Everyone needs an extra pair of hands on occasion, and sole traders are no exception. You may have gone into business on your own, but now you’ve put in the hard yards, your business has grown (go you!), so it may be time to get some help.
But can a sole trader have an employee? You sure can! In fact, you can hire more than one employee without having to incorporate a company. But you do need to consider the types of workers you require, your rights and responsibilities, and, of course, your tax obligations.
In this comprehensive guide, we’re here to walk you through everything you need to know as a sole trader taking on an employee. Let’s dive in.
- Types of workers
- Full-time employee
- Part-time employee
- Casual employee
- Fixed-term contract employee
- Independent contractor
- Your obligations
- Checking/providing documentation
- Assessing costs and benefits
- The admin involved
- Hnry sorts your taxes
Decide on the kind of worker you’re looking for
Good news: As a sole trader you have the option of hiring any of the following:
Full-time employee
Full-time employees usually work 38 hours on average each week. They’re typically employed on a permanent basis or on a fixed-term contract (see below for fixed-term employees). Depending on your needs, they may be the best choice for handling daily tasks crucial for your business’s success.
Part-time employee
Part-time employees work less than 38 hours a week, and those hours are typically regular. They’re also usually employed on a permanent basis or on a fixed-term contract. Part-time employees offer flexibility for regular help without the commitment of full-time hours.
Casual employee
A casual employee’s roster typically changes each week, according to an employer’s needs. Casuals are handy if you need ad-hoc help – although you may be better off using an independent contractor (see more on that below).
Fixed-term contract employee
Fixed-term contract employees (both full-time or part-time) are employed on a contract that finishes at the end of a set period. They’re good for specific projects, like creating and implementing an ecommerce strategy and website, where you want a level of control over the employee’s work.
Independent contractor (or subcontractor or freelancer)
Independent contractors are not employees. They’re responsible for their own tax and superannuation, and control their hours, as well as where and how they get the work done. They typically also work for other clients. A subcontractor can be helpful in overseeing and delivering specific projects or simply completing one-off jobs like the design of a logo or series of blog articles.
💡 Note: The distinction between an independent contractor and an employee can be complex. You’re responsible for classifying your worker for tax and super purposes and you need to get it right or you’ll face penalties. For example, you may still have to pay super for individual contractors if the contract is primarily for their labour. Tricky, right? Check out the ATO’s article How to work it out: employee-or-contractor and the Fair Work Ombudsman’s independent contracting page, or take legal advice.
Understand your obligations as an employer
When you hire staff, you’ll need to comply with all relevant legislation including:
How to pay an employee as a sole trader
Paying your staff properly is essential – nobody’s keen on surprise deductions or being paid peanuts!
Most jobs are covered by an award (a legal document that outlines the minimum pay rates and conditions of employment for a particular industry including things like penalty rates for those Sunday sprints or overtime for the extra hustle). Not sure where to start? The Fair Work Ombudsman’s Pay and Conditions Too has got your back – it’s like a GPS for navigating awards. And if there’s no award available for a particular job, just make sure you’re paying staff at least the National Minimum Wage.
Keep your eyes peeled for changes to pay rates and awards. They’re typically reviewed each July so make sure you don’t get left behind.
You’ve also got to pay your staff at least once a month (yep, it’s a must - check in the award). And don’t forget the payslip! It’s like the receipt you get after a shopping trip – it needs to show what the employee earned and what got taken out for taxes. Make sure you give this to your staff no later than one working day after you pay them.
Registering for PAYG tax
In most cases, you’re required to deduct tax from your employee’s payments. These withheld amounts, known as PAYG withholding, must be sent to the ATO regularly. To do this, you must first register for PAYG withholding.
Superannuation contributions
It’s mandatory to make super contributions for all qualifying employees to a compliant superannuation fund or retirement savings account. This obligation, known as the Superannuation Guarantee (SG), applies to full-time, part-time, and casual employees, as well as certain contractors. More on this later.
Paid leave
Full-time employees are entitled to various paid leave including:
- annual leave
- sick leave
- carer’s leave
- family and domestic violence leave.
Part-time team members enjoy the same minimum entitlements as the full-timers, though they’re scaled down to match their hours. This is what we call ‘pro-rata’ i.e. in proportion to the amount of hours they work. The only exception is family and domestic violence leave which isn’t pro-rated.
Casual employees are granted two days’ compassionate leave every time something happens that calls for it (known as ‘per occasion’) along with family and domestic violence leave.
Fixed-term employees typically receive the same leave benefits as permanent staff.
Workers’ compensation
If you have an employee, you’ve got to have workers’ compensation insurance. It’s like a safety net, making sure your staff are covered if they’re out of action because of an accident or serious illness due to their work.
Safe working environment
In addition to workers’ compensation, you’re also required to take reasonable measures to ensure your employees operate in a healthy and safe working environment. To do this, you may have to make changes to your workplace to provide:
- information, instruction, training and supervision
- safe premises, machinery and materials
- safe work systems
- a suitable working environment and facilities.
You’ll need to provide your employees with information on work health and safety (WHS) and their WHS obligations.
Each state has its own WHS laws and a regulator to enforce them, so make sure you know what applies to you.
Working hours limit
Typically, both you and your employee must agree on work hours and schedules in advance, particularly for full-time or part-time roles. Extra regulations may apply, such as how much notice to give staff if you change their roster or hours.
For casual workers, review the relevant award beforehand as they may have entitlements regarding minimum daily hours or guaranteed pay for each shift worked.
Anti-discrimination
Discrimination in any form is strictly prohibited in the workplace, extending from the recruitment process to the employment period.
You can’t legally discriminate against job applicants or employees based on various factors, including:
- race
- colour
- national origin
- social background (class, caste or socio-occupational category)
- sex
- sexual orientation
- gender identity
- intersex status
- experiencing (or have experienced) family and domestic violence
- age
- physical or mental disability
- marital status
- family or carer’s responsibilities
- pregnancy
- breastfeeding
- religion
- political opinion
- participation in industrial activities (such as membership of a trade union).
If you interview or hire someone with a disability, you may need to make adjustments to your workplace or work practices to make sure it’s safe and accessible for them.
Make sure to consult state or territory resources to understand the discrimination laws applicable to you.
Check and provide documentation
Visas for overseas workers
You’ve found the perfect hire - fantastic! Now you’ve got to make sure they’re eligible to work in Australia. If you’re considering hiring an overseas worker, it’s on you to confirm that they have the right visa. You can use the handy, free Visa Entitlement Verification Online (VEVO) service for this.
Migrant workers, including those on working holiday visas and international students, are entitled to the same workplace rights and benefits as other Australian workers, including equal pay rates.
Licences and qualifications
If your business requires staff to have specific licences or qualifications, make sure these credentials are in order. If not, consider offering training.
Find out about your industry licence and permit requirements and search the Australian Business Licence and Information Service for licences your staff may need.
Information statements
The Aussie motto that everyone’s entitled to a ‘fair go’ applies to staff. Every employee needs to know what their rights at work are. This means you have to provide your new hire with certain documents, such as the Fair Work Information Statement (FWIS) before, or as soon as possible after, they start working for you. This gives them information about their minimum conditions of employment, including the National Employment Standards (NES).
If you hire someone on a fixed contract, you must also give them the Fixed Term Contract Information Statement (FTCIS), and casual employees must receive the Casual Employment Information Statement (CEIS).
And if your employee is covered by an award, you’re required to make the relevant award easily available to them.
Assess cost and benefits
Before diving in with hiring an employee, take a moment to reflect on your business needs to ensure you find the perfect fit. Here are some things to think about:
- What specific tasks will the employee tackle?
- What skills and qualifications are essential for the job?
- Are there any training programs the role might require?
- How much supervision will be necessary?
- What’s the workload like for this position?
- How long do you anticipate needing someone?
Also, consider the potential financial impact on your business in relation to the costs of hiring an employee including:
- recruitment costs
- salary considerations (what’s the going rate and what are you willing and able to pay?)
- extras like overtime and leave
- your tax and super commitments
- workers’ compensation
- any changes needed to make your workplace safe and accessible
Once you’ve weighed up all these factors, you’ll have a clearer picture of whether as a sole trader taking on an employee aligns with your business goals.
Manage the admin
Pay taxes and other levies
It’s your responsibility to pay the correct tax for your employees – if you don’t, you face penalties and that’s no fun, right?
Kick things off by getting your new hire to complete a tax file number (TFN) declaration form. This little form is a big deal because it helps you figure out how much tax to deduct from your employee’s pay. If they skip this step, they’ll be taxed at the highest possible rate.
Now, for PAYG (pay as you go) tax: basically, you need to play tax collector on your employee’s earnings. Not sure how much to hold back? The ATO’s got tools like a tax withheld calculator or tax tables to help you work this out. There’s also Single Touch Payroll software – but more on that later.
Make sure you also withhold the correct amount for your employee’s Medicare Levy and any Higher Education Loan Program (HELP)/Student Loan debt repayments.
Finally, wrap it all up by declaring (and paying) those withheld amounts in your Activity Statement lodgements to the ATO.
Other taxes to consider:
Payroll tax
Payroll tax is an extra tax charged by state or territory governments if the total amount of wages you pay goes over a certain threshold. Check to see if you’re liable for this. Thresholds and tax rates vary across jurisdictions.
Fringe Benefits Tax
Ah, Fringe Benefits Tax (FBT) – sounds fancy, doesn’t it? This comes into play when you treat your employees to certain extra perks. We’re talking the kind of things that make life a little sweeter, such as letting them use the company car for weekend road trips, reimbursing them for car parking fees, taking the team out for lunch/dinner/drinks, the annual Christmas party, tickets to events, gift cards, or other kinds of entertainment.
Here’s the deal if you’re dipping your toes in the FBT pool:
- first off, figure out what kind of perks you’re giving out
- next up, calculate how much these goodies are worth using the approved methods (yep, there’s a bit of maths involved)
- got an FBT bill to settle? Time to lodge an FBT return and pay up
- if the total value of these perks crosses the $2,000 mark, you’ll need to report it, all grossed-up as part of your employee’s benefits.
And here’s a twist: If your employee chips in towards these fringe benefits, those contributions may be considered as assessable income. You can find out more about FBT on the ATO website.
Pay super
Super’s not just a retirement dream fund for your staff but a must-do on your list as an employer. If you don’t pay super for your eligible employees, you’ll have to pay a Super Guarantee Charge (SGC), and trust us, it’s a bigger bite out of your wallet than regular contributions – and you can’t even claim it back on tax. Major ouch, right?
Here’s how to stay on top of it:
Regardless of whether you pay super on a weekly, monthly, or quarterly basis, always calculate it using the latest rate. Come July 2024, you’re looking at 11.5%, and by FY 2025, it hits the 12% mark.
If your employee is eligible to pick their own super fund, you’ve got 28 days from their start date to give them a standard choice form. For others, you’ll need to contact the ATO for details of their stapled super fund (that’s the one that stays with an employee when they change jobs).
Also, double-check the award your employee is under – there might be a few more super steps to take.
And remember, playing by the super rules is non-negotiable. Not doing so might lead to extra penalties for you personally as the employer, and let’s face it, no one needs that.
Keep employee records
Imagine you’re a secret agent (sunglasses on, of course), assembling a detailed dossier on every member of your squad. That’s an exciting way to say that you’ve got to keep employee records for seven years about their:
- work history
- salary
- hours worked
- leave entitlements
- superannuation contributions
But that’s not all: You’ve got to keep a whole bunch of records related to your employee’s tax, super calculations and super fund obligations for five years. Bet no one told James Bond this, right?
Report to the ATO
It’s important to keep the ATO updated about the payments you make to your employees. This includes things like:
- their salaries and wages
- any tax you’ve taken out (PAYG withholding)
- fringe benefits you’ve provided
- super contributions you’ve made on their behalf
Every time you pay your employees, you’ll need to share this tax and super information with the ATO using a special type of payroll software called Single Touch Payroll (STP). This reporting covers details such as their pay and the tax withheld.
Also, by 14 July each year, it’s important to double-check everything and send a final report for the year through STP. This ensures your employees have the information they need to do their tax returns.
How you send this payroll info to the Tax Office depends on your setup and the payroll software you’re using. The ATO’s start reporting checklist will walk you through the steps to get your first STP report sent off smoothly.
Hnry sorts your taxes
Phew! As you can see, hiring employees comes with a heap of administrative tasks and legal requirements. But fear not! Hnry’s here to lighten your load when it comes to taxes!
Let’s be real, unless you’re an accountant, navigating the ins and outs of taxes can be a real headache.
That’s where we come in. Hnry is an award-winning app designed specifically for sole traders. We take care of all your tax needs, so you can relax and spend your time and energy on other parts of your business.
For just 1% + GST of your self-employed income, capped at $1,500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:
Easy! Basically, we make it so you never have to think about tax again. Join Hnry today.
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