Most small businesses get to a point where they are too busy to keep up with their workload and either need to start saying no to more work or employing people. So what happens if you decide to employ people? What is involved in that?
Have you ever jumped on the Fair Work website? www.fairwork.gov.au or the ATO website – https://www.ato.gov.au/business/employers/preparing-to-engage-workers/ and had a look at what is involved in employing staff? I have many times but have only done a quick search for a specific thing that I needed to know at the time. Both these websites are awesome for this. You can do a quick search and find exactly what you are looking for in no time at all. But if you actually have look at the websites in depth you could get quite overwhelmed by what you need to know and understand when employing staff.
So I have decided that today’s blog will take you through a quick rundown of what you need to do when first employing staff.
Can you afford it?
Yes I know, you are swamped and working 18+ hour days, you could really do with someone to help you so you can drop back to 8 or 10 hour days, but is this a viable option?
When employing staff there is not just their hourly rate that you need to consider, you also have to think about their Superannuation, WorkCover, Payroll Tax (if you are over the threshold for this), Sick Leave, Annual Leave Loading, Penalty Rates and probably a few I have missed here. I always advise my clients to add between 22.5% & 25% to their staff’s hourly rate to work out exactly what their payroll cost is for that staff member.
Then you have to look at – do they need a vehicle? Tools? Special Equipment? How much will all this cost to supply and maintain for them, cost it out and then break it down to an hourly rate.
Who is going to do the payroll process? Can you do it? Does your Accounting package support payroll or do you need to upgrade it? Or do you need your Bookkeeper or Accountant do it?
When you have sat and worked through all the above examples, you will then be able to work out if you can afford to employ a staff member. Sometimes this is a really hard decision because you may not be able to quite afford them, but if you don’t put someone on you wont be able to grow your business or you will wear yourself into the ground and end up sick and not be able to work.
Registering for PAYG
This is one of the first things you need to do once you have decided that you can afford to employ staff. PAYG stands for Pay As You Go Withholding, this is the tax that you withhold from your staff members pay each week and is paid to the ATO either monthly or quarterly. You must withhold tax (depending on the amount your staff members weekly Gross Wage is) from the first week of employment. Therefore you really need to register for PAYG on or before the first day someone starts working for you. This is done by either ringing the ATO or hoping on their website and registering online.
Registering for a Default Superannuation Fund
For every staff member who is paid more than $450.00 Gross per month you need to pay 9.25% of their Gross wage into their Superannuation fund. This amount is increasing over the next few years until in 2020 when it will be 12%. All businesses who employ staff must have a Default Superannuation fund that is a complying fund that offers a minimum level of life insurance and offers a MySuper Product. Most awards recommend a default super fund that is specific to that industry, so get out the award and have a read.
Register for WorkCover
It is illegal for employ staff without having a WorkCover Insurance Policy. WorkCover provides employers with insurance cover for the cost of benefits if your workers are injured or become ill because of their work. The fastest way to get a WorkCover Insurance Policy is to ring your Insurance Agency and discuss the matter with them. You can also do it online, so just Google it if this is the way you want to go.
Employee or Contractor?
This is a decision that not many of us have had to work out in the past, but it is becoming more and more specific. So before employing staff you will need to determine whether your workers are employees or contractors. There are different tax and super obligations for them both, so now is the time to work all this out, before you employ staff. You can jump onto the ATO website and sit a quick quiz to work out what your staff member is going to be classed as by the ATO if/when they do an audit. Here is the link – https://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/
Establish what Award you will be operating under or if you are going to have a Workplace Agreement instead.
Most businesses that employ staff will be specific to one industry, like Plumbing, Building, IT, Accounting, Teaching etc. Each industry has an award in which you need to operate under. If you do not operate under an award you may have an Enterprise Agreement. The difference between an Award and an Enterprise Agreement is that an award is a safety net of minimum conditions for the whole industry or type of Job, whereas an enterprise agreement is for one workplace only.
Once you have established if they will work under an award or an agreement you need to spend time reading the award and familiarizing yourself with you obligations as an employee.
National Employment Standards
The National Employment Standards were started on 1st January 2010 by the Government and cover everyone in the national workplace relations system. They are the 10 minimum conditions of employment and include minimum entitlements for leave, public holidays, notice of termination and redundancy pay. I strongly recommend that you spend some time familiarizing yourself with these standard before you employ staff.
Establishing a Position Description
Now you have established that you are having an Employee or Contractor and that you are either operating under the award or an agreement, you need to write a position description. A position description helps you establish in your mind exactly what that staff member will be doing for you. It helps the staff member understand the role and the requirements that you have on them.
Will they be full time? Part time? Casual? What is the difference between all these?
Putting together an Employee Pack
An employee pack is a must in my book. It is a pile of paperwork that you hand to the staff member prior to their first day so that they can fill out all the information that you need before they start so that you can set them up in your payroll program and advise the ATO. So in this pack you will need:
- National Employment Standards Fact Sheet
- Tax File Number Declaration Form
- Super Choice Form
- Information from your default super fund
- Employee Details form – to obtain banking details, address, phone numbers etc.
Letters of Employment
Once you employ someone you need to have them sign a letter of employment. A letter of employment is basically a summary of the terms and conditions that the employee will be working under and it establishes who their employment contract is between – themselves and you (or your company). The Fair Work Australia has some great examples of letters of employment so jump on there and have a look.
Now you are ready to employ someone, so you can go ahead and advertise or put the word out that you are looking for a staff member.
Question: What issues have you come across when employing staff?