Employment
Employer
An employer is a person or business that pays others for their work as employees, and has obligations for PAYG withholding, superannuation, reporting and record keeping.
An employer is any individual, company, partnership, trust or other entity that engages workers as employees and pays them for their work. From a tax perspective, a business becomes an employer when it first pays wages, and from that point it has a set of obligations to the ATO that go well beyond simply paying staff. These obligations apply whether the business is a sole trader with one casual or a company with a large payroll.
The first obligation is PAYG withholding. The employer must work out the tax to withhold from each payment using the ATO schedules and the employee's TFN declaration, and then pay the amount to the ATO. Employers who withhold must register for PAYG withholding, report the amounts on their BAS and pay by the due date. Most employers also report each pay run through Single Touch Payroll, which sends payroll information to the ATO each time a payment is made.
The second obligation is superannuation. An employer generally must pay the super guarantee for eligible employees into a complying super fund by the quarterly due dates, and offer them a choice of fund where required. The rate is set by legislation and has changed over time, so check ato.gov.au for the current rate. Employers who miss the deadline may have to pay the super guarantee charge, which is not tax deductible.
Employers also carry duties that sit outside the ATO's remit. Workers compensation insurance is arranged under state or territory schemes, and payroll tax, where it applies, is administered by state and territory revenue offices. Industrial awards, minimum wages and leave entitlements are governed by workplace laws. These vary by jurisdiction, so an employer must check the rules in the state where staff work.
GST connects to being an employer in a few ways. Wages do not attract GST, and the employer cannot claim GST credits on them. However, the business can still claim credits on the goods and services it buys to run the business, if registered for GST and holding tax invoices. If the employer provides fringe benefits, such as a car or entertainment, GST credits and FBT interact in ways that need careful handling. A GST-registered employer lodges a BAS that includes GST, withholding and possibly instalments, all on the same form.
A common mistake is to treat hiring a first worker informally, paying cash with no withholding or super. Another is to assume that a worker with an ABN is automatically a contractor. If the ATO decides the worker was in fact an employee, the employer can be liable for unpaid withholding, super and penalties.
This is general information, so confirm your obligations as an employer with the ATO or a registered tax professional.
Worked example
Leila runs a physiotherapy clinic and hires a receptionist on $1,200 gross per week. She withholds PAYG using the ATO schedule, say $200 for illustration, and pays the receptionist $1,000. She pays super at the legislated rate on top of the $1,200 into the receptionist's fund by the quarterly due date. The withheld $200 goes to the ATO with the BAS, and GST on the clinic's own taxable sales is reported on the same BAS.
Practical tips
- Register for PAYG withholding before you pay your first employee, and set up payroll software that is STP enabled.
- Diarise the quarterly super due dates, because paying late can trigger the super guarantee charge, which is not deductible.
- Check state or territory obligations such as workers compensation and payroll tax separately, as they are not managed by the ATO.