You business and tax Chapter 6: Employing other people Does your business employ people? If so, there are some important things you
must do. You need to deduct the correct amount of tax
from your staff’s pay and send it to the ATO. You must do this for all employees, even if
they are family members. This money is then sent to the ATO four times
each financial year, usually when you pay your GST. This is called Pay As You Go or
PAYG. You will also need to report the PAYG payments
on your Business Activity Statement. Before paying your employees for the first
time you must contact the ATO and register for PAYG withholding. When an employee starts work for you, ask
them to complete a Tax File Number Declaration form. If your employees provide you with their TFN,
you should follow the ATO’s guide on how much tax to deduct from their pay. If they don’t provide their TFN then you must
deduct PAYG at the highest rate. The tax rates are available on the ATO website ato.gov.au Each year, you must provide all your employees
with a payment summary. This shows how much they were paid and how
much tax was taken from their pay. You must provide this summary to them within
two weeks of the end of the financial year – the 30th of June each year. You must also provide the ATO with the same
details. You may also have to register for and pay
Fringe Benefits Tax, known as FBT. This is a tax an employer pays on any non-cash
payments or benefits provided to employees such as a mobile phone they can use for private
purposes outside of work. It also applies to the private use of a work
car or clothes they can wear outside work, paying their health costs or their children’s
school fees; and benefits such as cheap loans or tickets to sporting events, concerts or
movies. These payments must be declared on an FBT
return, lodged with the ATO after the end of the FBT year. The FBT year runs from 1 April to 31 March
each year. Instead of hiring employees, you may use independent
contractors. These are people with their own business and
ABN who may do work for you, such as an electrician or a plumber. Usually independent contractors will pay their
own PAYG, GST, and FBT. Or you can agree to deduct this money and pay it to the ATO for
them. To find out more about who is an independent
contractor and who is an employee, visit the ATO website and look up the Employer Contactor
Decision Tool or phone them on 13 28 66. To find out more about employing people, visit
the ATO website at ato.gov.au and look up the Employer essentials or phone 13 28 66. If you don’t speak English well and want to
talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for
help with your call. Scenario
Kim: Thanks Ninh, you’ve finally got some help around here.
Ninh: Yeah Mei’s great. I was getting so busy. Kim: You’ll have an empire soon. So is Mei
tax deductible? Ninh: I can claim employee costs, but I had
to let the ATO know I employed her first. Kim: I bet tax really gets complicated when
you start taking on staff. Ninh: I thought it would be, but it’s really
simple. Kim: Really, so what happens?
Ninh: I asked Mei for her TFN, then I worked out how much tax I needed to take from her
pay. I then send this amount to the ATO. Kim: How do you send her tax to the ATO?
Ninh: My tax agent registered me as an employer, so now I need to fill in other details on
my BAS, like how much tax I have taken from her pay.
Kim: That’s it? Ninh: That’s it. I give her a payment summary
in July so she can do her tax return too. Kim: What is on that?
Ninh: The payment summary tells her how much I’ve paid her and how much tax I have taken
out of her pay. Kim: Thanks Mei.