Do you own a business and are hiring employees to work for you? If yes, there are some extra things you need to do those can help you with taxes later. You must provide your workforce with some benefits as determined by the Australian Taxation Office (ATO) even if they are from your family. Some of the things to consider for employees include:

• TFN declaration

This is the foremost thing to concentrate on. You need to know the Tax File Number of the employee you are hiring to ensure proper tax deductions. If they hesitate in telling you their TFN, you can deduct tax from their pay at the highest rate.

• PAYG withholding

The other thing to consider is their PAYG withholding. Pay as you go, i.e. PAYG means you must take out the right amount of tax from your employee’s salary throughout the year and pay it to the taxation office. The amount you should take out depends on how much they earn. You need to register for PAYG withholding if you pay:

1. employees
2. company directors and office holders
3. people who you employ under a labour hire agreement
4. people who you have agreed to withhold PAYG
5. a supplier that hasn’t given you their Australian business number (ABN)

• Fringe benefits tax

A fringe benefit is a form of payment made to an employee, but in a different form. An employee receives a payment in the form of a fringe benefit in addition to their income or earnings. Some examples of fringe benefits include:

1. Allowing an employee to utilise a company vehicle for personal travel
2. Paying for their gym membership
3. Offering entertainment like free concert tickets

You may be required to pay fringe benefits tax if you give your employees these fringe benefits.

• Hiring contractors

Both hiring contractors and employees is legal as long as the terms of the working contract correspond to the worker’s classification. Understanding the difference between workers and contractors is crucial as:

1. It modifies your obligations for reporting and paying tax, superannuation, and other benefits to your employees.
2. If you incorrectly classify a contractor as an employee and fail to fulfil their obligations, you may be subject to fines and prosecution.

You do not need to withhold tax or make super contributions for contractors because they have their own ABNs. But you need to pay the GST for their services only if they are registered for GST.

If you are a new business owner and don’t know anything about taxes and deductions, our team at KPG Taxation can help you out.