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  • Tax and super when engaging an employee

    When you hire an employee, you need to meet your tax and superannuation (super) obligations.

    You can use the Hiring employees checklistExternal Link and Employment Contract ToolExternal Link to help you meet all your obligations as an employer under Australian law.

    On this page:

    Before an employee starts

    Tax and super information for when your employee starts working for you:

    • Confirm they are legally allowed to work in Australia      
      • Australian citizens, permanent residents and New Zealand citizens are legally allowed to work here.
      • If you believe the worker is a foreign national (other than a New Zealander), you must confirm they have a visa with permission to work. The Department of Home Affairs Employing legal workersExternal Link has more information..
       
    • Check whether they will be an employee or contractor  
      • Use the Employee or contractor decision tool.
      • It's important to get this right as it affects your tax, super and other obligations. Making a mistake might result in penalties and charges for your business.
       
    • If you're hiring someone on a working holiday visa (subclass 417 or 462) you must also register as an employer of working holiday makers before paying them.
    • Ask your employee to complete a Tax file number (TFN) declaration. They can complete this form:    
    • Register for pay as you go (PAYG) withholding to:  
      • withhold tax from your employees' wages
      • withhold tax from payments to contractors if they don't provide an ABN or have a voluntary PAYG withholding agreement with you.
       
    • If your employee is entitled to superannuation guarantee, check if they're eligible to choose a superannuation fund. If yes, ask them to complete the pre-filled Standard Choice Form through ATO online services within 28 days of their start date. They'll need to know:  
      • their employer's Australian business number (ABN)
      • their employment type – for example, full-time, part-time or casual
      • their employer's default super fund details:  
        • name
        • unique superannuation identifier (USI) of your nominated super fund
        • ABN.
         
      • Or, they can download a Standard choice form (or equivalent) within 28 days of starting, so they can nominate their preferred super fund    
        • Check they've nominated a complying fund.
        • If your employee gives you their TFN, you must give it to their super fund the next time you make a payment for them,or within 14 days, whichever is later.
        • You'll need to set up an electronic system in preparation for reporting and paying your first super contributions in the SuperStream standard.
         
       
    • You'll need to start keeping records about the employee so you can meet your tax and super obligations
    • Report your employees' payroll information through Single Touch Payroll (STP). You can report through STP-enabled payroll software or ask a third party to report for you
    • If you'll be providing fringe benefits to your employee or their associates, and have an FBT liability, you must register for fringe benefits tax (FBT)
    • If you're entering into a salary sacrifice arrangement or a workplace giving program with your employee, make sure it is agreed by both parties and documented
    • Check if you need to register for payroll taxExternal Link with your state or territory revenue office. You'll only need to do this if your total payments to employees and certain contractors exceed the threshold.

    See also:

    Next step:

    While an employee works for you

    Each pay period:

    Business activity statements (BAS):

    Each quarter:

    • work out how much super to pay for each employee using the SuperStream standard,
    • electronically report and pay super contributions by the due date (28 days after the end of the quarter). If you don't pay enough super for an employee by the due date, you may have to pay the super guarantee charge.

    Each year:

    • complete an end of year finalisation through STP of the information you've reported by 14 July. This should be part of your end of financial year reconciliation process
    • when you report and finalise employee information through STP you are exempt from:  
      • providing payment summaries to your employees
      • lodging a payment summary annual report.
       
    • for employee payments not reported through STP, you must still:    
    • if an employee is terminated, a payment summary must be provided within 14 days of an eligible employment termination payment (ETP) being paid.
    • if you provide fringe benefits to your employees:  
      • report these amounts through STP and include reportable fringe benefits on their payment summary by 14 July
      • lodge your FBT return by 21 May –iff a registered tax agent prepares your FBT return the lodgment arrangements may be different. Your tax agent will tell you
       
    • Keep records of the above.

    The following may also apply for some employees:

    • If your employee acquires a Higher Education Loan Program (HELP), Student Start-up Loan (SSL),Trade Support Loan (TSL) or Financial Supplement from the Australian Government after they start working for you, they must tell you by completing a withholding declaration –it might affect the amount you withhold
    • Services Australia may ask you to deduct child support payments from an employee's pay. If this happens, you'll receive an employer package telling you what to do. Child support deductions are not tax amounts, so you don't need to report them on payment summaries or income statements.
    • An employee may ask to change their choice of super fund. If it's:  
      • more than 12 months since their last choice, you must accept it
      • less than 12 months, you choose if you accept it.
       
    • If an employee gives you their TFN, you must give it to their super fund the next time you make a payment for them or within 14 days, whichever is the later
    • If you're a director you:  
      • have the same requirements for super guarantee and PAYG withholding as an employee
      • will be held personally responsible for the business's super and PAYG obligations if they aren't paid.
       

    See also:

    Next step:

    When an employee leaves

    • Work out if any part of your employee's final payment is an employment termination payment (ETP). ETPs are certain lump sum payments taxed at concessional rates, depending on your employee's age and length of employment.
    • For the part of the final payment that isn't an ETP:  
      • work out the pay as you go (PAYG) amount to withhold from the payment as you normally would, using the tax withheld calculator or tax tables online
      • send your employee an income statement or payment summary by 14 July, or earlier if requested.
       
    • For the ETP part of the final payment:    
    • Include details of the entire final payment, both the non-ETP and ETP components, in your PAYG payment summary annual report when you lodge it with us by 14 August.
    • Work out how much super to pay and pay the final contribution 28 days after the end of the quarter.
    • If you provided fringe benefits to the employee, include reportable fringe benefits in their final payment summary or income statement.
    • Keep records of the above as well as your former employee's TFN declaration for the current and next financial year.
    • Ensure the reason and manner in which your employee leaves is compliant with anti-discrimination laws.

    See also:

    Next step:

    Last modified: 16 Apr 2021QC 47989