroll, superannuation, and more? Darcy Bookkeeping & Business Services is here to help. Give us a call at 1300 728 875 or fill out a contact form to get started. 

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