Running a small business can be challenging at the best of times and while growing your business is rewarding, it can be daunting to hire your first employee.
At Addison Partners HR & Consulting, we are often called upon to help when things go wrong with an employment relationship, and sometimes it’s really too late to make things right.
To help prevent potential issues, we have written this blog post to provide some general guidance for first time employers to point you in the right direction.
We would still recommend talking to your business adviser, accountant or HR Specialist before taking on your first employee as each business is unique and employment law changes regularly.
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It's important to get it right!
Organisations that don’t keep up with the latest employment and health and safety laws can face devastating consequences.
For example, an aged care provider in Queensland was slammed with a fine for more than $435,000 when its management failed to correctly handle an employee’s bullying claim. A $435,000 fine for not following, or knowing, correct legal procedures. This is on top of the considerable time and resources the company would have spent, not to mention massive legal costs, defending themselves in court.
Then there’s workplace health and safety. In a recent example, a New South Wales turf farm’s negligence to follow, in this case, a basic health and safety procedure, resulted in a $375,000 fine, and a young man’s death.
These are just two examples, amongst literally hundreds of similar incidences that occur throughout Australia, year after year. The message to employers is that it’s important to get it right! Take your time to familiarise yourself with the requirements and make all reasonable efforts to meet them.
Who exactly do you need?
Before you start looking for your first employee, you should decide exactly what or who you are looking for.
Is it an apprentice or trainee, an experienced qualified worker or someone in between? Are you looking for someone with particular skills or someone who wants to learn?
I’d suggest writing a list of skills, qualifications and personal qualities you require. You also need to consider what your business can afford. You may love the idea of hiring a fully qualified tradesperson, but can you afford them? Would a 2nd or 3rd year apprentice be a better option? You also need to decide how you are going to engage the worker – as either an employee or a contractor.
“Sham Contracting” has received a lot of press of late, so it is important that you make the correct choice. A sham contracting arrangement is when an employer attempts to disguise an employment relationship as an independent contracting arrangement. This is usually done to avoid responsibility for employee entitlements such as withholding PAYG tax, superannuation and workers compensation.
In a recent case the Fair Work Ombudsman secured a total of $72,000 in penalties against two companies after deliberate sham contracting activity resulted in a bicycle courier in Melbourne being underpaid more than $7,000. The ATO will also impose penalties for underpayment of super and failing to withhold tax from your employee’s wage.
There are many factors that influence whether a worker is an employee or a contractor. The Australian Taxation Office (ATO) has a free online decision making tool available to assist you to make this decision. The ATO’s decision making tool can be found here.
Permanent or casual?
You can employ your employee under a number of different arrangements including full time, permanent part time or casual.
A full-time employee has ongoing employment and works, on average, around 38 hours each week. The actual hours of work for an employee in a particular job or industry are agreed between the employer and the employee and/or set by an award or registered agreement.
A part-time employee
- works, on average, less than 38 hours per week
- usually works regular hours each week
- is entitled to the same benefits as a full-time employee, but on a pro rata basis
- is a permanent employee or on a fixed-term contract.
Both full-time and part time employees are entitled to paid annual leave and sick leave along with other benefits like pay for public holidays and the promise of ongoing work as permanent employees.
A casual employee does not have a firm commitment in advance from an employer about how long they will be employed for, or the days (or hours) they will work. A casual employee is also not required to commit to all work an employer might offer. For example, an employee who works to a roster that could change each week and can refuse or swap shifts is casual.
A casual employee
- has no guaranteed hours of work
- usually works irregular hours
- doesn’t get paid sick or annual leave
- can end employment without notice, unless notice is required by a registered agreement, award or employment contract
- Is typically paid a casual loading in lieu of paid leave and other benefits permanent employees are entitled to.
On recruitment you should ensure it is clear whether your employee is full time, part time or casual. This should be documented in an employment agreement. When the arrangement isn’t documented, it can lead to disputes, particularly on termination of employment. A worker may believe they are permanent and entitled to annual leave, however the employer believes they are casual. We will discuss employment agreements later on.
Advertising and recruitment
The best advice I have ever received is to “hire slow and fire fast”. It’s important to take your time looking for your first employee. The right person can bring so much to your business, while the wrong person can be a liability.
Once you know exactly what you are after, the next step is to advertise. Where you choose to advertise depends on your industry and the role. Facebook and Instagram are great free ways to advertise your job. Your followers will share the post so your ad will reach a wider audience or tag a friend who may be interested in the role.
Online recruitment sites like seek.com.au can reach potential applicants located in different geographical locations to you. Advertising in the local paper may also be effective. Both online advertising and placing an ad in the paper can be costly depending on where you are located.
During the recruitment process, it’s a good idea to conduct formal interviews and also thorough background checks including calling referees. Make sure you sight or request copies of qualifications, licences and certificates.
Keep an open mind when meeting potential new employees. Sometimes the best employees come in surprising packages! Also note there are laws surrounding discrimination during recruitment, so ensure you are judging the applicants on merit and not on their sex, race, age, sexual preference or appearance.
You may also ask a candidate to demonstrate a skill, for example making a coffee if you are looking to hire a barista. Trialing a new employee is a great way to get to know them and their work ethic. Just a note that candidates must be paid for trial shifts that are more than simply demonstrating a skill.
Payroll, registrations and record keeping
So you have found the perfect candidate! Now it‘s time to formally employ them.
You may require some assistance from your accountant or advisor to complete some of these steps. You will find a check list in appendix 1. It’s a good idea to tick off each item as you go to make sure you don’t miss anything.
Awards and pay rates
Modern Awards are legal documents that outline the minimum pay rates and conditions of employment. There are more than 120 industry or occupation awards that cover most people who work in Australia. Modern awards can be found on the Fair Work Website here.
Awards apply to employers and employees depending on the industry they work in and the type of job worked. Every award has information about who it covers.
To work out which award applies, read:
- the coverage clause (usually clause 4)
- the job classifications (usually in the pay clause or a schedule).
Please seek advice from Fair Work Australia or your HR Adviser if you are unsure which award covers your workplace. It’s a good idea to read through the entire award for your workplace so you are familiar with the conditions your workers are entitled to. Awards also change from time to time and pay rates are typically updated around 1 July each year.
Award wages vs industry rates
Although awards outline the minimum pay rates your employees are entitled to, this could be well below the industry “going rate”. It’s important to understand that highly skilled candidates can attract much higher salaries, and in a lot of instances it is worth the investment to get the right person.
Before making an offer of employment to a candidate, I would suggest doing some research to determine what the industry rate is for the role. To do this, speak to colleagues in your industry about what they pay their staff, look at other equivalent roles currently being advertised, or utilise an online salary guide like the Hays Salary Guide.
It’s also a good idea to ask a candidate if they have any salary expectations during your initial interview. This way you won’t waste time if their expectations are too far apart from yours.
Your award will dictate how often you should pay your employees. In some awards, employees must be paid at least every fortnight. For cash flow purposes you may choose to pay your employees on a weekly basis.
Processing payroll can be tricky, especially if you are required to pay allowances, overtime, loadings and penalty rates. I would recommend you seek advice from your accountant, bookkeeper or HR Specialist to ensure you are processing your employees pays correctly.
You will need to use some kind of book-keeping software to pay your employees. Which ever software you choose must be compliant with Single Touch Payroll.
All bookkeeping software with a payroll function will calculate the tax you are required to withhold from your employee’s wage.
There are many on the market including Xero, MYOB or QuickBooks. Our personal favourite is Xero. It’s easy to use, has a free employee portal so your workers can do their own timesheets, submit leave requests, update their personal details and collect their pay slips. Xero also integrates with many apps and add-ons to assist with rostering, quoting and point of sale systems.
Single Touch Payroll
Single Touch Payroll Single Touch Payroll (STP) is a change to the way employers report their employees’ tax and super information to the Australian Taxation Office.
Using payroll or accounting software that offers STP, employers send their employees’ tax and super information to the ATO each time they run their payroll and pay their employees.
The information is sent to the ATO either directly from the software, or through a third party – such as a sending service provider.
From 1 July 2019 all employers will need to report payments made to employees at the time the payment is made using STP compliant software. Software providers can tell you more about how they offer STP reporting. Xero, MYOB and QuickBooks all offer STP compliant software.
Register with the ATO to withhold tax
You will need to register with the ATO as a PAYG Withholder. This allows you to pay the tax you withhold from your employee’s pay each pay period.
This tax is reported on your Activity Statement and may be payable on a Monthly or Quarterly basis to the Tax Office. You can register through the ATO Business Portal or your Tax Agent can do it for you.
Your new employee must complete a Tax File Number Declaration and you must lodge it with the ATO within 14 days of completion. The form is available on the ATO website. If you use Xero, you can lodge this form directly with the ATO from within the software.
Fair Work Information Statement
You are required to give you a copy of the Fair Work Information Statement before, or as soon as possible after, your employee starts working for you. The Fair Work Information Statement is available on the Fair Work website.
It’s important to keep records to show when your employees were at work. Employers have to keep time and wages records for 7 years. Employers must also provide pay slips to employees within one working day of paying employees.
Time and wages records have to be:
- readily accessible to a Fair Work Inspector (FWI)
- in English.
Time and wages records can’t be:
- changed unless the change is to correct an error
- false or misleading.
For more information on the latest record keeping requirements, please visit the Fair Work website.
Superannuation is money you pay for your workers to provide for their retirement.
Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages. If the employee is under 18 years of age, they must work over 30 hours per week before you are required to pay super.
The minimum you must pay is called the super guarantee (SG):
- the SG is currently 9.5% of an employee’s ordinary time earnings
- you must pay the SG at least four times a year, by the quarterly due dates
- your super payments must go to a complying super fund – most employees can choose their own fund
- if you don’t pay the SG on time, you may have to pay the super guarantee charge.
Before you offer your employee the option to choose a super fund, you must nominate a fund that you will pay their super into if they can’t or don’t choose their own fund.
This fund is your employer-nominated fund (also known as a default fund).
The super fund you nominate must:
- be a complying fund (one that meets specific requirements and obligations under super law)
- be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.
Super standard choice form
Employees may elect to have their super paid to your default fund or they may nominate a fund of their choice using a Super standard choice form.
This form is for employers to advise employees of the employer’s nominated fund, and for employees to tell an employer of their choice of fund. The standard choice form is for use by both employers and employees and is available on the ATO website.
You must pay and report super electronically in a standard format, ensuring you meet SuperStream requirements.
Most payroll software like Xero have a built-in clearing house that is Superstream compliant.
Another option is to pay your superannuation through the ATO’s Small Business Superannuation Clearing House. This is a free service for employers with less than 19 employees.
To register for the Small Business Superannuation Clearing House you will need an Auskey to access the ATO online services. An Auskey is a piece of software that is installed onto your computer to allow you to access the ATO website. Your accountant can assist you to register and set up an Auskey for your business.
Government grants and incentives
From time to time, there are grants, incentives and subsidies available for employers. Below are two government programs in place that provide funding for eligible employees and employers.
Jobactive is the Australian Government’s way to get more Australians into work.
It connects job seekers with employers and is delivered by a network of Jobactive providers in over 1,700 locations across Australia. When you employ a job seeker who is registered with a Jobactive provider your business may be entitled to grants and wage subsidies. It is worth contacting your local Jobactive Provider to see if they have a suitable candidate on their books.
More information can be found on the Jobactive website.
Apprentices and trainees
If you directly employ an Australian apprentice (apprentice or trainee), your business may be eligible for Australian Government financial incentives, and current employees may be able to access training and financial incentives in certain circumstances. Apprenticeship Centres, like MEGT Apprenticeship Network Provider, administer and facilitate those payments.
We would suggest you contact an Apprenticeship Centre for more information on registering your apprentice or trainee, and the incentives available.
All employers have a responsibility to provide a safe work environment for their employees. Employees also have responsibilities to look out for their own safety and the safety of others.
Between 2003 and 2016, 3,414 workers lost their lives at work due to workplace incidents. Many could have been prevented.
The maximum penalty for non compliance with workplace safety legislation is $600,000 or 5 years imprisonment. So, getting workplace safety wrong can not only be expensive, it can cost someone’s life or your freedom.
We suggest you engage a workplace safety specialist to assist you to set up a compliant workplace safety system.
We would strongly recommend that you have a written employment agreement in place with your workers. An employment agreement should clearly outline the employment arrangement, award coverage, pay and conditions of employment along with your expectation.
A written agreement is crucial in case you need to performance manage your employee, or if there is a dispute regarding the employment. A written agreement will avoid any misunderstandings regarding pay and conditions. Aside from this, many awards state you must provide certain details to your employee in writing on recruitment, including if they are permanent or casual.
The Fair Work website has some free templates available, however we would suggest talking to an HR Specialist or lawyer for assistance with drafting these documents.
First day — induction and training plan
It’s important to induct your employee into the workplace. Induction should include the following:
- a tour of the workplace including location of toilets, fire extinguishers, first aid, emergency exit plan and any security procedures
- an introduction to the team and their direct supervisor
- an overview of their role and how it fits in with the rest of the business along with information on who to go to with issues or problems
- a discussion regarding their training and development plan including any courses and on the job training they will be required to complete.
Probation periods and feedback
We would recommend employers put their employees on a probationary period to assess if they are suitable for the role and the business.
The employer decides on the length of the probation period. It can range from a few weeks to a few months at the start of employment.
If an employee doesn’t pass their probation, they are still entitled to receive notice when employment ends and have their unused accumulated annual leave hours paid out.
We would recommend providing your employee with regular feedback and meet with them several times during the probation period to check in on their progress. If improvement is required, let your employee know as soon as possible and work with them to determine exactly what is required to improve. Before the end of the probation period, you need to make an honest assessment of their suitability for the role.
Before terminating an employee we would suggest you seek advice from a HR Specialist or Lawyer. Each situation is different and there are different laws in place depending on the length of employment, size of the business and award conditions.
Ultimately your employees are your biggest asset in your business. Well trained employees can increase the value of your business and the right employee will help grow your business.
It’s important to get it right, firstly to avoid penalties and fines from government bodies, but also to ensure your business thrives and your employees are safe. Becoming an employer can be an absolute minefield, so please make sure you get some expert advice from a HR Specialist or your accountant.
Want more information? More information can be found by visiting the following website:
- Fair Work Ombudsman
- Office of State Revenue
- Hays Salary Guide
- MEGT Apprenticeship Centre
- Safe Work Australia