So you’ve started a business and it’s grown to the point where you need to hire other people to help you run it and grow it further. Being successful up to that point is always exciting and a cause for celebration, but hiring your first employee is a big step that may seem complicated for first-timers.
Read on for 5 tips on how to make sure your first hire is a success.
1. Determine exactly what roles you need to be filled
You may, at the moment, only have an idea of what you want help with. It’s important to evaluate all the tasks that need to be performed at your business and decide which ones you want an employee to do. This will also provide clarification on your role going forward.
For example, if you have just started a café, you may need to hire someone to take orders and serve food to your customers, or you may need someone to help organise the finances of the business. After this, you can pinpoint what the positions you are hiring for are. It is also useful at this stage to determine what qualifications and experience you’re looking for. This can be a trade-off between paying more to have a highly experienced worker help you grow your business, and training someone up in the position.
2. On what basis will you be hiring?
The basis on which you hire an employee will depend on your trading hours and customer demand. If you only want assistance some of the time, you may want to offer a position on a part-time or casual basis. If you want your new employee to be on hand everyday, then the position should be offered full time.
It’s important to realise that your obligations differ depending on what basis your employees are hired. If they are hired on a casual basis, you or they can terminate the employment without notice and they will not have any leave entitlements. If they’re hired part-time or full-time, they will be entitled to annual leave, sick leave and other forms of leave. There will also be a required notice period to be given by you or them if the arrangement is terminated.
3. Employee or contractor?
You also need to decide whether you will be employing someone as an employee or a contractor. If you only need to hire someone short-term, a contractor will provide services to assist your business for a fixed amount of time. Conversely, an employee and employer relationship is ongoing until one party terminates it. Contractors are also only paid pending the result of a project you have hired them to do – employees are paid on the basis of the time and hours that they work.
If you decide to employ someone on a contractual basis, make sure that you comply the with the requirements, as Courts can find that someone is an employee where an employer has hired them contractually. If you’re unsure of whether you should hire someone as an employee or a contractor, an employment lawyer can advise you of the best course to take.
4. New tax obligations
Hiring employees comes along with tax obligations that you don’t have if you’re working alone. You will have to register for PAYG withholding, which is where you will make deductions to an employee’s gross pay to pay the required taxes. Under PAYG withholding, you will have to make payments for superannuation (at a minimum of 9.5%), any fringe benefits, and any commonwealth ‘study assist’ loans that an employee owes which becomes deductible from their wage once they make over the annual threshold of $51,957 (at a tax rate of 2%). This rate will increase the higher an employee’s salary is.
In addition to PAYG, you will also have to start paying Payroll Tax – but only if you expend a certain amount in wages per year. If you’re only hiring one or two employees, it is likely that you will not have to pay as you will be below the NSW threshold of $850,000 per year. It is also worth noting that Payroll Tax is a state-based tax, therefore, the thresholds and rates at which you have to pay will differ depending on where you operate your business.
5. Employment document
Determine whether you will be employing your new employee under an employment agreement or under the relevant award. Having an employment agreement will allow for the employment arrangement to be tailored more to the circumstances of your business, and you can include clauses for things such as notice periods, leave entitlements, non-disclosure or restraint of trade. Offering a contract will also give you room to negotiate with the potential employee. Negotiating these types of contracts not only involve remuneration but can also cover things such as probationary periods, fringe benefits and leave entitlements.
Even if you don’t provide your employee with a contract, they will still have certain rights under the award. The award will provide information such as what the minimum wage you have to pay your employee is, details or leave entitlements, and notice periods upon resignation or retrenchment. It is also worth noting that in terms of dismissal, you will have to comply with the Small Business Dismissal Code so that in the event that the terminate an employee, it’s done in a fair and legally compliant manner.
Hiring your first employee can mean big things for your business, but it can also seem like a daunting task. If you ensure that you follow the tips above and comply with all your obligations both to the government and to your new employee, then you can continue to grow your business and maybe hire even more people down the track. Being an employer carries a lot of responsibility to not only your workers, but also government regulators so it’s important that you get it right.