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Hiring That First Employee in Your SME

There comes a time in many entrepreneur’s life when going it alone is no longer feasible. If this is you, congratulations! You’ve got enough business for two, so you must be doing something right. Want help with the admin work you’re drowning in? Need someone to balance the books? Want a marketing whiz or someone skilled in converting leads? Whatever the case, hiring your first employee is a big deal. At this stage of your business growth, you can’t afford a bad hire. You need the right person to keep growing. There’s also that tonne of official paperwork to handle.

Fortunately, we’ve compiled a list of everything you need to know. Follow these steps for the best chance of success with your first hire. We also went direct to the ATO to suss out the official requirements. Let’s get into it!

Be clear on what the job is

Even if the job is only for a few hours a week, write out a proper job description covering all tasks and areas of responsibility. This will allow you to get clear on the dividing line between their work and yours. It will also enable you to figure out exactly what you want done. It doesn’t have to be an essay. A dot point list that you can both agree on and refer back to will do for a start.

Hire someone you get along with

This is beyond important. It doesn’t matter if someone is crazy-skilled, if you don’t like them as a person you’re asking for trouble. This arrangement will be almost like a partnership. You’ll probably be working closely day in and day out. Make sure you get along well. Consider hiring someone you already know. A bit of banter and fun can go a long way to making your job more enjoyable. Just make sure they’re reliable and passionate about the industry too.

Hire someone you trust fully

Running a small business is stressful enough without managing an employee you don’t trust. So how do you figure out if you can trust someone? Ask yourself these three questions. Firstly, is this person invested in what happens to me and my business? Secondly, do they carry out the tasks that they say they will, on time and consistently? And lastly, is this person actually competent in the areas they have claimed to be? Try and work these out before committing. Tip: Contact their referees and ask similar questions.

Spend time with them first

It can be tempting to make a decision on the spot when it comes to hiring someone. Don’t do this. Spend a bit of time with them first. Take them to lunch. Give them a tour of your business. Ask them to do a trial period. This is a huge decision and it’s best to be as well-informed as possible. Try to get a read on their personality and what they are passionate about. You want someone who is genuinely keen to work in your industry and whose personality aligns with the views and values of your business.

Consider a probationary period

The probationary period is a time frame during which you decide whether the employee is meeting your expectations.  If a performance plan is created for the new employee, ensure you set a review date well before the employee’s minimum employment period ends. This will ensure you have enough time to review the employee’s performance, decide whether you want to keep them and, if not, terminate their employment before their minimum employment period expires.

Also note that the Fair Work Act sets a minimum employment period that an employee needs to serve before they are able to make an unfair dismissal claim: 12 months – for small-business employers with fewer than 15 full-time equivalent employees; or 6 months – for all other businesses.

Make it legal

When you’re ready to take them on board, it’s time to get all the official stuff handled. To make it easier for you, we’ve detailed the requirements below. You should also check out the national government business advice site to be 100% confident you’ve covered all bases.

Hiring workers for the first time

If you haven’t hired workers in your business before, use this checklist to make sure you’re ready:

Before you enter into a work agreement or contract with a worker check:

  • they are legally allowed to work in Australia
    • Australian citizens, permanent residents and New Zealand citizens are legally allowed to work here.
    • If you believe the worker is a foreign national (other than a New Zealander), you must confirm they have a visa with permission to work – Department of Immigration and Border Protection’s Employing legal workersExternal Link explains how.

  • whether they will be an employee or contractor
    • You can use the Employee/contractor decision tool.
    • It’s important you get this right – it affects your tax, super and other obligations, and it’s against the law to wrongly treat employees as contractors.

  • Register for PAYG withholding straightaway to:
    • withhold tax from your employees’ wages
    • withhold tax from payments to contractors because they don’t quote an ABN or have a voluntary PAYG withholding agreement with you.

  • If you’re hiring workers on a Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462), you need to register to be an employer of working holiday makers

  • If you’re hiring workers who are eligible for super (most employees and some contractors are eligible)
  • Set up a system to manage payments and keep records of your workers.

  • Register for fringe benefits tax (FBT) if you’ll be providing fringe benefits to your employees or their associates.

  • Consider setting up a workplace giving program for your employees.

  • Check if you need to register for payroll tax with your state or territory revenue office. You’ll only need to do this if your total payments to employees and certain contractors exceed the threshold in your state or territory.

  • Other obligations you need to consider are to use a fair and non-discriminatory recruitment process that supports working parents, and people with a disability or caring responsibilities.

What to do next

Make sure you are meeting all of the requirements for when the employee actually starts, and while they’re working for you. See below.

When the employee starts

  • Give your employee a Tax file number (TFN) declaration – you must send the completed form to us within 14 days after the form is either signed by the payee or completed by you (if not provided by the payee). You need to retain a copy of the form for your records.
  • If your employee is entitled to super guarantee, check if they’re eligible to choose a super fund. If yes
    • give the employee a Standard choice form (or equivalent) within 28 days of them starting, so they can nominate their preferred super fund
    • check that the fund they’ve nominated is a complying fund
    • if your employee gives you their tax file number, you must give it to their super fund the next time you make a payment for them (or within 14 days, whichever is the later)
    • you’ll need to set up an electronic system in preparation for reporting and paying your first super contributions in the SuperStream standard
  • Start keeping records about the employee. You’ll need these to meet your tax and super obligations
  • If you’ll be providing fringe benefits to your employee or their associates you should be registered for FBT
  • If you’re entering into a salary sacrifice arrangement with your employee, make sure the arrangement is agreed by both parties and preferably documented. You may be liable for FBT on the fringe benefits provided as part of the arrangement

See also:

While the employee is working for you

Each pay period:

Each BAS:

Each quarter:

  • work out how much super to pay for each employee
  • using the SuperStream standard
    • report and pay super contributions by the due date (28 days after the end of the quarter) electronically
    • if you don’t pay enough super for an employee by the due date, you may have to pay the super guarantee charge.

Each year:

  • by 14 July – provide a payment summary to each employee showing the amounts paid and withheld
  • by 14 August – lodge a PAYG payment summary annual report with us (but you can make it easier for your employees if you lodge it as soon as you provide their payment summaries)
  • if you provide fringe benefits to your employees
    • by 14 July – include reportable fringe benefits on their payment summary
    • by 21 May – lodge your FBT return (if a tax agent prepares your FBT return the lodgment arrangements may be different – your agent will tell you).

Keep records of all of the above.

A few things which might happen from time to time:

  • If your employee acquires a Higher Education Loan Program (HELP), Student Start-up Loan (SSL),Trade Support Loan (TSL) or Financial Supplement from the Australian government after they start working for you, they must tell you by completing a withholding declaration because it might affect the amount you withhold.
  • The Child Support Agency may ask you to deduct child support payments from an employee’s pay
    • If this happens, you’ll receive an employer package telling you what to do.
    • Child support deductions are not tax amounts, so you don’t report them on payment summaries.
  • An employee may ask to change their choice of super fund – if it’s
    • more than 12 months since their last choice you must accept it
    • less than 12 months you can accept it if you wish.
  • If an employee gives you their TFN, you must give it to their super fund the next time you make a payment for them or within 14 days, whichever is the later.
  • If you’re a director
    • you have the same requirements for super guarantee and PAYG withholding as an employee
    • you will be held personally responsible for the business’s super and PAYG obligations if they aren’t paid

You will have other obligations when employing people including preventing unlawful discrimination in your workplace and supporting working parents, people with a disability and those with carers responsibilities.

Hopefully you’re feeling more prepared to hire your first employee. For further information on your official requirements, check out the national government business advice site. Good luck!