Hiring Your First Employee: The Financial Checklist

Beyond the Salary: The True Cost of Your First Hire

When you think about hiring your first employee, the salary is the obvious cost. But the true cost of employment is significantly higher. For every $1 in salary, you will actually spend $1.20 to $1.40 when you include all the on-costs.

Understanding the full financial picture before you hire ensures you can sustain the commitment and avoid cash flow problems down the track.

The Real Cost Breakdown

Let us say you are hiring someone at a $60,000 annual salary. Here is what the total cost looks like:

Base Salary: $60,000

The gross annual salary before tax. This is what the employee sees as their pay, before PAYG withholding.

Superannuation: $6,900

Currently 11.5% of ordinary time earnings. This is paid on top of the salary, not deducted from it. Super is due quarterly (28 days after the end of each quarter).

Workers Compensation Insurance: $600-$3,000+

The premium depends on your industry and the risk profile of the role. An office worker costs far less to insure than a construction labourer. Premiums are typically 1-5% of wages.

Payroll Tax: $0-$3,000+

Payroll tax thresholds vary by state. In most states, you do not pay payroll tax until your total wage bill exceeds a threshold (e.g., $700,000 in NSW, $700,000 in Victoria). For most businesses hiring their first employee, payroll tax will not apply yet. But be aware of the threshold as you grow.

Leave Entitlements: $5,750+

Full-time employees are entitled to:

• Annual leave: 4 weeks per year (valued at approximately $4,600)
• Personal/carer's leave: 10 days per year (valued at approximately $2,300)
• Public holidays: Varies by state (approximately 10 days per year)
• Long service leave: Accrues after a qualifying period (varies by state)

Not all of this is an immediate cash cost (it is a liability that builds over time), but you need to budget for it.

Equipment and Setup: $2,000-$5,000

The employee needs tools to do their job:

• Computer and software: $1,500-$3,000
• Desk and chair: $500-$1,000
• Phone or phone plan: $200-$500
• Uniforms or safety gear: Varies
• Training materials: Varies

Recruitment Costs: $1,000-$5,000

Job advertisements, recruitment agency fees (if used), interview time, and reference checking. These are one-off costs but should be factored in.

Ongoing Overhead: $500-$2,000/month

Additional overhead from having an employee:

• Increased insurance premiums
• Additional software licences
• Office space if they work on-site
• Kitchen supplies, toilet paper (the unglamorous costs)
• Additional accounting and bookkeeping time

Total Year-One Cost

For a $60,000 salary, the all-in cost is approximately $72,000 to $80,000 per year. That is 20-33% above the base salary.

Financial Readiness Checklist

Before hiring, confirm:

1. Can You Afford It?

Run the numbers:

• Does your current revenue support the additional cost?
• Will the employee generate enough additional revenue or savings to justify their cost?
• Can you sustain the cost during your quietest months?
• Do you have a cash reserve to cover the first three months of employment costs while the employee gets up to speed?

2. Is Your Cash Flow Stable?

An employee needs to be paid every pay cycle, regardless of how your cash flow is looking. Ensure your cash flow is stable and predictable enough to meet this obligation consistently.

3. Have You Set Up Payroll?

You need payroll software that handles:

• Wage calculations (including penalty rates if applicable)
• PAYG withholding
• Superannuation calculations
• Leave accruals
• Single Touch Payroll (STP) reporting to the ATO

Popular options include Xero Payroll, KeyPay, and Employment Hero.

4. Are You Registered?

Before your first pay run, you need to:

• Register for PAYG withholding with the ATO
• Register for workers compensation insurance with your state's insurer
• Set up a super clearing house or direct payments to the employee's super fund
• Obtain a WorkCover/workers compensation policy

5. Do You Have the Right Employment Documentation?

Prepare:

• Employment contract (compliant with the relevant award or enterprise agreement)
• Fair Work Information Statement
• TFN declaration form
• Super choice form
• Company policies (leave, conduct, WHS)

Setting Up Payroll in Your Accounting Software

If you use Xero, payroll is built in. Set up:

1. Pay calendar - Weekly, fortnightly, or monthly
2. Employee record - Personal details, TFN, super fund, employment type
3. Pay rates - Base rate and any applicable allowances or penalty rates
4. Leave types - Annual leave, personal leave, long service leave
5. STP connection - Link to the ATO for automated reporting
6. Super fund - Set up the employee's nominated super fund

Process your first pay run and verify everything is correct before the employee starts.

The Award Trap

Most employees in Australia are covered by a modern award that sets minimum pay rates, penalty rates, overtime rules, and other conditions. Using the wrong award, or not applying an award at all, is a common and costly mistake.

Find the right award using the Fair Work Commission's award finder tool. Common awards include:

• Clerks Private Sector Award
• Building and Construction General On-site Award
• Hair and Beauty Industry Award
• Restaurant Industry Award
• Health Professionals and Support Services Award

If you are unsure, get advice from a HR consultant or employment lawyer before hiring.

Ongoing Financial Obligations

Once you have hired, your ongoing obligations include:

• Each pay run: Calculate wages, withhold PAYG, report through STP
• Monthly: Reconcile payroll to your accounts
• Quarterly: Pay superannuation by the due date (28 days after quarter-end)
• Quarterly: Report PAYG withholding on your BAS
• Annually: Finalise STP data by 14 July
• Annually: Reconcile and renew workers compensation insurance

Stay on top of these obligations. Late super payments attract the super guarantee charge (a penalty). Late PAYG withholding can result in Director Penalty Notices.

Making It Work

Hiring your first employee is a significant step. To set yourself up for success:

1. Calculate the full cost (not just the salary)
2. Ensure your cash flow can sustain the commitment
3. Set up payroll software and registrations before the employee starts
4. Understand the applicable award and pay rates
5. Use SortBooks to keep your general bookkeeping automated so you can focus on the additional complexity of payroll
6. Review the financial impact monthly during the first six months

Your first hire should be a growth accelerator, not a financial strain. Plan the finances carefully and the transition will be smooth.