According to the Australian Chamber of Commerce’s 2013 publication on small business, of the 10.6 million people employed in the private non-financial sector in Australia, 42% were employed by small businesses. That’s a stunning 4.45 million people employed by small businesses across Australia.

There’s no doubt that employing staff can be highly beneficial to a business and is generally the key to expansion and growth, but it can also be a minefield for small businesses who are often lacking in either knowledge or capacity when it comes to addressing employment obligations.

In this article, we give a brief overview of employers’ obligations (tax and other) so your business can be prepared, and the employment experience is a smooth one.

What should you be paying your employees?

An employee’s entitlements are determined by their employment agreement. Employment agreements may come in various forms:

• An Award (standard industry or occupation-based awards determined by the Fair Work Commission);
• A Registered Agreement (an agreement between an employer and their employees regarding employment conditions, which must be approved by and registered with the Fair Work Commission);
• An Employment Contract (an agreement directly between an employer and employee that sets out terms and conditions of employment).

The minimum entitlements for employees in Australia are made up of:

• The national minimum wage; and
• The National Employment Standards (NES).

An award, employment contract, enterprise agreement or other registered agreement can’t provide for conditions that are less than the national minimum wage or the NES, or exclude the NES.

The minimum wage is determined annually by the Fair Work Commission. From 1 July 2017, the national minimum wage was increased by 3.3% to $18.29 an hour ($694.90 per week).

The National Employment Standards (NES) are 10 minimum employment entitlements that have to be provided to all employees and cover:

• Maximum weekly hours;
• Requests for flexible working arrangements;
• Parental leave and related entitlements;
• Annual leave;
• Personal carers leave and compassionate leave;
• Community service leave;
• Long service leave;
• Public holidays;
• Notice of termination and redundancy pay; and
• The Fair Work Information Statement.

In addition to the NES, employees may be covered by a modern award, which provide additional enforceable minimum employment standards for particular industries or occupations. Modern awards may contain terms about minimum wages, penalty rates, types of employment, flexible working arrangements, hours of work, rest breaks, classifications, allowances, leave and leave loading, superannuation, and procedures for consultation, representation, and dispute settlement. They may also contain terms about industry specific redundancy entitlements.

Tax and employment

A TFN Declaration form must be completed for each new employee and provided to the ATO within 14 days.

PAYG Withholding is tax that an employer must withhold from their employees’ wages and pay directly to the ATO. The amount to withhold must be calculated using the ATO’s tax tables (these can be found on the ATO’s website) and paid to the ATO on a regular basis (timing dependent on the employer’s PAYG Withholding cycle).

Payroll tax is payable by employers who pay wages above the payroll tax threshhold. Payroll tax is a state-based tax payable on the total amount of wages over the threshhold amount. The payroll tax threshhold and payroll tax rate in NSW for the 2017-18 financial year are $750,000 and 5.45% respectively. Note that the threshhold in each state may be reduced if you also employ workers in other states.

Superannuation

There are effectively three types of super contributions you might pay for an employee:

• Superannuation Guarantee (compulsory employer super contributions);
• Salary Sacrifice Super (deducted out of your employee’s pre-tax wages); and
• Personal super contributions (deducted out of your employee’s post-tax wages).

The super guarantee rate is currently 9.5% of an employee’s ordinary time earnings. “Ordinary time earnings” include most payments to employees that are in respect of their employment, but exclude amounts paid in relation to overtime. The following are some of the payments that are most commonly misclassified when determining the amount of superannuation guarantee due:

Ordinary Time Earnings

• Salary and wages for normal hours
• Annual leave, sick leave or long service leave paid for leave taken
• Performance bonuses
• Christmas bonus
• Allowance by way of unconditional extra payment
• Workers’ compensation payments (where returned to work)

Not Ordinary Time Earnings

• Pay for overtime hours worked
• Unused annual leave, sick leave or long service leave paid out on termination.
• Parental leave
• Ancillary leave (e.g. jury duty)
• Bonus in respect of overtime only
• Expense allowance expected to be fully expended
• Workers’ compensation payments (where not working)

There is a limit on the amount of super guarantee you are required to pay for an employee, calculated by reference to the “maximum super contributions base”. The maximum super contributions base for the 2017-18 financial year is $52,760 per quarter, meaning the maximum super guarantee you are required to pay for an employee for any given quarter is $5,012.20. The equivalent annual salary at which the maximum contributions base kicks in is $211,040.

New employees must complete a Superannuation Standard Choice Form (ATO form NAT 13080) to advise their employer of the superannuation fund into which they would like their super contributions to be made.

Any contributions (excluding after-tax super contributions) made for an employee in excess of the required superannuation guarantee are “Reportable Employer Superannuation Contributions” (known as “RESC”) and must be reported on the employees annual PAYG Payment Summary.

All businesses (except those employing only related parties) must now be SuperStream compliant. This is the new electronic method of reporting and paying employee superannuation.

Directors’ penalties

The director penalty regime was introduced in 2012. It applies only to directors of a company and is designed to ensure that directors are held responsible for a company meeting its tax and super obligations with respect to its employees.

If a company does not meet its PAYG withholding and superannuation guarantee charge (SGC) obligations, the ATO can recover these amounts from the director(s) personally.

Contractor vs Employee

The determination of whether a payee is a contractor or employee is relevant to many aspects of employment, including the requirement to withhold tax, pay superannuation guarantee, inclusion of the payee’s wages in payroll tax calculations, and for workers’ compensation purposes.

In short, there is an argument for substance over form, whereby a person whose relationship with the employer is effectively as an employee, is treated as an employee for the above purposes, even if their contractual arrangement is in the form of a contractor relationship.

There are many factors to consider in determining a payee’s correct classification. If you are un-sure, you should always consult a professional adviser.

Workers’ Compensation

Workers’ compensation is a compulsory statutory form of insurance for all employers in every state and territory in Australia and provides protection to workers if they suffer a work-related injury or disease.

Any business that employs or hires workers on a full-time, part-time or casual basis, under an oral or written contract of service or apprenticeship, must have workers compensation insurance that covers all workers. There are some exceptions – In NSW, an employer is exempt if the total wages paid by the business annually is below the minimum ($7,500 in NSW) and the business does not employ an apprentice or trainee and the business isn’t a member of a group for premium purposes.

Workers compensation schemes are state-based and have differing rules (which can be checked on the scheme regulator’s website in that state).

Things to ensure when arranging workers’ compensation insurance and annual declarations:

• Your policy is in the correct entity’s name (the legal name of the entity employing workers);
• Your policy cover is for the correct state (generally, where your employees are working);
• You declare the correct type of activities (can affect your premium and ability to claim);
• You report wages for all workers deemed to be employees;
• You report the correct amount of wages (check the definition of wages for your state. Generally, “wages” for workers’ compensation purposes includes superannuation, commissions, bonuses and many contractor payments).

Falsely or incorrectly declaring certain details in your policy application or annual declarations can result in future claims being either delayed or denied.

Payroll being a pain? Whether it’s processing pay-runs, processing quarterly super, salary calculations for new or terminated employees, or preparing annual PAYG Payment Summaries – when it comes to payroll obligations, we’ve got you covered.

Catalyst Financial can assist you with any of the above payroll tasks and much, much more. Give us a call to find out how we can help you!