Tax and super obligations for your new employee

Hiring a new employee is an exciting step for any business – but there are a few things you’ll need to take care of behind the scenes. Getting your tax and super obligations right from the start will help make it a smooth experience for you and your new team member!

Before you hire a worker

When you hire someone new, you’ll need to determine if your worker is an employee or independent contractor this opens in a new window . It might sound like a small detail, but it makes a big difference to your tax and super obligations. Generally, an employee will work under your direction, while an independent contractor has more control over their work and hours.

Before they start, it’s a good idea to check that your new employee is legally allowed to work in Australia this opens in a new window .

Hiring someone from overseas? You must register as an employer of working holiday makers this opens in a new window  before they start work.

What do I need to do before my employees start?

When onboarding new employees, you’ll need to get them to complete a Tax file number (TFN) declaration this opens in a new window . This is where your employee tells you things like whether they are claiming the tax-free threshold or if they have a student loan. These details help you work out exactly how much to withhold from their pay.

There are a few other things you need to do as an employer, including:

• Setting up Single Touch Payroll (STP) this opens in a new window .

• Registering for pay as you go withholding (PAYGW) this opens in a new window  so you can withhold tax from your employees' wages.

• Working out if you need to pay super and asking your employee to complete a superannuation standard choice form this opens in a new window  (if they’re eligible to choose their own fund).

• registering for Fringe Benefits Tax if you’ll offer non-cash benefits this opens in a new window  like salary sacrifice arrangements or vehicle-related benefits.

Check out our video for a quick guide on everything you need to do before your worker's first day this opens in a new window !

When someone works for you

What do I need to report to the ATO for my employees?

When you bring on a new employee, chances are you’ll be using payroll software to handle their pay. The good news? It reports everything to us automatically through Single Touch Payroll (STP).

Every time you run payroll using STP-enabled software, it sends us info including:

• Salary and wages

• PAYG withholding amounts

• Super contributions (including employer liabilities or ordinary time earnings)

If you’re paying an independent contractor, you’ll need to use their ABN instead of their TFN.

When the financial year wraps up, you’ll just need to finalise everything you’ve reported through STP by 14 July. This is called an end of year finalisation and includes any reportable fringe benefits – if they apply! When you report and finalise using STP, you no longer need to provide payment summaries this opens in a new window . Your employees can access their income statements using their ATO online account via myGov or in the ATO app.

Check out our STP article for more info and tips for troubleshooting. If you don’t use STP enabled software, reach out to your BAS or tax agent for help reporting your employees' pay details.

Not sure how to pay your workers or what to withhold? Our handy video breaks down how to pay your employees this opens in a new window .

How do I pay independent contractors and other businesses?

Generally, contractors and other businesses will look after their own tax obligations. You’ll only need to withhold tax from your payments to them if they don’t give you their ABN or you have an agreement with them.

Do I need to pay my workers super?

On top of tax, you must pay your eligible employees and contractors super – this is known as the super guarantee. The minimum rate you’ll need to pay your eligible employees is 12% of their ordinary time earnings (OTE) this opens in a new window .

There are some situations when you must pay super to your independent contractors this opens in a new window . These include when your hire them mainly for labour or they perform domestic work for more than 30 hours a week - like a nanny.

You’ll need to pay super by the quarterly due dates, but you can choose to pay more frequently like when you do your pay run. Whatever you decide, you must make at least 4 payments a year by the quarterly super due dates this opens in a new window . If payments aren’t received on time or to the right fund, you must lodge a superannuation guarantee charge (SGC) statement and pay the SGC to us.

Still unsure when you need to pay super? Our article has more info to help you understand your super guarantee obligations.

What is a fringe benefit and how do I report it?

As an employer you may provide benefits to your employees on top of their salary and wages. These are called Fringe benefits and can include things like a laptop, phone, or even a company car.

If you provide fringe benefits to your employees, you must keep specific records and work out whether you need to pay FBT.

Our website has a guide that can help you get ready for FBT as an employer this opens in a new window  and work out if you have an FBT liability.

When a worker leaves

What do I need to do when a worker leaves?

When someone leaves your business, there’s a few things you’ll need to take care of. This includes working out their final pay and making their super guarantee payment by the next due date.

If the person was an employee, their final pay might also include something called an Employment Termination Payment this opens in a new window  or ETP for short. It’s a lump sum that covers things like unused sick leave or pay in place of notice – and is taxed differently from the normal wages you pay this opens in a new window .

Don’t forget to report any perks or fringe benefits your employees enjoyed too! You can do this through STP or their payment summary (if you don’t use STP enabled software).

When finalising your STP data at the end of the year, remember to double check it includes any employees that have left.

Our website has more tips on what to do when an employee leaves your business this opens in a new window .

How long should I keep records of my employees?

We all know that good business record keeping includes keeping your records for at least 5 years. And the details of your employees or payments to other businesses are no different. You can learn more about setting up and managing your business records this opens in a new window  on our website.

While it might sound like a lot to think about, there’s plenty of help out there to support you on your hiring journey. You can find more tax and super info and resources for employers this opens in a new window  on our website.