Guide for new entrants into the market
This guide has been designed for start-ups in the recruitment industry solely focusing on permanent recruitment.
Setting up a new business can be challenging. You may have been a big biller as a PAYG employee but you always had someone to take care of the back office. Your entire focus was placing candidates. Now you are out on your own and suddenly you must deal with things you know very little about. This guide provides some commentary on some of the major considerations you need to know to run a business.
We have provided below eight essential issues for any start-up to consider. They are a fundamental start, however you should not consider this a complete guide. Please speak to a financial adviser to ensure you appropriately cover everything off.
The structure you set up today may have big implications for you in the future. So, getting it right will save you headaches later.
If you are serious about starting a business and have the intention of employing staff, it is recommended you incorporate a company to operate your business.
This can be established for approximately $1,500. There are numerous providers in the market. Should you require guidance Sovereign Private can assist.
You will need to apply for an Australian Business Number, Tax File Number and an AusKey. If you have a basic knowledge of financial matters you should be able to apply for these without any assistance, however if financial matters are not your thing then seek the guidance of an accountant.
At a minimum you will also need to register for:
- Pay-As-You-Go withholding for staff salaries;
- Superannuation and select a default super fund.
These registrations can be a little more tricky and the assistance of an accountant may be required.
You will need to need to be aware that payroll tax will be payable when your total wage bill exceeds a threshold amount. Payroll tax is a state tax so it will be payable to the relevant state revenue authority (for example in NSW a tax of 5.45% will be payable to Revenue NSW once your annual wages exceed $750,000). See hyperlinks to various state authorities: NSW; VIC; QLD; WA; SA; NT; ACT; TAS
You will also need to understand what Fringe Benefits Tax is and when it applies. This will impact the way you provide non-monetary benefits to your employees. For example, team lunches, team holiday rewards, etc.
You will require:
- employment contracts;
- client terms & conditions.
If you intend to sponsor employees on visas, determining the eligibility to work in Australia can be tricky and we recommend you seek the guidance of an immigration consultant.
You will be required by law to have workers compensation insurance in every State and Territory where you have employees. Rates vary, however premiums generally are less than 1% of total annual salaries.
Examples of other types of insurance that are available are:
- Professional indemnity insurance – Covers the legal liability to compensate third parties who sustained financial loss due to a breach or alleged breach of professional duty on the part of the agency or your employees;
- Public & products liability – Covers the legal liability to pay compensation to third parties in the event of the agency causing or being alleged to have caused injury, death or loss of or damage to property arising out of its business operations;
- Management liability – Covers management for personal damages (not fines or penalties) and legal expenses incurred due to a breach or alleged breach of duty, misleading statement or wrongful act (as defined in the policy) whilst acting in the course of their employment.
5. Employee Remuneration
The payment frequency for consultants can be weekly, fortnightly or monthly, however the industry standard is monthly. Monthly pay is usually structured as four weeks in arrears, although some agencies may pay two weeks in advance and two weeks in arrears. A weekly pay run should be avoided as this puts additional cash flow pressure on the business. See financial viability below.
Commission structures will normally be detailed in the employment contract as an annexure.
Superannuation requirements in Australia require employers to make regular contributions into an employee’s superannuation account. This is the ‘Superannuation Guarantee‘, and it is equivalent to 9.5% of your wage. It is usually transferred to the employee’s chosen superfund or an industry fund. An industry fund will be used as a default fund should the employee not choose a fund.
6. Ongoing financial and regulatory matters
At a minimum you, an employee or someone you engage will need to assist you with:
- paying staff and accounts payable;
- invoicing clients and accounts receivable;
- expense reimbursement;
- preparation of Business Activity Statements,
- preparation of payroll tax calculation (if applicable);
- annual tax return;
- annual PAYG payment summaries for tax withheld from employees pay.
7. Financial viability
Cash flow is a concept you will get very use to. It must be considered always and revolves around the concept that the business must be able to pay its debts when they fall due. For example, there is nothing that makes an employee more nervous than when their employer must defer wages due to poor cash flow.
Cash flow problems can be caused by various factors, however the majority of the problems are caused by inflows of cash from sales not being received as quickly as cash outflows used to pay expenses (including wages). A business can be performing at the top of their game, however if you have clients that pay invoices slowly it can effectively drain the businesses of cash. Clients that do not pay you within your payment terms can severely affect your ability to pay debts. Consequently, bad payers can sometimes be more trouble than they are worth.
8. Membership of the industry body
It is crucial you keep up to date with issues affecting the industry. The best way to ensure you receive up-to-date relevant information is to become a member of the RCSA.