There are some extra things you need to do if your business has employees (even if they are family).
TFN declaration
On the first day a worker starts working for you, you should ask them to complete a Tax file number declaration (NAT 3092). They don't have to tell you their TFN, but if they don't, you will have to take tax from their pay at the highest rate.
To get TFN declaration forms phone the Indigenous Helpline on 13 10 30 or the Publications ordering service on 1300 720 092.
PAYG withholding
When you have employees, you must take out the right amount of tax from their pay. This is called pay as you go (PAYG) withholding.
PAYG withholding makes it easier for your employees to pay their tax, because you collect it from them throughout the year.
You must register for PAYG withholding if you pay:
- employees
- company directors and office holders
- people who you employ under a labour hire agreement
- people who you have agreed to withhold PAYG from (for example, some independent contractors)
- a supplier that hasn't given you their Australian business number (ABN).
The amount of tax you should take out from an employee's pay depends on how much they earn and the information on their TFN declaration form.
The Community Development Employment Projects (CDEP) ceased in 2011 but some participants may still be receiving payments under this scheme. If any of your employees are receiving CDEP payments, you may have to withhold tax for them.
Payment summary or income statement
In this section
If you report through Single Touch Payroll
Most employers are required to report their employees' payroll information to us each pay run through Single Touch Payroll (STP) enabled software. If you do this, you don't need to provide your employees with a payment summary for the information you report.
Your employees will be able to obtain their income statement (formerly a payment summary) through ATO online, which is accessed through myGov. If your employees use a tax agent, their agent will also have access to their income statement information.
You'll need to finalise your employees' information through your STP-enabled software by 14 July each year.
You won't need to lodge a PAYG withholding payment summary annual report to us for the information you've finalised through STP.
If you're not yet reporting through Single Touch Payroll
If you're not reporting through Single Touch Payroll (for example, you're exempt or you have a deferral), you need to give each of your employees a PAYG payment summary at tax time. This shows how much income they earned and how much tax you took out of their pay for the financial year (1 July to 30 June). You need to do this by 14 July.
You also need to lodge a PAYG payment summary statement (NAT 3447) with us by 14 August.
Paying super for your employees
As an employer, you must pay superannuation (super) contributions for eligible employees. This is known as super guarantee.
If you're an employer who is reporting through STP, you will be reporting qualifying earnings and super liability information through STP. Super funds will also be reporting to us. They'll let us know when you make the payment to your employees' chosen fund, stapled super fund or default fund. This is an important step toward making sure employees are paid their correct entitlements.
Your employee can nominate a super fund of their choice by completing the Superannuation (super) standard choice form.
If your employee doesn't choose a super fund, you pay super contributions to their stapled super fund.
You can request your employee's stapled super fund details from us via ATO online services.
- For new employees, you can make a request once they have accepted your offer of employment (you must still provide them with a super standard choice form).
- If the employee started with you before 1 November 2021, you're not required to pay their super into a stapled super fund. You can pay to your employer default fund.
Fringe benefits tax
A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages. Examples of fringe benefits can include:
- allowing an employee to use a work car for private purposes, such as driving to and from work
- paying an employee's gym membership
- providing entertainment such as free tickets to concerts.
If you provide fringe benefits to your employees (or your employees' associates such as their family members) you may need to pay fringe benefits tax (FBT). Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay.
Hiring contractors
You can hire contractors as well as employees. Both are legitimate as long as the conditions of the working contract match the worker’s classification.
It's important to understand the difference between employees and independent contractors because:
- it changes your obligations for paying and reporting tax, superannuation and other entitlements for your workers
- penalties and charges may apply if you incorrectly classify an employee as a contractor and fail to meet the relevant obligations or entitlements for that worker.
Contractors run their own business and you generally do not need to withhold tax unless you enter into a voluntary withholding agreement.
You must pay super for independent contractors if you pay them mainly for their labour.
If they're registered for goods and services tax (GST), you will need to pay the appropriate GST to them for the services or work they provide to your business.