Congratulations! You’ve successfully grown your business enough to need to take someone else on, but there are a number of considerations to take into account. Hiring someone new in a growing business is not without risks – you need to think carefully about what kind of contract, whether or not you can fit them into your budget (plus all the hidden costs like kiwisaver and holiday pay), and make sure you have enough work coming in to sustain them. Not to mention working out how to pay all the right taxes and deductions! It’s a delicate balancing act, but there are a number of things you can do to plan in advance and minimise stress so you can focus on the important things like growing your business.
Here’s our best advice and most helpful resources for first time employers, to make sure you tick all the right boxes.
You can’t hire an employee as a casual, when in reality they are a part-time or full time employee. The same goes for hiring as an independent contractor or fixed term contract when really they are a full-time, permenant employee. Make sure you’re clear on the definitions and choose the right one. The Ministry of Business, Innovation and Employment (MBIE) has some really hand guides and definitions.
Employee costs don’t just include the hourly rate you’ve agreed with them. You also have to factor in tax deductions (that you collect and pass on to the IRD), Kiwisaver employee contributions and deductions (that get passed on in a separate transaction), superannuation payments, holiday pay, annual leave, public holidays, training costs, paying employees for their time that isn’t spent on revenue generating activities (i.e. internal meetings) and also factor in their breaks.
Make sure that the revenue you are bringing in will exceed all of these costs. To help with these calculations, as well as getting your deductions right every payday, you can enter the data into this handy calculator from the IRD: PAYE / KiwiSaver deductions calculator. There’s also a range of Fringe Benefit Tax calculators and a full guide to employer reponsibilities. You’ll still need to factor leave requirements and holidays, as well as training costs into your forecasts.
Your employees need to have clear job descriptions and employment agreement that meets all the right legal requirements. It sounds scary, but luckily MBIE has this super handy employment agreement builder to put together a legally compliant contract and letter of employment. Writing a clear, accurate job description is up to you, but researching job posts for similar positions can be a good start.
Your job description should:
– Identify your business, its priorities and objectives
– Outline the hours of work
– Outline the purpose of the position
– Be written at a level appropriate for the position you are filling
– Clearly identify the core tasks and responsibilities
– Describe who the person is responsible to and who reports to them
– Describe any minimum legal, educational or experience requirements
– Describe ideal personal skills and attributes
– Set out your performance measures or expectations for the job.
The next step is to register as an employer with the IRD. This is super simple, all you will need is to have your IRD number on hand.
This form tells you the tax code to use, and the correct rate to deduct. This can be found here on the IRD website. You’ll also need to find out if you have any fringe benefit tax obligations or taxes to be paid on schedular payments among other specific considerations to look into.
The tax code declaration will help you to work out the right deductions – whether you need to deduct student loan payments, the right tax rate, superannuation fund deductions, kiwisaver, and any charity donations.
You can pay this amount online, just be sure to have all the correct bank details and all the right reference codes in the right places. A full guide can be found here.
There’s a lot of careful planning that needs to be done. It can be really intimidating, and for a first time employer, all of the IRD forms, deductions, payments and due dates can be a hassle. Not many of us are hiring a payroll manager as our first employee! At SmartPayroll, we’ve spent a long time trying to reduce those hassles. We’ve set up an entire system to automate as much as possible, calculate all the right deductions and simultaneously pay your employees and pay the IRD. We invite you to contact us to find out more, or to sign up online now! It only takes a few minutes to remove the hassle from payroll, so you can focus on your core business.