I run a small business and 2019 is set to be quite busy for us. I’m looking to start employing additional staff.
What are the key things I will need to consider from a tax perspective?
Hiring your first employee is a big step for any business and it does alter aspects of your account keeping.
There are numerous obligations you should be aware of once you are an employer including efficient and accurate wage payment, ensuring you adhere to the correct award, pay-as-you-go (“PAYG”) income tax withholding, employee superannuation, workers’ compensation insurance, leave entitlements, fringe benefits tax, payroll tax and, for employers with less than 20 employees, single touch payroll from July 1, 2019.
Firstly, you will need to register with the Australian Tax Office (“ATO”) for PAYG withholding, which is a requirement of employers regarding the income tax of employees.
Functionally, it requires you to collect or ‘withhold’ income tax on behalf of your employees’ from each pay run.
Your new employees need to provide you with a completed Tax File Number (TFN) declaration form, so you can correctly calculate the amount of tax to withhold.
The amount withholding from each pay is then paid to the ATO with your regular Business Activity Statement (“BAS”). Importantly, it was recently announced that tax deductions available to businesses for payments to employees, for example wages, will be denied in situations where the employer does not maintain accurate and timely statements concerning the withholding of tax and other reporting obligations to the ATO.
Another important responsibility that comes with hiring employees is the payment of superannuation if your employees earn more than $450 per month.
Generally, the amount to be paid is based on your employee’s ordinary earnings. This means the amount they’re paid for their normal hours of work.
This amount is multiplied by the Super Guarantee rate, which is currently 9.5 per cent, and generally needs to be paid by the employer, to the nominated super fund nominated of the employees’ choice, within 28 days of the end of the relevant quarter.
If a business fails to meet superannuation requirements by this deadline, the payment will also become non-deductable from that year’s tax liabilities.
Ongoing mismanagement or lack of adherence to requirements can result in significant fines.
These are just two aspects of your business that will change with new employees. Generally, it’s going to mean a sizeable raft of new employer obligations you may have, you should discuss this further with your tax agent or business adviser.
If you have another tax question, e-mail me at firstname.lastname@example.org.