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  • Tax and super when engaging an employee

    When you take on an employee, you will need to ensure you meet your tax and super obligations.

    If this is the first time you have hired a worker, you can use the Hiring employees checklistExternal Link on the business.gov.au website to help you meet all your obligations as an employer under Australian law.

    On this page:

    Before an employee starts

    This is tax and super information for when your employee begins 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 explains how.
       
    • Check whether they will be an employee or contractor
      • You can use the Employee/contractor decision tool.
      • It's important you get this right – it affects your tax, super and other obligations. If you get this wrong it could 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 making your first payment to them
    • Ask your employee to complete a Tax file number (TFN) declaration. They can complete this form either  
    • 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 quote 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 (super) fund. If yes, ask them to complete the pre-filled Standard Choice Form through our ATO online services, within 28 days of their start date. You'll need to give them
      • Employer's Australian business number (ABN)
      • employment type (for example full time, part time, casual)
      • employers 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 them starting, so they can nominate their preferred super fund  
        • check that the fund they've nominated is a complying fund
        • if your employee gives you their tax file number, 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)
        • you'll need to set up an electronic system in preparation for reporting and paying your first super contributions in the SuperStream standard.
         
       
    • Start keeping records about the employee. You'll need these to 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:

    Each Business activity statement (BAS):

    Each quarter:

    • work out how much super to pay for each employee
    • using the SuperStream standard
      • report and pay super contributions by the due date (28 days after the end of the quarter) electronically
      • 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:

    • by 14 July – Complete an end of year finalisation through STP of the information you've reported. This should be part of your end of financial year reconciliation process.
    • When you have reported and finalised your employees' information through STP, you are exempt from:
      • providing payment summaries to your employees
      • lodging a payment summary annual report.
       
    • For payments to your employees that were not reported through STP, you still need to:  
    • If an employee is terminated a payment summary must be provided within 14 days of an Eligible Termination Payment (ETP) being paid.
    • If you provide fringe benefits to your employees
      • by 14 July –report these amounts through STP and include reportable fringe benefits on their payment summary
      • by 21 May – lodge your FBT return (if a tax agent prepares your FBT return the lodgment arrangements may be different – your agent will tell you).
       
    • Keep records of all 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 because 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 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 can accept it if you wish.
       
    • 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
      • you 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 that are 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  
    • For the part of the final payment that is an ETP  
    • Include the 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 as normal and pay the final contribution by the usual due date (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 all of the above. Keep your former employee's TFN declaration for the current and next financial year.
    • Ensure the reason and manner your employee leaves complies with anti-discrimination laws.

    See also:

    Next step:

    Last modified: 31 Jul 2020QC 47989