For many small business owners, hiring the first employee feels like a major milestone. The focus is often on the hourly rate, the start date and the work schedule. But from a compliance perspective, hiring staff also means the business is taking on employer obligations.
Step 1: Employee vs contractor classification
The first step is to determine whether the worker is truly an employee or an independent contractor. This is not decided simply by whether the worker has an ABN or by the label used in an agreement. The real question is how the working relationship is structured, including the rights and obligations under the contract, control over the work, payment terms, risk, equipment, delegation and other practical factors. Getting this wrong can affect PAYG withholding, superannuation and other employer responsibilities.
Step 2: Onboarding documentation
The second step is onboarding. Employers generally need to collect personal details, TFN declaration information, bank account details, superannuation fund information, role details and employment terms. Because this information is sensitive, it should be collected and stored carefully rather than casually exchanged by unsecured email.
Step 3: Register for PAYG withholding
The third step is PAYG withholding. If your business will be making payments that are subject to withholding, you generally need to register for PAYG withholding before the first such payment is made. This can apply even if the actual amount withheld from a particular payment is nil.
Step 4: Set up payroll and STP
The fourth step is payroll and Single Touch Payroll (STP). STP is the system used to report payroll information such as wages, PAYG withholding and superannuation details to the ATO. Payroll categories, allowances, deductions, leave, pay cycles and termination payments should be set up correctly from the beginning.
Step 5: Superannuation guarantee
The fifth step is superannuation. Employers need to pay superannuation guarantee contributions for eligible employees and ensure the payments reach the employee's fund on time. Quarterly super rules continue to apply for earnings paid up to 30 June 2026. From 1 July 2026, Payday Super will require employers to pay super guarantee in line with each payday, so it is worth building good payroll habits now.
First-employee onboarding checklist
Before hiring your first employee, a practical checklist includes:
- Confirm whether the worker is an employee or contractor.
- Prepare employment terms or an agreement.
- Collect TFN, bank and super details securely.
- Register for PAYG withholding where required.
- Set up payroll software and STP reporting.
- Check award coverage, pay rates, leave and hours.
- Set aside cash flow for PAYG withholding and super.
- Keep payroll, timesheet, leave, super and STP records.
Hiring staff is a positive step, but it should be done properly. Before the first pay run, it is worth having your payroll, STP and super settings reviewed so that the business starts with a clean and compliant process.
