If you are planning to hire new workers, there are a few things to consider and organise in order to meet your tax and super obligations. One thing you must do is make sure your workers are legal – they must be Australian citizens, permanent residents or non-citizens with Australian visas that allow them to work.
Employee or contractor?
Determine whether your workers are employees or contractors. It is important you know the difference between the two because your tax and super obligations will vary depending on whether your worker is an employee or contractor.
Pay as you go (PAYG) withholding
When you pay employees or contractors, you may need to withhold tax from their pay and send these amounts to the ATO regularly. You will need to withhold tax from:
- Contractors who have a voluntary agreement with you
- Contractors who do not provide you with an ABN.
You need to pay superannuation for both your employees and for any contractors you are paying primarily for their labour. A default super fund needs to be established and you should also have a knowledge of super choice arrangements.
Fringe benefits tax (FBT)
When you provide fringe benefits to your employees or to their associates, such as payment of school fees, you may have to pay FBT. When you provide benefits to genuine contractors you will generally not attract FBT. When benefits are provided to employees (or their associates) by an associate of yours or a third party under an arrangement with you, you may have to pay FBT.
Expenses you can claim
Most of the expenses you incur as a result of engaging workers are eligible tax deductions.
Setting up a workplace giving program
You may consider setting up a workplace giving program to allow your employees to regularly donate to their preferred charities.
There are many issues to consider when engaging an employee. For more information about your tax and super responsibilities as an employer, speak to your Chartered Accountant.