Hiring Employees in NSW: Legal Requirements for Small Businesses

Hiring your first employee is a major milestone for any NSW small business. But it also comes with serious legal obligations, from tax and superannuation to workplace safety and employment contracts. Getting these steps wrong can result in heavy penalties. This guide walks you through every requirement you need to meet before and after bringing someone on board. For more NSW business resources, visit NSW Business Today.

Register for PAYG Withholding (Before You Hire)

Before paying any employee for the first time, you must register for Pay As You Go (PAYG) withholding with the Australian Taxation Office (ATO).

You generally need to withhold tax from your employee’s pay.

You only need to register your business for PAYG withholding once; you do not need to re-register for each new employee.

Collect a Tax File Number (TFN) Declaration

The first form a new employee must complete is the Tax File Number (TFN) Declaration. This form determines how much tax the new employee will be paying and how much the employer needs to withhold from every pay.

Key rules:

• The ATO requires you to lodge this form within 14 days of the employee’s commencement date.
• If an employee does not provide their TFN within 28 days, you must withhold tax at the highest marginal rate (47% in 2025–26) from their entire payment.
• Failing to have employees complete this form results in penalties of $3,132 per form under ATO regulations updated in 2025.

Provide a Superannuation Standard Choice Form

Employees must complete a Superannuation Standard Choice Form within 28 days of starting employment. This form allows them to choose which super fund receives their employer contributions.

The current Super Guarantee (SG) rate: From 1 July 2025, the SG rate is 12% of your employee’s ordinary time earnings.

What if the employee doesn’t choose a fund? A ‘stapled super fund’ is an existing super account that is linked to an employee from a previous job. If they do not nominate a fund, the law requires you to request their stapled fund details from the ATO and direct their super payments there.

Important 2026 Change Payday Super: From 1 July 2026, employers will be required to pay their employees’ superannuation guarantee at the same time as their salary and wages, instead of the current quarterly regime. Super contributions must be received by the employee’s fund within seven business days of payday.

Set Up Single Touch Payroll (STP)

Single Touch Payroll (STP) reporting is now mandatory for every employer in Australia, making compliant, STP-enabled software an absolute non-negotiable.

STP is how you report your employees’ payroll, tax, and super information to the ATO in real-time every payday. You must use ATO-approved payroll software such as Xero, MYOB, or QuickBooks.

Provide the Fair Work Information Statement

All new employees must receive the Fair Work Information Statement within the first days of employment. This is not optional.

The October 2025 version of this statement includes updated information. Failing to provide this statement carries a penalty of $9,396 for companies under the Fair Work Act. Keep a signed acknowledgment that the employee received the statement.

For casual employees: Under the Closing the Loopholes legislation, casual employees must also receive the Casual Employment Information Statement on their first day. This statement explains the right to request conversion to permanent employment after 6 months (for small businesses).

Understand Modern Awards & Minimum Pay

Employees are entitled to minimum pay and conditions under the relevant Modern Award and the National Employment Standards (NES), which include maximum working hours, leave entitlements, and requirements around termination.

You can use the Fair Work Ombudsman’s pay and conditions tool to find the relevant award and work out what to pay your new employee.

If you don’t pay the correct Award rate, you are at risk of wage theft now a criminal offence in Australia.

New Law (from 1 January 2025): Wage underpayments are now classified as a criminal offense in Australia.

Right to Disconnect Now Applies to Small Business

From 26 August 2025, the Right to Disconnect applies to small businesses with under 15 employees. Employees are not expected to monitor, read, or respond to any unreasonable contact from their employer outside of their working hours.

The legislation doesn’t ban after-hours contact entirely, but it does protect employees from being penalised if they choose not to respond if it’s deemed unreasonable.

Workers’ Compensation Insurance (NSW Requirement)

In NSW, all employers must have workers’ compensation insurance before engaging any worker. This is a legal requirement under the Workers Compensation Act 1987 (NSW).

Insurance is obtained through icare NSW or an approved insurer. Penalties for operating without coverage can be severe, including fines and prosecution.

Workplace Health & Safety (WHS) Obligations

The Work Health and Safety Regulation 2025 commenced on 22 August 2025, replacing the 2017 Regulation. It introduces several substantive NSW-specific amendments that will affect a broad range of duty-holders, with an increased focus on psychosocial hazards.

As a small business employer (PCBU) in NSW, you must:

• Provide a safe working environment
• Conduct risk assessments
• Provide WHS training and induction
• Have an incident reporting process

Provide a Written Employment Contract

Providing a written contract helps make sure you and your employee are on the same page. You can find templates and information on what to include on the Fair Work Ombudsman website.

The contract should clearly state:

• Type of employment (full-time, part-time, casual)
• Remuneration and Award
• Hours of work
• Leave entitlements
• Probation period (typically 3–6 months)

Quick Reference Checklist for NSW Employers