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Hiring your first employee - 6 Common Questions

Hiring your first employee in your business can be a very daunting task if you haven’t done it before.

There’s all sorts of worries that could be going through your head:

  1. How do I do the Payroll each week or fortnight?
  2. What do I need to do for Superannuation?
  3. What is WorkCover, and what I need to do for it?
  4. Do I need to let the ATO know anything?
  5. How do I know when I can afford my first employee?
  6. How should I cover myself from a legal perspective so my first employee cannot come after my house?

So we’ve put together this article which answers some very common questions when it comes to hiring your first employee.

Before we get into it though, we've found that the use of accounting software Xero, is a massive time saver in the process of hiring your first employee.

Xero integrates directly with the ATO - no paper forms need to be lodged, and it just makes light work of the payroll process moving forward.

If you enjoy the article, or have a question - please use the comments section below to let us know!

1. How do I do the Payroll each week or fortnight?

Payroll needs to be done each week, fortnight or month - depending on how often you’ve agreed to pay your new team member.

Each time this happens, you need to work out how much to pay them and also how much tax and superannuation to take out and set aside.

It can be daunting doing this, but we recommend you use accounting software to make this a piece of cake.

The one we recommend is Xero - and the payroll section of this is intuitively set up.

First you need to add your employee into the system, following the prompts for everything Xero needs to do so.

And then you can start processing your payroll.

We recommend getting the help of your bookkeeper or accountant who’s helped other business owners do the same in Xero - or even get them to train you on it if you’re going to be doing it yourself.

2. What do I need to do for Superannuation when hiring your first employee?

Superannuation is commonly referred as forced savings for retirement.

It’s a great strategy for business owners to boost their personal wealth (and a great tax environment if used well too) - so we love it here at Inspire!

You also have to pay superannuation for your team members when they work for you - so you’re contributing to their retirement.

The current rate for this is 9.5% of their gross wages, and needs to be paid to their super fund each quarter.

For instance, the superannuation on wages paid to the team member between 1 September 2016 and 31 December 2016 will be due on the 28 January 2017 (note that this is 28 days after the end of a calendar quarter).

New rules introcuded in 2016 by the ATO have also meant that businesses (regardless of size) need to use their new ‘SuperStream’ initiative.

SuperStream’s purpose is to make it easier for businesses to report and pay super for their employees.

Again, Xero makes complying with this nice and easy.

If you have it set up within Xero, and are using Xero for payroll, it actually does your SuperStream reporting automatically, and direct debits the amount you owe from the bank account you tell it to!

More information on SuperStream and a details on how to do this can be found here.

3. What is WorkCover, and what I need to do for it?

In most states in Australia, you’ll need to sign up for that state’s WorkCover or WorkSafe when hiring your first employee.

WorkCover is a form of insurance that is meant to protect employees (and you as the business owner) for accidents at work.

This is a mandatory thing in most states, not an option - and there’s penalties if it isn’t in place.

Say your team member has an accident at work, the purpose of the insurance is that it covers any medical costs of the team member, and also any loss to your business as a result (even paying that team members sick leave instead of the business copping it!!).

The process for signing up is fairly straight forward and can be done online on their websites:

- QLD - WorkCover Queensland - https://www.worksafe.qld.gov.au/

- NSW - SafeWork NSW - http://www.safework.nsw.gov.au/

- VIC - WorkSafe VIC - http://www.worksafe.vic.gov.au/

- TAS - WorkCover Tasmania - http://www.workcover.tas.gov.au/

- ACT - WorkSafe ACT - http://www.worksafe.act.gov.au/health_safety

- WA - WorkCover WA - http://www.workcover.wa.gov.au/

- SA - ReturntoWorkSA - https://www.rtwsa.com/

- NT - WorkSafe NT - http://www.worksafe.nt.gov.au/Pages/default.aspx

4. Do I need to let the ATO know anything when hiring your first employee?

When you hire your first employee, you need to register for what’s called “PAYG Withholding” or “Pay As You Go Withholding”.

This is the ATO’s words for the tax that you need to take out from the salary or wages that you pay your new team member.

Taking this tax out and setting it aside to pay the ATO is a non-negotiable.

Give your accountant a call and they can walk you through the process of registering for this PAYG Withholding or do it on your behalf.  It’s a simple process either online or a quick phone call to the ATO.

You’ll also need to let the ATO know that you’ve hired someone.

The form to use to let them know is a “Tax File Number declaration” - but this can be done online through Xero’s payroll software, another reason to use it!

5. How do I know when I can afford my first employee?

In the first few months of starting in business, I found myself with way too much to do, wearing so many hats in the business.

We’d grown about 10x in revenue in the first four months.

Great problem to have! But I wasn’t doing well from time management or a work life balance perspective.

I navigated my way through that time, and now have helped many other business owners do the same too.

One of the questions that crossed my mind during that time is how do I pay for them?

My recommendation is to make sure you have enough cash set aside that you can pay for the first 3 months of salary with no additional revenue.

Also I strongly encourage you to expect there will be quite a few hours, even days training the new team member, so you need to see this coming.

6. How should I cover myself from a legal perspective so my first employee cannot come after my house?

I recommend that you do two things to protect yourself here when hiring your first employee:

1. Get a watertight employment agreement; and

2. Make sure you’re set up in a Business Structure that protects the risks in your business (like employees) from your personal wealth and assets.

Make sure you use Employment Agreements

A mistake I see a lot of business owners make (even on advice to get one) is not having an employment agreement for every single one of their team.

The employment agreement can come from a good lawyer, or from software that provides this service, like Enable HR (we use this internally).

And a well written agreement sets expectations on both sides from day one, starting from when hiring your first employee.

They should cover:

- How much and how often the team member gets paid

- How much superannuation they’re going to get paid

- How much leave they get each year

- How much notice either party needs to give to terminate the agreement (and what conditions this needs to be)

- A confirmation that the team member connect take any of your clients, team members, intellectual property etc when they leave

And many other things (this list is not exhaustive, but gives you an idea!).

Get the right Business Structure

Another common problem I see is that business owners haven’t paid attention to their business structure when hiring your first employee.

A good business structure should protect your personal wealth and assets from the risks of your business.

If you’re trading in the business structure of a ‘Sole Trader’, you’re playing with fire.  If your business is sued, then your personal assets are also included in this.

We recommend looking at companies or trusts to run your business.  If they’re set up properly, then they will protect you from most threats!

If you enjoy the article, or have a question - please use the comments section below to let us know!