Is It Time to Hire Employee Support For Your Business?

Expanding your business by hiring your first employee is a significant milestone, but it comes with important financial and compliance obligations. Before you hire an employee, understanding the employee's award is a crucial first step to ensure you comply with minimum wages and employment conditions. Deciding whether to hire an employee or engage an independent contractor also requires careful consideration.

In this article, we’ll explore the financial and legal implications of bringing someone on board, as well as the differences between employees and contractors.

Assessing Business Needs

Before you begin the process of hiring staff, it’s essential to take a step back and thoroughly assess your business needs. This ensures you hire the right person for the job, but also sets your business up for long-term success and compliance with Australian workplace laws.

Employment type

Start by considering the employment type that best suits your business, whether that’s a full-time, part-time, or casual employee. Each employment type comes with different obligations regarding minimum wage, pay rates, annual leave, penalty rates, and other entitlements under the national employment standards and the relevant award. Understanding these distinctions will help you determine the most cost-effective and compliant way to meet your business needs.

Superannuation standard choice form

Next, think about your super obligations. When you hire a new employee, you must provide them with a superannuation standard choice form and ensure you pay super to their chosen super fund. This is a legal requirement for most employees, and getting it right from the start helps you avoid costly mistakes down the track.

Employment contract

Creating a clear and comprehensive employment contract is another critical step. Seeking expert advice or using an employment contract tool can help you outline the employee’s role, responsibilities, and entitlements, including annual leave, carer’s leave, and other benefits. Make sure your contract references the relevant award and complies with the national employment standards, as well as any other workplace laws that apply to your industry.

Hiring expenses

Budgeting for a new employee goes beyond just their salary. Factor in the full cost of hiring, including recruitment, training, ongoing wages, superannuation, workers compensation insurance, payroll tax, and any additional benefits you may offer, such as gym memberships. It’s also important to understand how much tax you’ll need to withhold and pay payroll tax if your business meets the relevant thresholds. Knowing the applicable tax rate for your employee’s salary and staying on top of your super obligations will help you manage your cash flow and avoid surprises.

For small businesses, these considerations are especially important. Getting personalised help and seeking detailed information from resources like the Fair Work Commission can make a big difference in ensuring you meet your obligations and set expectations clearly from the outset. If you’re unsure whether you need an employee or independent contractor, take the time to review your business needs and the legal distinctions between the two. This will help you avoid misclassification and ensure you’re providing the correct benefits and entitlements.

By carefully assessing your needs, planning for the costs and responsibilities involved, and using the right tools and resources, you can confidently move forward with hiring, knowing you’re meeting your obligations and building a strong foundation for your business in Australia.

Financial Implications of Hiring an Employee

Wages and Superannuation

When you hire an employee, whether they are a full-time, part-time or casual employee, you are legally required to pay them at least the minimum wage as per the National Employment Standards (NES) and relevant awards or enterprise agreements. For part time employees, penalty rates and overtime pay are calculated based on their regular hourly rate for up to 38 hours per week, with any additional hours attracting overtime rates. Casual employees are generally not eligible for paid sick and carer's leave under the NES. In addition to wages, you must contribute to the employee’s superannuation fund at the minimum rate of 12% (as of 1 July 2025). Most employees are entitled to choose their own super fund for superannuation contributions, and you must provide a standard choice form to allow them to nominate their own super fund. If they do not choose, you may need to pay into their stapled super fund.

Other financial responsibilities include:

• Leave entitlements (e.g., annual, sick, parental leave)
• Payroll tax (depending on your business’s wage threshold in your state)
• Workers’ compensation insurance (mandatory for covering employees in case of injury)

Different types of employee payments already affect cash flow timing, which is why accurate tracking of wages, leave entitlements and on-costs is essential. On-costs includes expenses like training, onboarding, allowances, leave loading, etc.

As employees work, they accrue wages and superannuation at the same time. generally, wages are paid weekly or fortnightly, while superannuation has historically only needed to be paid quarterly (at a minimum). This timing difference has meant some cash sitting in the business bank account is effectively already committed, even if it hasn’t yet been paid out.

With Payday Super coming into effect 1 July 2026, that timing gap will close. Super will be payable alongside wages, meaning businesses will need to plan for super costs as a true, real-time cash flow obligation, not a future one.

Payroll Administration

Once you hire an employee, you will have wages, tax and super obligations to meet. You'll need to set up payroll to ensure that you know exactly how much tax to withhold and pass on to the Australian Taxation Office (ATO) through Pay-As-You-Go (PAYG) withholding. You will also need to issue pay slips and maintain accurate records of payments, super contributions, and leave balances.

Many businesses opt for payroll software like Xero to streamline this process, ensuring compliance with Single Touch Payroll (STP) reporting requirements, which mandate real-time reporting of payroll data to the ATO.

Compliance Considerations

Legal Obligations as an Employer

Employers in Australia must comply with various legal obligations, including workplace health and safety regulations, equal opportunity laws, and providing a safe working environment. When preparing job descriptions, it is important to use inclusive, non-discriminatory language to ensure equal opportunity for all candidates. Employers must also ensure their hiring practices and workplace policies support employees with disability, providing resources and guidance for workplace inclusion. This means you need to familiarise yourself with:‍

• Fair Work laws: These outline minimum employment standards and conditions.
• Awards and agreements: Industry-specific rules that govern wage rates, hours of work, and overtime. To find the relevant award, take a look at these award resources from the Fair Work Ombudsman.
• Employment contracts: It’s essential to have clear written agreements that outline roles, responsibilities, and conditions of employment.

Failing to meet these obligations can lead to penalties and disputes, so it’s vital to be well-informed before making your first hire. If you’re unsure of your legal requirements, it’s always a good idea to seek advice from a commercial lawyer or accountant.

Payroll Requirements

When expanding your business and hiring employees, understanding payroll compliance is crucial to avoid costly mistakes. Here are the key payroll obligations to keep in mind:

STP Finalisation
Employers are required to submit their Single Touch Payroll (STP) data to the ATO at the end of each financial year.

Superannuation Contributions
Employers must pay superannuation at least quarterly, and it must be paid on time. To ensure your payments are processed in time, make payments early, as late contributions are not tax-deductible.

WorkCover Declarations
If you have employees, you'll likely be required to submit a WorkCover declaration. This includes reporting total wages paid to employees.

Updates to Minimum Wages
From time to time, the minimum rates of pay are updated. It's important to ensure you are paying your employees at least the minimum pay rates relevant to their position and employee agreement.

Employee vs Contractor: Differences and Considerations

When expanding your team, you might consider whether to hire a new employee or independent contractor. Each option has different legal and financial implications:

Employees are entitled to benefits such as paid leave, superannuation, and other entitlements, which may also be provided through registered agreements. These entitlements should be clearly documented in workplace policies and contracts to ensure compliance and transparency.

On the other hand, independent contractors generally manage their own tax and superannuation and are not entitled to the same benefits as employees.

Onboarding should be treated as part of the hiring process, supported by a solid 30-60-90 day plan, and a thorough induction will help your employee quickly settle in and become a productive member of your team.

Employees

An employee works directly under your supervision and follows your business’s instructions on how to complete their tasks. Employees typically work set hours, and you are responsible for their wages, superannuation, and entitlements, such as leave. Paid sick and carer's leave is classified as a single entitlement, with full-time employees entitled to 10 days per year. For parental leave, Parental Leave Pay (PLP) is available to eligible employees who are the primary caregivers. Eligible employees must meet criteria such as being the primary carer of a newborn or recently adopted child, having worked a minimum number of hours in the previous 13 months, and meeting residency requirements.

Advantages:

• Greater control: You have more control over how, when, and where the work is performed.
• Loyalty and long-term commitment: Employees are likely to feel more invested in your business and remain with you long-term.

Disadvantages:

• Ongoing costs: Salaries, super, and leave entitlements can add up. If you have permanent employees, you’ll need to ensure you still pay them their agreed wage during slow periods.
• Compliance responsibilities: As outlined earlier, hiring employees brings compliance and administrative obligations.

Independent Contractors

Contractors, on the other hand, run their own business and are hired to complete specific tasks or projects. Contractors may work for multiple businesses simultaneously, having more than one client, using their own tools and determining their working hours.

Advantages:

• Cost flexibility: Contractors are generally paid for specific tasks or projects and do not receive paid leave or other employee benefits. It's important to note that under some circumstances, businesses are required to pay superannuation to contractors.
• Reduced compliance: Contractors are generally classed as small business owners who handle their own tax obligations, meaning less paperwork for your business.

Disadvantages:

• Less control: You may have less control over how and when contractors complete the work.
• Short-term focus: Contractors might be less committed to your business and more focused on completing individual projects.

Legal Distinctions and Risks

It’s crucial to distinguish between employees and contractors correctly. Misclassifying an employee as a contractor can lead to significant penalties from the ATO, including back payment of superannuation, entitlements, and tax.

Here are some key factors that differentiate employees from contractors:

• Control: Employees work under your direct supervision, while contractors have more control over how they complete their work.
• Independence: Contractors typically supply their own tools and equipment, whereas employees use your business’s resources.
• Payment: Employees receive wages based on hours worked or a salary, while contractors are paid for a specific task or project.

To help you classify workers correctly, learn more about the differences between contractors and employees

Employers must also confirm that a new worker is legally allowed to work in Australia before hiring them. If you are hiring working holiday makers (subclass 417 or 462), you must register as an employer of working holiday makers with the ATO before making payments to them.

When Is the Right Time to Hire?

As a business owner, you may feel the pressure to hire when demand increases or when you are stretched too thin. However, timing is everything. Before starting the hiring process, ask yourself:‍

• Is there consistent work available for the new hire?
  A fluctuating workload may mean that engaging a contractor is more suitable.
• Can you afford the additional costs of hiring an employee?
  Make sure your business's cash flow can support wages, superannuation, and other entitlements, especially if your business has lean periods.
• Is this a long-term need?
  If the need is temporary or project-specific, a contractor might be a better option.

Hiring your first employee is a major step toward growing your business, but it's essential to understand the financial and compliance obligations involved. Weighing the pros and cons of employees vs contractors will help you determine the best option for your business when hiring staff. Always seek professional advice to ensure you are meeting your legal obligations and making the right decision for your business's growth.

If you need assistance with payroll setup, compliance, bookkeeping, or any other accounting needs, feel free to get in touch with us today.

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