Hiring your first employee is an exciting step for a growing business — but it also comes with a whole new set of responsibilities.
Once you become an employer, it’s not quite as simple as agreeing on a wage and transferring money into your employee’s bank account each week. You need to make sure they’re set up correctly for payroll, paid according to the right rules, and that tax, superannuation and leave are all being handled properly.
Getting these basics right from the beginning can save a lot of payroll headaches later.
Start With the Right Employment Details
Before setting your employee up in payroll, you first need to know how they’re being employed.
Are they full-time, part-time or casual? What role will they perform? Which award or agreement applies to them?
These details can affect their minimum pay rate, leave entitlements, overtime, penalty rates, allowances and casual loading. Most small businesses are covered by an award, so it’s important not to simply choose an hourly rate that “sounds about right”.
Once you know the employment conditions, these should be reflected correctly in your payroll system.
Collect the Information You Need
There are also a few practical details you’ll need from your new employee before their first pay.
This generally includes their personal and contact details, bank account information, tax details and superannuation fund information.
Taking the time to collect everything upfront means you’re not chasing missing details when the first pay run is due.
Set Up Tax and Super Correctly
Your payroll software uses the employee’s tax information to calculate how much PAYG withholding needs to come out of their wages.
Superannuation also needs to be set up correctly. This includes having the employee’s correct fund details and making sure the appropriate super is calculated on their pay.
These amounts aren’t simply extra bookkeeping entries. PAYG withheld from employees must be reported and paid to the ATO, while super contributions need to make their way to the employee’s super fund.
A small setup error can therefore continue through every pay run until somebody notices it.
Make Sure Leave Is Set Up From the Beginning
For permanent employees, payroll should also be set up to correctly track applicable leave entitlements, such as annual leave and personal/carer’s leave.
Your payroll records should keep track of leave taken and the employee’s entitlement balance.
This becomes particularly important as an employee has been with you for longer. Trying to reconstruct a year’s worth of leave because it wasn’t set up correctly at the beginning is much harder than getting it right from their first day.
Don’t Forget Single Touch Payroll
Most employers need to report payroll information to the ATO through Single Touch Payroll (STP).
STP reporting sends information about wages, PAYG withholding and superannuation to the ATO when payroll is processed.
If you’re using software such as Xero, much of the process can be handled within your payroll system — but the information being reported is only as accurate as the payroll setup behind it.
Your First Pay Run Is Worth Double-Checking
Before finalising that first pay, take a moment to check that everything looks right.
Is the employee being paid the correct rate and number of hours? Have any overtime, penalties or allowances been included? Is PAYG withholding calculating? Is super calculating correctly? Are the appropriate leave entitlements accruing?
Employees must also receive a pay slip within one working day of being paid, and employers are required to maintain appropriate payroll records.
Catching a mistake on the first pay run is much easier than discovering you’ve repeated it every fortnight for six months.
Good Payroll Starts With Good Setup
Payroll can become one of the more complicated parts of running a business, but much of that complexity can be avoided by setting things up properly from day one.
Before your first employee starts, make sure you understand their employment conditions, collect the right information and have your payroll system ready to correctly handle their wages, tax, super and leave.
If you’re hiring your first employee and aren’t sure where to start, get in touch with our team. We can help get your payroll set up correctly so your first pay run — and the ones that follow — run smoothly.
