Guide for employers
Guide for employers
You may have tax and superannuation obligations if you employ or contract workers into your business, either full-time or part-time. This includes your family members and you, if you are a director. Your obligations may include:
- pay as you go (PAYG) withholding
- superannuation guarantee
- fringe benefits tax (FBT).
You have responsibilities from the day your employee (or contractor) starts working for you to the day they stop. You also have some responsibilities if you stop being an employer altogether.
Preparing to engage workers
If your business is about to engage workers (either employees or contractors) for the first time, you will need to know how to set up the necessary taxation and superannuation arrangements.
Worker's first day
When a worker starts work you will need to:
- determine whether they are an employee or contractor if you have not already done so
- provide employees with a Tax file number declaration (NAT 3092) and, if applicable, a Withholding declaration (NAT 3093), which they must complete and return to you
- provide a Standard choice form to employees who are eligible to choose a super fund - you can download a copy of our Standard choice form (NAT 13080)
- discuss with the worker if a voluntary agreement arrangement is appropriate.
Paying workers
On payday you will need to determine the rate of tax that you need to withhold from payments you make.
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Prepare ahead for super and FBT
While your super guarantee and fringe benefits tax payments are not linked to your workers' payday, you need to understand these payments, record keeping and reporting obligations and plan to meet them.
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Payments and reporting
Most reporting and payment responsibilities occur when you complete and lodge your activity statement, usually monthly or quarterly. An annual report and a balancing payment (or refund) may be required. Superannuation payments are required at least quarterly.
Worker's last day
When an employee or contractor stops working for you, you'll have final reporting and payment obligations. If they are eligible for an employment termination payment (ETP), you will have additional PAYG withholding obligations.
No longer an employer
Once you stop engaging workers, you need to ensure you have met all your final payment and reporting obligations. You also need to cancel your PAYG withholding registration.
Keeping records
Keeping employment and contractor records is an essential part of running your business and helps you to claim all your deductions. You must keep your records in an accessible form (either printed or electronic) for five years.
Overview
Preparing to engage workers
Employee or contractor
Pay as you go (PAYG) withholding
Super
Fringe benefits tax (FBT)
Expenses you can claim
Setting up a workplace giving program
Worker's first day
Pay as you go (PAYG) withholding
Super
Fringe benefits tax (FBT)
Paying workers
Payments and reporting
Pay as you go (PAYG) withholding payments and reporting
How to pay and report amounts you withhold
Annual PAYG withholding reports
Worker's annual payment summaries
Fringe benefits tax (FBT) payment and reporting
Superannuation payments
Worker's last day
Pay as you go (PAYG) withholding
Employment termination payments (ETP)
No longer an employer
Keeping records
If you are thinking about engaging workers, there are a few things you will need to think about and organise to meet tax and super obligations.
Employee or contractor
Determine whether your workers are employees or contractors. It is important you know the difference between the two because your tax and super obligations will vary, depending on whether your worker is an employee or contractor.
Pay as you go (PAYG) withholding
When you pay employees or contractors, you may need to withhold tax from their pay and send these amounts to us regularly. You will need to withhold tax from:
- employees
- contractors who have a voluntary agreement with you
- contractors who do not provide you with an ABN.
Super
You need to pay superannuation for both your employees and for any contractors you are paying primarily for their labour. You need to establish your default super fund. You also need to understand about super choice arrangements.
Fringe benefits tax (FBT)
When you provide fringe benefits to your employees or to their associates, such as payment of school fees, you may have to pay FBT. When you provide benefits to contractors you will generally not attract FBT.
When benefits are provided by an associate of yours or a third party under an arrangement with you, you may also have to pay FBT.
Expenses you can claim
Most of the expenses you incur as a result of engaging workers are eligible tax deductions.
Setting up a workplace giving program
You may consider setting up a workplace giving program to allow your employees to regularly donate to charities.
Your tax and super obligations are different depending on whether your worker is an employee or a contractor.
Employees work in your business and are part of your business.
Contractors run their own business and provide services to your business.
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Just because a worker has an ABN does not mean they will be a contractor for every job or working arrangement. The specific terms and conditions under which the work is performed need to be considered to determine whether the worker is an employee or contractor.
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Use our online Employee/contractor decision tool and get an answer about whether your worker is an employee or contractor. It is free, anonymous and easy to use.
After answering some simple questions about your working arrangement, you will receive a report that tells you:
- whether your worker is an employee or contractor (you can save this or print it for your records)
- about the tax and super obligations you need to meet.
When you pay employees or contractors, you may need to withhold tax from their pay and send these amounts to us regularly.
As an employer, the most common types of payments you need to withhold tax from include:
- employee wages, salary, commissions, allowances and bonuses
- payments to company directors and company office holders
- payments to individuals under labour hire arrangements
- employment termination payments or compensation payments
- sickness or accident payments
- payments to contractors who have a voluntary agreement with you
- payments to contractors who do not provide an Australian business number (ABN).
What you need to do
You may register once you know that you will be required to withhold an amount and you must apply to register by the day on which you are first required to withhold an amount from a payment.
If you don't already have an Australian business number (ABN), you can register for PAYG withholding at www.abr.gov.au at the same time as you apply for an ABN, using the same form.
If you have an ABN, you can register for PAYG withholding:
- online through the Business Portal at www.bp.ato.gov.au (you will need an AUSkey or ATO digital certificate)
- online through the Australian Business Register at www.abr.gov.au (you will need an AUSkey or ATO digital certificate)
- by phoning 13 28 66
- by completing Add a new business account (NAT 2954) (send your completed form to the address shown on the form)
- through your tax advisor.
In certain circumstances you can register for PAYG withholding without having to obtain an ABN. This is generally for domestic employees - for example, nannies. You will be issued with a withholding payer number (WPN).
As an employer, you must pay super for your eligible employees and certain contractors. This is called the super guarantee. Your employees may also be eligible to choose the super fund you pay their super into.
Generally, super contributions made by the cut-off dates are tax deductible in the financial year you pay them.
What you need to do
To meet your superannuation obligations to your worker you need to:
- work out whether your worker is eligible for super guarantee and choice of fund
- nominate a default super fund, unless none of your workers are eligible for superannuation
- offer a choice of fund to eligible employees - for more information, refer to Choice of super fund
- pass on your employees' tax file numbers (TFN) to their super fund
- work out how much to pay and which complying super fund or retirement savings account to pay into
- pay at least quarterly by the cut-off dates - for more information, refer to Payments and reporting
- understand what you need to do if you don't pay the minimum amount of super by the cut-off dates - for more information, refer to Payments and reporting.
Worker eligibility
Generally, you have to pay super for an employee if they're between 18 and 69 years old (inclusive) and you pay them $450 or more (before tax) in salary or wages in a month. It doesn't matter whether the employee is full time, part time or casual. If your employee is under 18 years old then they must also work at least 30 hours per week to be eligible.
If your worker is a contractor and that contract is 50% or more for their labour and is based on hours worked rather than to achieve a result, then their eligibility for super is the same as that of an employee.
If your worker is a temporary Australian resident, they are entitled to super guarantee contributions under the same criteria as resident workers.
You must continue to pay super contributions in Australia for your worker if you send them to work temporarily in another country. You can apply for a 'certificate of coverage' so you won't have to pay super in the other country as well.
Nominate a default super fund
You must select a super fund that you will pay your worker's super guarantee payments into if they are not eligible for a choice of fund or elect not to choose a fund. The super fund you choose must:
- be a complying fund
- offer a minimum level of life insurance, as set out in the regulations (with some exceptions).
To make sure your nominated fund meets these requirements, check with the trustee or an authorised representative of the fund.
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You can check our register of complying super funds by visiting www.business.gov.au and selecting 'ABN Lookup' > 'Super Fund Lookup'.
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If you make super contributions under an award obligation they will usually count towards meeting your super guarantee obligations.
Employers pay fringe benefits tax (FBT) on certain benefits they provide to their employees or their employees' associates.
If you are a director and conduct your business through a company or a trust, you may be an employee of the company or trust. In this situation you will need to account for and pay FBT on any fringe benefits you provide to yourself.
Generally, benefits provided to contractors and volunteers don't attract FBT.
FBT is separate from income tax and is based on the taxable value of the fringe benefits provided.
Benefits can be provided by you, or they can be provided by an associate of yours or a third party under an arrangement with you.
Benefits include rights, privileges and services. For example, you provide a fringe benefit when you:
- allow an employee to use a work car for private purposes
- give an employee a cheap loan
- pay an employee's private health insurance costs
- provide cleaning services for an employee's private residence
- reimburse a non-business expense incurred by your employee (such as school fees or private health insurance)
- provide entertainment by way of food, drink or recreation.
What you need to do
If you provide fringe benefits you will need to:
- keep the necessary FBT records
- understand what benefits are exempt from FBT
- calculate how much FBT you have to pay
- register for FBT
- report fringe benefits on your employees' payment summaries
- lodge a return and pay FBT to the ATO.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.
When you engage workers in your business you will generally be eligible to claim deductions from your income tax return for expenses you incur in paying for:
- advertising or hiring
- vehicle, phone, office and other expenses
- wages, allowances, commissions and bonuses
- contractors and intermediaries - for example, a labour hire firm
- superannuation to your eligible employees and contractors
- fringe benefits, including any fringe benefits tax (FBT) you pay.
You may consider setting up a workplace giving program to allow your employees to regularly donate to charities.
Workplace giving is a simple and effective way for employees to regularly donate to charities or organizations that are entitled to receive tax deductible donations and have deductible gift recipient (DGR) status.
Workplace giving is optional. Both the employee and the employer must agree to participate.
If you establish a workplace giving program, you need to be aware of the resulting PAYG withholding implications, including:
- you do not have to reduce the amount of tax you withhold from your employees' salaries
- you have the right to decide on a minimum amount of donation per pay you are prepared to deduct from your employees' income
- in some circumstances, small donation amounts will result in minimal or no change to the amount of tax to be withheld from each pay.
Worker's first day
When your worker begins working for you there are a few things you will need to do to meet tax and super obligations.
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If you haven't done so already, you need to determine whether your new worker is an employee or contractor; see Employee or contractor.
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Pay as you go (PAYG) withholding
If you make payments from which withholding is required - for example, wages to employees or payments to businesses that do not quote an Australian business number (ABN) - you must register with the ATO before you first withhold.
Super
When your worker first starts, you need to determine whether they are eligible for the super guarantee and what fund you will make payments to on their behalf.
Fringe benefits tax (FBT)
You need to decide whether you will provide any fringe benefits to your new worker.
If your new worker is an employee, you need to collect details from them and set up the necessary records. If your worker is an independent contractor, you should consider whether they will work under a voluntary agreement and therefore whether or not you have PAYG withholding obligations.
Employee
If your new worker is an employee, you will need to:
Contractor
If your new worker is a contractor they may want you to withhold amounts from payments you make to them. If you agree to do this, we refer to the arrangement as a voluntary agreement. If you enter into a voluntary agreement with your contractor you will need to:
If you enter into a voluntary agreement with a contract worker, you must withhold amounts from payments you make to them, as detailed in the agreement. This helps the worker pay their income tax.
You cannot enter into a voluntary agreement if a worker's payment is covered by another specified PAYG withholding category - for example, if the worker is being paid as an employee or under a labour hire arrangement.
A voluntary agreement can cover a specific task or apply to successive arrangements between you and the worker. Either you or the worker can end a voluntary agreement at any time by notifying the other in writing.
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Both you and the contractor must keep a copy of the voluntary agreement while it is in force and for five years after the last payment is made under the agreement. You don't have to send a copy to us.
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For more information about completing a voluntary agreement, refer to PAYG withholding - voluntary agreements (NAT 3063).
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If you don't enter into a voluntary agreement you don't have any PAYG withholding obligations for contractors unless they fail to quote their ABN when they invoice you for their services. In this case you will need to:
You need to determine whether your worker is eligible for the super guarantee. You also need to determine if your worker is eligible to choose their super fund. If they are, you should check they have selected a complying fund and then act on their choice.
Eligibility for the super guarantee
Generally, you have to pay super for any employee (and contractor if the contract is mainly for their labour - that is, their labour makes up more than 50% of the contract), who:
- is between 18 and 69 years old (inclusive)
- in a month, you pay $450 or more (before tax) in salary, wages or the labour component of payments to a contractor
- works full-time, part-time or on a casual basis.
You'll also have to pay super for an employee who is under 18 years old if:
- you pay them $450 or more (before tax) in salary or wages in a month
- they work full-time, part-time or on a casual basis for more than 30 hours in a week.
Choice of super fund
Many employees are entitled to choose the super fund into which their employer super contributions are paid. You need to identify if your employee is eligible or not eligible to choose a super fund.
Act on your employee's choice
Having determined that your employee is eligible to choose their super fund, you should give them a copy of our Standard choice form (NAT 13080) to complete.
When you offer your employee a choice of super fund, you must tell them the name of the fund you will pay their super to if they don't choose a fund - that is, your employer-nominated super fund (or default fund). You provide this information to your employees by completing section B of the Standard choice form.
It they do select a fund, you need to make sure their nominated fund is a complying super fund by visiting www.business.gov.au and selecting 'ABN Lookup' > 'Super Fund Lookup'.
If a new employee tells you their tax file number (TFN) by completing a Tax file number declaration form, you must pass their TFN on to their super fund. There are penalties if you don't.
Once an eligible employee chooses a super fund, you have two months to arrange to pay contributions into that fund.
If your employee does not choose a fund, you must pay the super contributions for that employee into the fund you've nominated.
Your employee is entitled to choose their super fund if they are:
- employed under a federal award
- employed under a former state award, now known as a notional agreement preserving state award (NAPSA)
- employed under an award or industrial agreement that does not require super contributions
- not employed under any state award or industrial agreement (including contractors who are regarded as eligible employees for super).
Who is not eligible to choose a super fund?
Your employee is not entitled to choose their super fund if you're already paying super contributions for them under or in accordance with:
- a state industrial award
- a preserved state agreement
- a federal industrial agreement such as
- an Australian workplace agreement (AWA)
- a pre-reform AWA
- a collective agreement
- a pre-reform certified agreement (CA)
- an old industrial relations (IR) agreement
- an individual transitional employment agreement (ITEA)
- a workplace determination, or
- an enterprise agreement
- an award or agreement that stipulates a super fund that contributions are to be paid to.
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If you're not sure what, if any, award or industrial agreement covers your employee:
- visit the Fair Work Ombudsman website at www.fairwork.gov.au
- phone the workplace relations department in your state or territory
- check with your employer association.
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Employers - home
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If your new worker is an employee, you will need to:
- determine whether you will provide any fringe benefits to them and if so, keep the necessary FBT records
- consider whether you will enter into a salary sacrifice arrangement with them - if so, you need to ensure the arrangement is agreed between you and the employee and that it is documented.
On payday you will need to determine the rate of tax that you need to withhold from payments you make.
For each worker payment period, you will need to:
Employees
To work out the amount to withhold from payments you make to your employees, use the:
Variations to the amount to withhold
An employee may request adjustments to their withholding because of their liabilities or entitlements. Their circumstances may also need to be considered. These liabilities, entitlements and circumstances include:
- back payments
- Higher Education Loan Program (HELP) or financial supplement debts
- tax offsets
- Medicare adjustments
- withholding for additional pays in the year
- variations either upwards or downwards
- workplace giving
- employees working overseas
- employees who are foreign residents
- personal services income.
Contractors under a voluntary agreement and contractors who have not quoted an ABN
If your contractor has not provided their ABN on their invoice, generally you will need to withhold at the top rate plus Medicare levy (currently 46.5%).
If you enter into a voluntary agreement with a contractor, you must withhold amounts from payments you make to them, as detailed in the agreement. This helps the worker pay their income tax.
To make a voluntary agreement with a contractor, you can use the form Voluntary agreement for PAYG withholding (NAT 2772).
The amount you must withhold under a voluntary agreement is either of the following:
- the worker's PAYG instalment rate, called the Commissioner's instalment rate (CIR), as notified by us, or
- a flat rate of 20%, as shown in the following table.
If the CIR instalment rate is
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use
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more than 20%
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the CIR instalment rate
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less than 20%
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20% rate (unless you both agree to use the instalment rate)
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not known when agreement is made
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20% rate
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To work out how much to withhold, multiply the contractor's invoiced amount by the withholding rate specified in the voluntary agreement.
Payments and reporting
The following table summarises payments and reports that can arise from engaging workers. Detailed information follows in the sections below which can help you to work out which of these payments and reports are relevant to your circumstances.
Report and/or payment
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to whom
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when
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Payslip - include PAYG withheld amount
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employee
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employee payday
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Payment summary
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employee
some contractors
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annual
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PAYG withholding payments & reporting
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ATO
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quarterly on BAS for small employment withholders
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monthly on supplied form for medium withholders
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twice-weekly electronic payment and report for large withholders
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PAYG withholding annual reports
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ATO
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annual
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Superannuation payments
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superannuation fund
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at least quarterly
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Superannuation guarantee payment and reporting
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ATO
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employer who failed to pay superannuation by due date
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FBT instalment payment
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ATO
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annual for smaller FBT payer
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quarterly on BAS for larger FBT payer
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FBT return
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ATO
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annual by 21 May
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Pay as you go (PAYG) withholding payments and reporting
You pay and report the amounts you withhold by completing an activity statement. How often this needs to be submitted each year depends on the size of your withholding. You must also submit an annual report to us and provide your workers with annual payment summaries. If you are a large withholder, you must pay the amounts you withhold to us electronically.
Fringe benefits tax (FBT) payment and reporting
If you have to pay fringe benefits tax (FBT) you will need to register with us.
Fringe benefits are reported on your:
- employees' payment summaries
- annual FBT return
- business activity statements (if you have to pay FBT quarterly).
You pay FBT either with your activity statements or annually when you lodge your FBT return.
Superannuation payments
You must pay super guarantee contributions for each eligible employee and contractor at least four times a year.
How to pay and report amounts you withhold
You report and pay amounts you withhold to us by completing an activity statement. If you are a large withholder, you must pay the amounts you withhold to us electronically. The due date for paying amounts you withhold to us depends on whether you are a small, medium or large withholder.
Annual PAYG withholding reports
At the end of each financial year, you must lodge your PAYG withholding annual report to us detailing the total payments you made to your workers and how much you have withheld from those payments.
Worker's annual payment summaries
You need to provide your workers with an annual payment summary detailing the total payments you made to them in the financial year and how much you have withheld from those payments.
The due date for paying amounts to us that you have withheld from your workers pay may be quarterly, monthly or twice weekly. This depends on whether you are a small, medium or large withholder. For small and medium withholders, the activity statement we send you will arrive according to your particular schedule and will show you when your next payment is due. If you are a large withholder, you must pay the amounts you withhold to us electronically, generally twice weekly.
You report amounts you withheld by completing label W on the activity statement and lodging it with us by the due date printed on the top right-hand corner.
If you have not withheld any amount for a reporting period, you don't have to report amounts at labels W2 to W5. However, you must still report any other obligations you have, sign and date your activity statement, and return it to us by the due date printed in the top right-hand corner.
Small withholders
You are a small withholder if you are an individual or business that withholds $25,000 or less a year. You must report and pay the amount you withhold to us quarterly. We will send you an activity statement each quarter that shows when your withholding report and payment is due.
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If you are a small withholder, you can choose to pay the amounts you withhold to us monthly if you wish. To arrange this, phone us on 13 28 66. You can still pay other tax amounts, such as GST and fringe benefits tax, quarterly if you wish.
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Medium withholders
You are a medium withholder if you are an individual or business that withholds $25,001 to $1 million a year. You must generally report and pay any amount you withhold to us monthly. We will send you an activity statement each month that shows when your withholding report and payment is due.
Large withholders
You are a large withholder if you have withheld amounts totalling more than $1 million in a previous income year or are part of a company group that has withheld more than $1 million in a previous income year. If you are a large withholder, you must pay the amounts you withhold to us electronically, generally twice weekly.
How to pay the amounts you withhold to us
You can pay the amounts you withhold to us using any of the following methods.
- BPAY®
- credit card
- direct credit
- direct debit
- mail (small and medium withholders only)
- at an Australia Post outlet (small and medium withholders only).
® Registered to BPAY Pty Ltd ABN 69 079 137 518
The PAYG payment summary statement along with all the payment summaries you issued for the financial year make up your PAYG withholding annual report.
At the end of each financial year you must lodge your PAYG withholding annual reports to us, either in paper form or electronically. They will include:
- all payments you have made to employees, workers or businesses during the financial year
- the amounts you withheld.
You need to give those workers from whom you have withheld tax an annual payment summary, one that details the total payments you made to them in the financial year and which shows how much you have withheld from those payments. These payment summaries may be either electronic or in paper form.
You may have to report the taxable value of the fringe benefits you provide on your worker's payment summary.
You may have to report super contributions made by you on your employee's behalf if they are greater than the superannuation guarantee amount or the amount you are required to make as a result of their employment award.
You may have to complete various types of payment summaries, depending on the types of payments you have made throughout the financial year. The following table shows different types of payment summaries, who they are for and when to provide them.
Type of payment summary
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Who this payment summary is for
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When to give this payment summary
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PAYG payment summary - individual non-business
(NAT 0046)
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employees, company directors and office holders to whom you pay salary and wages, pension payments, compensation, allowances or other payments
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by 14 July
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PAYG payment summary - foreign employment
(NAT 73297)
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employees who have had amounts withheld from foreign employment income and income earned for work in the Joint Petroleum Development Area
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by 14 July
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PAYG payment summary - business and personal services income
(NAT 72545)
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workers, other than employees, who have a voluntary agreement with you to withhold amounts from payments you make to them
workers you engaged under a labour hire arrangement - for more information, refer to PAYG withholding and labour hire firms
certain other workers, such as performing artists, to whom you paid specified payments
individuals from whose personal services income you have to withhold amounts.
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by 14 July
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PAYG payment summary - withholding where ABN not quoted (NAT 3283)
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where no ABN has been quoted by a contractor
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by 14 July
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PAYG payment summary - employment termination payment
(NAT 70868)
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employees to whom you have made an employee termination payment - for more information, refer to Worker's last day
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within 14 days of making the payment.
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You must self-assess your fringe benefits tax (FBT) liability each FBT year (which runs from 1 April to 31 March).
If you have to pay FBT you will need to:
- register for FBT if you have not already done so
- report fringe benefits on your employee' payment summaries
- report and pay your FBT liability to us by 21 May.
Reporting your FBT
If you paid $3,000 or more FBT in the previous year, you will have to report and pay FBT each quarter in your activity statement.
If you are in your first year of providing fringe benefits that attract FBT, or your previous year's FBT liability was less than $3,000, you will report and pay FBT by 21 May.
Paying your FBT
We offer you a range of convenient payment options to pay your FBT obligations, both in Australia and overseas.
Your payment needs to reach us on or before its due date. Please check your financial institution's processing deadlines to avoid making a late payment.
You must pay a minimum of 9% of each eligible worker's ordinary time earnings each quarter.
For super guarantee purposes, your workers include your employees and any contractors you engage wholly or principally for their labour.
Ordinary time earnings (OTE) is usually the amount your employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but doesn't include overtime payments.
For contractors, use the labour component of their contract as the basis for their OTE.
Super is calculated quarterly - that is, every three months. For each of your eligible workers:
- multiply their ordinary time earnings for the quarter by 9%
- pay this amount to a complying super fund or retirement savings account by the quarterly cut-off date.
If you back-pay salary or wages to a former employee you have to pay super contributions on that back pay.
You can claim a full tax deduction for super payments you make for employees under 75 years old by the cut-off date.
When to pay
You have to pay super guarantee contributions for each eligible worker at least four times a year. Payments must be made by the quarterly cut-off dates:
Quarter
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Period
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Payment cut-off date
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1
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1 July - 30 September
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28 October
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2
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1 October - 31 December
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28 January
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3
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1 January - 31 March
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28 April
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4
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1 April - 30 June
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28 July
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What you must do if you haven't met your obligations
If you haven't met your super obligations as an employer, you have to lodge a Superannuation guarantee charge statement - quarterly and pay a super guarantee charge to us.
You'll have to do this if you:
- don't pay enough super contributions (at least 9% of ordinary time earnings) for your worker - this is called a super guarantee shortfall
- don't pay super contributions by the quarterly cut-off date for payment
- don't pay super to your worker's chosen super fund - this is called a choice liability.
The super guarantee charge is made up of the super guarantee shortfall amounts (including any choice liability), interest at 10% per annum, and an administration fee of $20 per worker per quarter.
Also, your business will lose the tax deduction it would normally get. Late super contributions and the super guarantee charge are not tax deductible.
Worker's last day
When your worker ceases to work for you, there are no special fringe benefit tax (FBT) or superannuation requirements, other than to remember to include any obligations that relate to them in your next superannuation and FBT payments and reports.
However, there are specific obligations with regard to PAYG withholding and any employment termination payments (ETP) you make to them.
Pay as you go (PAYG) withholding
When an employee (or contractor who has been operating under a voluntary agreement) stops working for you, you have a number of PAYG withholding obligations.
Employment termination payments (ETP)
If your employee is eligible to receive an employment termination payment, you will have additional PAYG withholding obligations.
When an employee (or contractor who has been operating under a voluntary agreement) stops working for you, you have a number of PAYG withholding obligations.
Employee
When an employee ceases employment with you, you must:
If the employee is eligible for an employment termination payment (ETP), you will have additional withholding obligations. For more information, refer to Employment termination payments (ETP).
Contractor
When a contractor ceases their contract with you, you must make any final PAYG withholding payments and keep the necessary PAYG withholding records
For contractors under a voluntary agreement, you will also need to:
- forward a business and personal services income payment summary to the contractor by 14 July, or earlier if requested
- include the details of any final payments made to them in your PAYG payment summary statement.
An employment termination payment (ETP) is a lump sum payment you make to an employee when they stop working for you. ETPs are taxed at different rates depending on your employee's age and length of employment.
An ETP must generally be made within 12 months of your employee's termination in order to qualify for lower rates of tax. There is a limit on the amount of an ETP that qualifies for a lower rate of tax. This limit is called a cap. For ETPs made after 1 July 2012, two different ETP caps can apply:
- The whole of income cap is a non-indexed cap that applies to some ETP and works in conjunction with the ETP cap.
- The ETP cap that applies to all ETP and has a threshold that is indexed each year.
An ETP may include:
- payment in lieu of notice
- a gratuity or 'golden handshake'
- compensation for the loss of a job
- compensation for wrongful dismissal, provided it is paid within 12 months of the actual termination of employment
- payments arising from your employee's termination because of ill health (invalidity), other than compensation for personal injury
- payments you made for genuine redundancy or under an early retirement scheme that exceed the tax-free part
- unused rostered days off
- unused sick leave
- certain payments after the death of an employee.
An ETP does not include:
- payments for unused annual leave or leave loading
- payments for unused long service leave
- salary, wages, allowances, bonuses and incentives you owe the employee for work done or leave already taken
- compensation for personal injury
- payment for restraint of trade
- foreign termination payments
- employee share scheme payments
- an advance or loan
- payments you made for genuine redundancy or under an early retirement scheme that are within the tax-free limit.
What you need to do
If you pay your employee an ETP, you must:
If you cease to be an employer there are no special requirements with regard to superannuation. However you will need to notify the ATO if you were previously withholding PAYG or paying FBT and will no longer be doing so.
Pay as you go (PAYG) withholding
If you cease to be an employer, you should cancel your registration for PAYG withholding.
Fringe benefits tax (FBT)
If you do not wish to remain registered for fringe benefits tax, you need to advise us by completing either a final Fringe benefits tax return (NAT 1067) or a Fringe benefits tax - notice of non-lodgment (NAT 3094).
If you need to pay FBT or if you have paid FBT instalments for the current year, you should lodge an FBT return.
The non-lodgment advice is suitable for cases where there are no payments to be made or instalments to be refunded.
All employee and contractor records must be kept for five years.
We provide a free, interactive software program that will help you understand what records you need to keep, including those related to your workers. It also evaluates whether your record-keeping practices are adequate.
We cannot access the information you enter in the tool.
Records may be paper or electronic. They must be in English. If you do decide to keep electronic records, make sure you choose a software package that meets your business needs and our requirements.
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For more information, refer to Record keeping for small business (NAT 3029).
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Other regulatory bodies may have different record-keeping requirements from ours, particularly around how long you have to keep records.
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Employer record keeping
For employees or contractors, you need to keep:
- copies of tax file number declarations or withholding declarations
- copies of any contracts you have with contractors
- records of wages, allowances and other payments made to workers
- copies of payments and reports provided to the ATO
- copies of payment summaries
- super records, including payments you made and records that show you have met your choice of super fund obligations
- records of fringe benefits provided, tax calculations, worksheets, declarations, elections and supporting details.
Super records
You must keep records that adequately explain your super transactions, including documents that show how you calculated the amount of super you contributed for each employee. If you make super contributions under an award or employment agreement, you may have additional record-keeping obligations, so check your relevant award or regulation.
You also need to keep records that show you've met your choice of super fund obligations. These include:
- details of employees who do not have to be offered a choice of super fund (for example, if an employee is not eligible to choose a fund because the certified agreement they are employed under requires super support to be provided to a specified super fund, you need to keep this information)
- records confirming that the super fund meets the insurance requirements (these could include a copy of the product disclosure statement provided by the fund or a record of a phone conversation with an authorised representative of the fund about the level of insurance it offers)
- records showing that you have provided the Choosing a super fund - How to complete your Standard choice form (NAT 13080) to all eligible employees.
- written information an employee provided when they nominated their chosen fund or retirement savings account
- receipts or other documents issued by funds showing that you have made super contributions for employees to their chosen fund.
For more information, refer to:
Fringe benefits tax (FBT) records
You must keep records that are adequate to enable your FBT liability to be assessed. You need to keep records that show:
- the taxable value of each fringe benefit provided to each employee and how it was determined
- the justification of claims for exemptions or concessions that reduce your FBT liability
- the fringe benefits provided by an associate (that associate is required to supply these records within 21 days of the end of the FBT year).
Last Modified: Monday, 8 October 2012
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