Preparing to engage workers – Compliance – PAYG

In Australia before you employ staff there are some compliance issues that you need to address.  Things that need to be set up and put into place before you start paying staff any wages.

So far in our series on Payroll we have looked at what type of employee you want – full time, part time, casual etc; we’ve looked how we need to use Fair Work Australia and we have looked closely at the National Employment Standards. Now we are moving onto being complaint with the ATO.

PAYG

Once you begin employing staff you have an obligation to collect tax from payments you make to your employees, this tax is call Pay as you go (PAYG) withholding.

PAYG withholding not only is applied to employees, but also to other workers, such as some contractors and also businesses that don’t quote their Australian Business Number (ABN)

You must register for PAYG withholding before you either engage a worker or a contractor.

Registering for PAYG withholding

I would suggest that the minute you confirm in your mind that you are going to engage a worker or contractor you register for PAYG.  By law you must apply to register by the day you are first required to withhold an amount from a payment, but for peace of mind, just register as you are getting organsied to employ someone.

There are several ways to register for PAYG withholding:

  • If you already have an ABN
  • You can register through the ATO’s business portal, you will need an AUSkey to do this.
  • You can ring the ATO – 13 28 66, to use this method you will need to be an authorized contact for your business (you would be surprised at how many owners aren’t)
  • You can download the Add a new business account form (NAT 2954) from the ATO website, fill it in and send it to the address on the form.
  • Or by asking your Accountant or BAS Agent to register you through their Portal
  • If you don’t already have an ABN
  • You can apply for an ABN and also register for PAYG at the same time

The link to apply for an ABN is HERE

  • If you are not required to have an ABN
    • This is where you come across a supplier who doesn’t have an ABN or you are an individual that employees Nannies or Gardeners and you still need to withhold tax
      • You need to apply for a withhold payer number WPN and you can do that by by going HERE

Who do you need to withhold from?

There are a number of payments you make within your business that would need to withhold tax from, these include:

  • Your employees
  • Directors of your Company
  • Businesses that don’t quote an ABN
  • Contractors who have a voluntary agreement with you

If you are a sole trader or partner in a business then you do not have to withhold tax from any payments made to you, provisions for this are made through the PAYG Installment scheme which is different to the PAYG withholding scheme.

Employee or Contractor

You need to be really clear on this point and yet it is one of the most confusing sides of having a business.

You are required to withhold tax from any staff member you employ, including apprentices.

If you have contractors as a part of your business, then you need to work out if under the ATO law if they are classed as an employee or a contractor.  Just because they have an ABN number and work casually for you, doesn’t necessarily mean that they are your contractor.  I have written a blog about this subject, you can go HERE to read it.

Payments to employees

As you are employing staff and needing to start withholding amounts from them, to be able to get work out the correct amount you need to withhold, you need to get from them a Tax Declaration form or a Withholding Declaration form.  We will look at these in more depth in the coming weeks.

These forms will help you work out the amount to withhold, any variations that need to be made, any other payments that need to be withheld and any situations that affect what you withhold.

Payments with special rules

There are some payments made to staff that come under special rules and therefore the amount to withhold will be different.  If you make payments to the following then you need to find out more information:

  • To workers on a Community Development Employment Project (CDEP)
  • To payees in the Seasonal Worker Program
  • To individuals in the horticultural or shearing industry
  • To household employees such as nannies, cleaners or carers
  • To preforming artists by their agents, advertising agencies and advertiser
  • By religious institutions to a religious practitioner

Payments to building and construction industry contractors

The building and construction industry have varied rules around payments made to workers, either employees or contractors.  If you are in this industry, I urge you to spend some time working out what is required from you.

Most businesses in the building and construction industry use contractors.  The payments made to these contractors need to be reported to the ATO using the Taxable Payments Annual Report, this report is due by the 28th of August every year.

Payments to contractors under a voluntary agreement

If you use contractors in your business, usually you would not have to withhold tax from payments made to them, but they may request that you enter into a voluntary agreement for pay as you go (PAYG) withholding.

This is an agreement between you and your contractor to withhold tax from any payments made to them.  This helps them better manage their tax obligations.  If you have entered into an agreement like this with your contractor, then you are required to withhold either an amount set by the ATO (your contractor will have a letter stating this) or a flat rate of 20%.

Payments to Labour-Hire Workers

If you use workers from a labour-hire firm the you are not required to withhold money from their pay.  You will pay the labour-hire firm directly and they will pay the employees.

The labour-hire firm are then required to pay their workers at the same rates as employees would be under any other business and also withhold tax in the same way.

When a business doesn’t quote its ABN

Businesses are required to quote their ABN when they supply you with goods or services.  They way they would supply you with an ABN would be on their Tax Invoice that they give to you on the supply of said goods or services.

If they do not quote their ABN then you are required to withhold 49% from the payment to you make to them and send the withheld amount to the ATO.

You do not need to withhold from payments if any of the following apply:

  • The total amount payable is $75 or less, excluding GST
  • The supplier is under 18 years of age and the amount is less than $350
  • The goods or services are supplied through an agent who has quoted their ABN
  • The goods or services are wholly input taxed under GST
  • The entire payment you make is exempt income for the supplier
  • The supplier doesn’t need an ABN as they are not carrying out an enterprise in Australia
  • The supplier states in writing that they are making the supply as a private recreational pursuit or as a hobby or is wholly of a private or domestic nature

If you are unsure what you need to do, the best thing is to get the suppery to provide you with a statement as to why they did not quote an ABN on the supply of their goods or services.

So now you know what PAYG is, how to register for it and when you have to withhold it.  I would like to know of any unusual situations that you have come across that involves PAYG.

If you have any questions around anything we have been learning about in our Payroll Series of blogs then please feel free to email me or contact me on Facebook or Twitter.



Please note: I reserve the right to delete comments that are offensive or off-topic.

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