There are roughly 30 separate legal obligations sitting between you and your first hire. Miss the right one and you can be personally liable for unpaid super, fined for the wrong contract, or, since 1 January 2025, criminally prosecuted for deliberate underpayment.
Most of those obligations take five minutes each. The problem is knowing they exist.
This guide walks through every legal step to hire your first employee in Australia. The registrations you need before you advertise. The paperwork they sign on day one. The award you have to apply. The super choice form most employers fill in wrong. The 7-year record-keeping rule that catches people out at audit time. And the new wage theft criminalisation that has changed what "I didn't know" costs you.
It is written for the founder, owner-operator, or director making their first hire, and for anyone who has hired before but never read the whole compliance picture in one place.
Published: May 2026
In Australian workplace law, an employee is a worker engaged under a contract of service, not a contract for services. They take direction on what to do, when to do it, and how. Their work is integrated into your business. You provide the tools, the workspace (physical or remote), and the brand they operate under.
A contractor, by contrast, is engaged under a contract for services. They run their own business, set their own hours within reason, can subcontract or delegate, take on commercial risk, and invoice you for outcomes.
This distinction matters because every legal obligation in this guide attaches to the employer-employee relationship. Get the classification wrong and you can owe years of back-paid super, leave, payroll tax, workers comp premiums, and now, criminal liability under the sham contracting provisions of the Fair Work Act, with a maximum penalty of $495,000 for a body corporate that knowingly misrepresents an employee as a contractor.
From 26 August 2024, the Fair Work Act introduced a new statutory definition of "employee" that looks at the real substance of the relationship, not just what the contract says. The contract still matters. But so does what actually happens in practice.
If you are unsure whether the person you are hiring is an employee or a contractor, run them through our contractor vs employee cost calculator and read our contractor vs employee classification checklist before signing anything.
For the rest of this guide, we assume you have decided to hire an employee.
These are the registrations and accounts you need in place before you write a job ad. None of them are optional. Most are free. All of them take longer than you think on the day you need them.
If you pay wages to an employee, you are required to withhold tax from those wages and send it to the ATO. To do that, you need to register for PAYG (Pay As You Go) withholding. This is done through the ATO Business Portal or by phone. It is free, takes a few minutes, and adds PAYG withholding as an active role on your ABN.
You should register before the first payment is made. The ATO does not fine you for being a week late on registration if your first pay run is also your first PAYG withholding lodgement, but if you delay further and start paying staff without remitting withholding, the consequences escalate quickly.
Workers' compensation is mandatory in every Australian state and territory. The moment you have an employee, you must hold a current workers comp policy. The scheme is state-based, with each jurisdiction running its own insurer and rules.
Premiums vary widely by industry. A small office-based business might pay 0.4 to 0.8% of wages. A construction or manufacturing business can pay 4 to 8% or more. Get a quote before you finalise the budget for the role. Operating without a current workers comp policy is an offence in every jurisdiction and exposes the business owner to personal liability for the employee's medical costs, wage replacement, and rehabilitation if injured.
Payroll tax is a state-based tax on total Australian wages above each state's threshold. You only register when your wages cross the threshold, and the thresholds vary materially:
For most first-employee scenarios, you are well below the threshold. But payroll tax is grouped, meaning related entities have their wages aggregated for threshold purposes. If you operate multiple entities, you may be over the threshold without realising. Check our state-by-state payroll tax thresholds and rates guide and the payroll tax threshold calculator before assuming you are exempt.
Every Australian employer must report payroll information to the ATO in real time through Single Touch Payroll. STP Phase 2 has been mandatory since 1 January 2022, with full software compliance required from late 2022 onwards.
STP reporting is done through your payroll software, not directly through the ATO. If you are using Xero, MYOB, Employment Hero, KeyPay, Reckon, or another mainstream Australian payroll product, STP Phase 2 reporting is built in. You just need to enable it and configure your business details.
STP Phase 2 requires you to break down each pay run by income type (salary and wages, overtime, allowances, bonuses, commissions, lump sums, paid leave), employment basis (full-time, part-time, casual), tax treatment code, and other granular fields. Most software handles this automatically once the initial setup is right. The risk is that the setup is wrong, particularly with allowance coding and ordinary time earnings classification, which becomes a much bigger problem from 1 July 2026 when Payday Super takes effect and super is calculated directly from STP-reported earnings.
Until 30 June 2026, employers can use the ATO's Small Business Superannuation Clearing House (SBSCH) to pay super, but the SBSCH closed to new users on 1 October 2025 and will be permanently decommissioned from 1 July 2026.
If you are setting up payroll now, you need an alternative super clearing house from the start. Your options:
Whichever you choose, set it up before the first pay run. Once Payday Super starts on 1 July 2026, super contributions must reach the employee's fund within 7 business days of payday, with penalties for any shortfall.
Not a legal requirement for sole traders, but functionally mandatory. You cannot run payroll, pay super, manage BAS, or maintain clean records without a separate business account. For companies and trusts, a separate account in the entity's name is effectively required by ASIC and ATO record-keeping standards.
If you are still operating from a personal account, sort this before you hire. Mixing personal and business funds creates real bookkeeping, tax, and compliance problems, particularly when an employee is in the picture and you need a clean audit trail.
Modern Awards set the minimum pay rates and conditions for most Australian employees. There are 121 awards. Each covers specific industries or occupations. Picking the wrong one, or assuming none applies when one does, is the single most common compliance mistake in first-time employment.
Three rules to apply, in order:
Rule 1: Awards cover by industry or occupation. The General Retail Industry Award (MA000004) covers shops. The Hospitality Industry (General) Award (MA000009) covers cafes, restaurants, hotels. The Clerks Private Sector Award (MA000002) covers most administrative roles in businesses that are not industry-specific. The Professional Employees Award (MA000065) covers professional employees in IT, engineering, scientific work and similar. The Building and Construction General On-Site Award (MA000020) covers construction. There is an award for almost every industry, and many roles are covered even when the business owner did not know an award applied.
Rule 2: If multiple awards could apply, the one most specific to the work performed applies. A bookkeeper in a hospitality business is covered by the Clerks Private Sector Award, not the Hospitality Award, because the work performed is clerical, not hospitality.
Rule 3: If no award covers the role, the employee is "award-free" and is paid under the National Minimum Wage and the National Employment Standards. This is rare. Most operational roles in most businesses are covered by an award.
To find the right award, use the Fair Work Ombudsman's "Find My Award" tool. Search by industry and by the duties of the role. If you are still unsure after that, get advice. The cost of getting an award wrong over 12 months of employment regularly exceeds $10,000 in back-pay, penalties, and remediation costs.
Once you have the award, you need the right classification within it. Awards have levels (Level 1 through Level 6 or higher), and the classification depends on the actual duties performed, not the job title. A "retail assistant" doing stock ordering, rostering, and store opening is almost certainly a Level 3, not a Level 1.
For an overview of how Modern Awards work, see our state-by-state breakdown of employment costs and the complete cost of hiring guide.
You are not legally required to have a written employment contract under the Fair Work Act. A verbal agreement is binding. But not having one in writing is a bad idea for both sides.
A written contract should cover:
A common mistake is using an "annualised salary" arrangement that absorbs penalty rates, overtime, and allowances into a single salary figure. Several Modern Awards allow this, but they have strict rules: written notification, reconciliation each year, and an undertaking that the employee is no worse off than under the award. If the reconciliation shows the employee was paid less than the award would have required, back-pay is owed.
Fixed-term contracts have been subject to new restrictions since 6 December 2023. A fixed-term contract cannot:
There are exemptions for high-income employees (currently above $175,000 indexed), specific government-funded roles, organised sport, and a few other categories.
If your first hire is fixed-term, make sure it actually fits an exemption or genuinely sits within the limits. Misclassifying a permanent role as fixed-term to "trial" the hire is one of the easier ways to end up with an unfair dismissal claim.
Every new employee must be given or asked for the following on or before their first day. This is the compliance pack you cannot skip.
Every Australian employer covered by the Fair Work Act must give every new employee the Fair Work Information Statement before they start work or as soon as practicable after. There are no exceptions. The FWIS is a document published by the Fair Work Ombudsman that explains the National Employment Standards, Modern Awards, agreement-making, individual flexibility arrangements, freedom of association, termination of employment, and the right to request flexible working.
You can download the current version from fairwork.gov.au and email it as a PDF or include it in your onboarding documents. The Fair Work Ombudsman takes "as soon as practicable" strictly. Leaving it for a week is not safe.
If you are hiring a casual, you must give them the Casual Employment Information Statement in addition to the FWIS. The CEIS covers the casual loading, the right to request casual conversion, and the rules around casual employment introduced by recent amendments to the Fair Work Act.
Casual employees must receive the CEIS:
If you are hiring on a fixed-term contract that meets the Fair Work Act criteria, you must also provide the Fixed-Term Contract Information Statement.
The employee fills in a Tax File Number Declaration (TFN Declaration) so you can calculate the correct PAYG withholding. The TFN Declaration is no longer lodged separately with the ATO under STP Phase 2, but you still need to collect and keep it for your records for 5 years.
Make sure the employee correctly indicates whether they are claiming the tax-free threshold, are an Australian resident for tax purposes, and have any HELP, VSL, SSL, ABSTUDY SSL or TSL debt that triggers compulsory repayments.
The employee can choose their super fund. You must give them a Super Standard Choice Form within 28 days of starting. If they do not return it, you must request their "stapled" super fund from the ATO. The stapled fund is the employee's existing fund linked to them in the ATO system. Only after a stapled fund request returns no result can you pay into your default fund.
Paying into the wrong fund (your default fund when they had a stapled fund) is an SG compliance breach. Get this step right.
You must verify that the employee is legally entitled to work in Australia. For Australian citizens and permanent residents, this is straightforward. For visa holders, use VEVO (Visa Entitlement Verification Online) to confirm work rights and any conditions on the visa.
Employing someone without the right to work in Australia is an offence under the Migration Act with civil and criminal penalties up to $99,000 per worker for individuals and $495,000 for companies, plus potential imprisonment for repeat offences.
The signed employment contract is your single most important document if anything goes wrong. Have it signed before the first day where possible.
A position description is not strictly a legal requirement, but it is what underpins your award classification, your performance management, and any future variation to duties. Have one. Keep it with the contract.
If you have written workplace policies (workplace health and safety, code of conduct, anti-discrimination, social media, leave, expense, vehicle, equipment use), provide them as part of the onboarding pack and have the employee acknowledge receipt.
For most first hires, you will not have a full policy suite. At a minimum, you should have: a written employment contract, a WHS policy, an anti-discrimination and bullying policy, and a leave policy.
The National Employment Standards (NES) are the minimum legal entitlements for every employee in the national workplace system. Awards and contracts cannot reduce them, only build on them. You should know each one before your first hire.
1. Maximum weekly hours. 38 ordinary hours per week for full-time employees, plus reasonable additional hours. What counts as "reasonable" depends on the role, the employee's circumstances, the notice given, and any health and safety risk.
2. Requests for flexible working. Eligible employees (parents of school-age children, employees over 55, carers, those experiencing family violence, and some others) can request flexible working arrangements. The employer can only refuse on reasonable business grounds and must follow a specific consultation and response process within 21 days.
3. Offers and requests for casual conversion. Casual employees can request conversion to permanent employment after 6 months (12 months for small business employers). The employer can only refuse on fair and reasonable grounds. See our casual conversion guide for the full process.
4. Parental leave. Up to 12 months of unpaid parental leave for eligible employees, with the right to request a further 12 months. Government-funded Paid Parental Leave, currently up to 20 weeks, is administered through Services Australia and is separate from the unpaid NES leave.
5. Annual leave. Four weeks of paid annual leave per year of service, accruing progressively. Shift workers may be entitled to a fifth week.
6. Personal/carer's leave and compassionate leave. Ten days of paid personal/carer's leave per year, plus two days of paid compassionate leave per occasion of a death or serious injury in the immediate family.
7. Family and domestic violence leave. Ten days of paid family and domestic violence leave per year, available immediately on commencement, not accrued.
8. Community service leave. Unpaid leave for eligible community service activities (jury duty, volunteer emergency services).
9. Long service leave. State-based. Each state has its own long service leave legislation, typically providing leave after 7 to 10 years of continuous service.
10. Public holidays. Paid time off on public holidays, or penalty rates for working them, depending on the award.
11. Notice of termination and redundancy pay. Minimum notice periods scale with length of service. Redundancy pay also scales, from 4 weeks at 1-2 years up to 16 weeks at 9-10 years. Small business employers (fewer than 15 employees) are exempt from redundancy pay under the NES.
12. Fair Work Information Statement. Already covered above. Counts as the 12th NES item in the post-amendment list, though the original NES had 11.
13. Right to disconnect. From 26 August 2024 for businesses with 15 or more employees, and from 26 August 2025 for small business employers (under 15 employees), employees have the right to refuse unreasonable contact outside their working hours. What is "unreasonable" depends on the role, the reason for contact, how the contact is made, the employee's compensation for availability, and personal circumstances.
For the full NES summary in plain English, the Fair Work Ombudsman publishes a one-page reference at fairwork.gov.au.
A probation period is the employer's contractual right to terminate an employee with less formality during the early months of employment. The minimum employment period is the statutory protection from unfair dismissal claims.
Probation is typically 3 or 6 months. It is set in the contract. During probation, you can still terminate with the contractual notice period (or in lieu), and the usual NES protections apply, but the employee cannot bring an unfair dismissal claim if they have not yet completed the minimum employment period.
The minimum employment period is:
If you are a small business hiring your first employee, you fall into the 12-month category. An employee dismissed during their first 12 months cannot bring an unfair dismissal claim, provided you follow the Small Business Fair Dismissal Code. The Code requires that you give a valid reason for dismissal, warn the employee about performance issues, and give them a reasonable chance to respond and improve.
Be careful with "probation extensions." The minimum employment period is fixed by statute and not extendable by contract. Once an employee passes 12 months in a small business, they have access to unfair dismissal protection regardless of what the contract says about probation.
Your first pay run is where everything you have set up so far is tested. The checklist:
Get the first pay run right and the next 51 are mostly maintenance. Get the first one wrong and the errors compound for the entire year.
Payslips must include the employer's name and ABN, the employee's name, the pay period, the date of payment, gross and net pay, hours worked at each rate, allowances and loadings broken out, deductions, super contributions made or accrued, and the employee's leave balances. This is not optional and the Fair Work Ombudsman audits payslip compliance regularly.
For the full payroll setup process in Xero specifically, see our Xero payroll Australia complete setup guide.
From 1 January 2025, intentional underpayment of employees became a criminal offence under the Fair Work Act. The maximum penalties:
The criminal offence applies where an employer intentionally engages in conduct that results in underpayment. Accidental underpayment, errors from misclassification, or genuine misinterpretation of an award are not criminal offences. But "intentional" is interpreted broadly. Failing to seek advice on an award you knew applied, ignoring complaints from staff, or repeating known errors after they were pointed out can all be characterised as intentional conduct.
For small business employers, the Voluntary Small Business Wage Compliance Code provides a safe harbour. Employers who follow the Code in good faith are not subject to criminal prosecution even if an underpayment is found. The Code requires you to take reasonable steps to understand and pay correctly, including:
In practice, the safe harbour rewards employers who can show they tried. Use Fair Work's pay calculator, document your classification decision, get advice if you are unsure, and act quickly if an error is identified.
This is the single biggest reason to outsource payroll if you are not certain you can get it right.
You must keep employment records for 7 years from the date the record is made. This is one of the strictest record-keeping obligations in Australian business law, and Fair Work inspectors can demand to see them at any time.
The records you must keep:
Records must be in English, legible, and accessible for inspection. Electronic records are fine as long as they can be produced on request. Most modern payroll software produces these records automatically.
Failing to keep records is a separate offence from underpaying employees. You can be penalised for record-keeping failures even when your pay is correct.
While most employment law in Australia is federal, several obligations vary by state:
Workers' compensation: State monopoly insurers in NSW, Victoria, Queensland, and South Australia. Open market in the other jurisdictions. Premiums vary by industry and state.
Long service leave: Each state has its own legislation. NSW provides 2 months after 10 years. Victoria provides 13 weeks after 7 years. Queensland provides 8.6667 weeks after 10 years. Western Australia provides 8.6667 weeks after 10 years. Other states have their own rules. Portable long service leave schemes apply in specific industries (construction, contract cleaning, security in some states).
Payroll tax: Covered above. Different thresholds and rates in each jurisdiction.
Public holidays: Vary by state. Plan rostering and pay rates accordingly. Our 2026-27 Australian public holidays guide sets out every gazetted day by state.
Industrial relations system: The vast majority of private-sector employees are in the national system. Some Western Australian state-system employers (sole traders, partnerships, unincorporated businesses) operate under WA state employment law instead of the Fair Work Act. If you are operating an unincorporated business in WA, check whether the state system applies.
The economics of running payroll in-house for a single employee are usually unfavourable. To do it properly, you need:
For most first hires, the all-in time cost runs to 3-5 hours per pay run and 5-8 hours per month on related compliance. That is 40-100 hours per year of business owner time spent on payroll, not on the business.
Outsourced payroll for a single employee typically sits at $150-$400 per month depending on scope, including STP lodgement, super processing, payslip generation, leave management, and award compliance monitoring. For a multi-employee setup, the per-employee cost drops significantly.
The decision is not just cost. It is risk. The wage theft criminalisation introduced on 1 January 2025 means the personal liability cost of getting payroll wrong has gone up materially. Professionally managed payroll significantly reduces that risk.
If you are at the point of hiring and considering whether to handle payroll yourself or outsource, our hire vs outsource calculator gives you a side-by-side comparison. For the full breakdown of outsourced payroll costs, see how much does payroll outsourcing cost in Australia.
After the first pay run, the work is not finished. The first 90 days have ongoing obligations.
Week 1
Week 2-4
Month 2-3
Day 90 (probation review)
Ongoing
Do I need an employment contract in writing in Australia?
No, employment contracts can be verbal under the Fair Work Act. But a written contract is strongly recommended because it sets out the agreed terms, protects both parties if there is a dispute, and is the document any Fair Work inspector, court, or unfair dismissal tribunal will look at first.
What is the National Minimum Wage in Australia for 2025-26?
The National Minimum Wage from 1 July 2025 is $24.95 per hour or $948.10 per week for a 38-hour week. For casual employees, the minimum is $31.19 per hour including the 25% casual loading. Most employees are covered by a Modern Award with a higher minimum rate than the National Minimum Wage. Check the relevant award before setting a pay rate. New rates apply from 1 July each year following the Annual Wage Review.
Do I have to pay super to my first employee?
Yes. The Superannuation Guarantee rate is 12% of ordinary time earnings from 1 July 2025. There is no minimum earnings threshold (the previous $450 per month threshold was abolished in 2022). Super must be paid quarterly until 30 June 2026, then on every payday from 1 July 2026 under Payday Super.
What is the Fair Work Information Statement and when do I give it to a new employee?
The Fair Work Information Statement is a document published by the Fair Work Ombudsman that explains an employee's basic workplace rights. Every Australian employer must give it to every new employee before they start work or as soon as practicable after. It can be emailed as a PDF. Failure to provide it is a breach of the Fair Work Act.
How long is the probation period in Australia?
There is no statutory probation period. Contracts typically set probation at 3 or 6 months. The statutory protection from unfair dismissal applies after the minimum employment period, which is 6 months for businesses with 15 or more employees and 12 months for small business employers. Contractual probation cannot extend beyond the minimum employment period.
Can I hire a contractor instead of an employee to avoid all this paperwork?
Sometimes yes, but the decision is governed by the substance of the working relationship, not just what the contract says. If the worker is integrated into your business, takes direction, has no genuine commercial risk, and works only for you, they are likely an employee regardless of the contract. Misclassifying an employee as a contractor (sham contracting) can attract penalties up to $495,000 per breach for a body corporate.
What records do I have to keep for employees in Australia?
Employment records must be kept for 7 years from the date the record is made. Records include each employee's name, date of birth (if under 21), date of commencement, employment type, classification, wages, hours, deductions, superannuation contributions, leave taken and accrued, termination details, and any individual flexibility arrangement. Records must be in English and accessible for inspection by Fair Work inspectors.
Do I need workers compensation insurance for one employee?
Yes. Workers compensation is mandatory in every Australian state and territory from the moment you have an employee. Operating without a current workers comp policy is an offence and exposes the business owner to personal liability for the employee's medical costs, wage replacement, and rehabilitation if they are injured.
What is wage theft criminalisation in Australia?
From 1 January 2025, intentionally underpaying employees became a criminal offence under the Fair Work Act, with penalties up to 10 years imprisonment for individuals and $8.25 million for companies. Accidental underpayment is not criminal. The Voluntary Small Business Wage Compliance Code provides a safe harbour for small business employers who follow it in good faith.
Can I pay an employee a salary that includes their super and entitlements?
You can offer a "total remuneration" or "package" figure that includes super, but the super must be calculated and shown separately on each payslip, paid into the employee's super fund, and meet the 12% minimum. You cannot absorb super into the base salary in a way that brings the base below the award minimum.
Do I need to register for payroll tax when I hire my first employee?
Usually not. Payroll tax is a state-based tax that applies only when total annual wages exceed the state threshold (between $900,000 and $2 million depending on the state). A single first employee is well below this. But payroll tax thresholds apply to grouped entities, so if you operate multiple related entities, check whether the group is over the threshold.
What is the difference between an award employee and an award-free employee?
An award employee is covered by a Modern Award that sets out minimum pay rates, penalty rates, allowances, leave entitlements, and other conditions. An award-free employee is not covered by any Modern Award, usually because their role does not fit any award definition or because they are a senior manager above the high income threshold ($175,000 from 1 July 2024, indexed annually). Award-free employees still receive the National Minimum Wage and the National Employment Standards.
How much does it cost to outsource payroll for a small business in Australia?
Outsourced payroll for a small business with 1-5 employees typically costs $150-$500 per month depending on scope, including STP lodgement, super processing, payslip generation, leave management, and award compliance monitoring. Per-employee costs decrease significantly with scale. See our outsourced payroll cost guide for full pricing detail.
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Disclaimer: We review and check this guide periodically. At the time of writing (May 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
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