Legal Obligations of a Business Owner—Are you across all of them?
Are you considering starting a business? Or perhaps you are already running a small business and you know just how much is involved! Either way, with this article we aim to give potential business owners an understanding of the areas to consider before starting a business, and existing business owners reminders regarding areas of compliance that may apply to your business.
There are so many areas a small business owner must take care of, from marketing and money management to government compliance and employee engagement. Not only do you need to have the creative ideas to inspire your business, the energy and enthusiasm to establish it and the stamina, support and resources to maintain it, you also need to know about the legal compliance aspects of being in business.
It’s not uncommon that someone with a passion has a great idea that has significant commercial potential—but they simply don’t do the research into what is required of a small business owner before embarking on their initiative. This then impacts on business resources and they may find they deplete funds, energy, technology or staff before they have realised their business potential.
Here we provide an overview of the many areas of business compliance that you may need to be aware of. When starting a new business or reviewing an existing one, make sure you get advice from the right professionals, such as a tax agent, BAS agent or relevant industry body.
You will need to register for an Australian Business Number (ABN) and a business name. You may also have separate trading names. You’ll need to ascertain whether you will be required to register for Goods and Services Tax (GST) or whether to register voluntarily (or not at all).
Depending on the nature and location of the business, there may be local council registrations required as well, such as a food premises or wellbeing premises registration.
As soon as you have a business name you need to register a website domain name.
GST, payroll tax, land tax, fuel tax credits, fringe benefits tax, Pay As You Go Withholding (PAYGW) tax for employees and income tax instalments may all apply. Make sure you get advice about which taxes apply to your business and register accordingly with the ATO and any other required government departments.
The business activity statement (BAS) is the reporting mechanism for GST, PAYGW, income tax instalments, fuel tax credits and fringe benefits tax. Payroll tax and land tax are state-based taxes and paid to the relevant state entity.
You will need to get advice about the minimum level of cover required for insurances relevant to your business type.
It is tempting to take out only the minimum level of insurance but you should get advice on this, as some industries have a higher risk. In such cases it may be wise to take out additional cover or additional policies if relevant, such as cyber protection to insure against security breaches and fraud for businesses that hold privacy-sensitive data. Some insurances are compulsory for certain types of business.
You may need some or all of these insurances: public liability, professional liability, income protection, cyber protection, directors’ and volunteers’ insurance.
Business insurance will be required for most businesses—this protects against accidental damage or loss of business assets or property, machinery breakdown or unexpected events. Some insurance providers offer business interruption insurance as part of their business insurance; other providers offer this as a separate insurance cover.
All employers must have workers compensation insurance.
Often we see small businesses get into trouble because they have trusted in emails, phone conversations and assumed ethics, without putting anything into writing—but you never know when you will need to rely on a written contract as proof of an agreement. This applies particularly to contractors and possibly some suppliers. Get advice on whether it is sensible for your business to get some legal contracts in place, such as non-compete agreements, contractor agreements or terms of service and delivery. It may be acceptable to use freely available templates depending on your business type, but there are risks involved in this—get advice before depending on free templates. You will definitely need legal contracts and assistance for intellectual property issues and trademark registrations.
Laws that may apply
There are many laws that may apply to different circumstances and types of business. A few that apply to many businesses in Australia are:
- Workplace health and safety
- Equal opportunity and anti-discrimination
- Dispute resolution
- Anti-bullying (part of the Fair Work Act 2009)
- Consumer and competition
- Codes of practice
- Price regulation and labelling
- Contract laws
Each state in Australia has a different state-based entity that oversees fair trading rules. In Victoria, this is governed by Consumer Affairs Victoria.
Fair trading rules cover matters such as refunds and returns, problems with products or services, business practices, standards, pricing, correct labelling, warranties and consumer safety.
Deciding when to engage workers in your business can be a big decision. Workers may be employees or contractors, but it is the legal obligation of the business owner to make sure workers are engaged on the correct basis.
Once you do engage employees, there are many laws that apply, in particular the Fair Work Act 2009 and the Superannuation Guarantee Act 2009. These laws govern much of the way employers must interact with employees, including conditions and general entitlements. In addition to these national laws, employers must abide by the relevant modern award, which is based on industry or occupation. This governs minimum pay rates, classification levels, allowances, hours of work and penalty rates.
Australian Taxation Office Records
We will cover record keeping requirements for the ATO (including payroll records) in detail in a future blog article. In brief, records must be kept for every business transaction and every aspect of employee engagement.
You need to keep tax-related records for five years from the time of lodgment—bank transactions, supplier purchases, customer invoices, cash received and paid, loans and asset disposals.
Employment-related records must be kept for seven years and include everything from contact details and applicable awards to timesheets and wage records. For terminated employees, the records must be kept for seven years from the date of termination.
Individuals and companies must lodge income tax returns every year. Any business that is registered for GST must also lodge BAS, usually quarterly.
Some businesses will need to lodge a taxable payments annual report and a fringe benefits tax return as well.
Failure to lodge returns and/or make payments on time may incur late lodgment penalties and interest charges.
The ATO provides a monthly calendar detailing lodgment due dates for small business.
If you are a director of a company, there are additional responsibilities to be aware of. The Corporations Act 2001 sets out the duties and expectations of a company director. All directors of a company must act honestly, diligently and in good faith in the best interests of the company and within the law. Note that directors may be held personally liable for unpaid superannuation and PAYGW obligations.
Starting and Developing Your Small Business
Once you have an understanding of the legalities and compliance obligations involved in starting and running a small business, you can focus your creative energies on developing your business.
There are many excellent resources and advisors available for small business owners who want to maximise their potential and efficiency.
On The Money Bookkeeping can assist with many aspects of developing your business, including analysing your financial statements, planning and managing financial obligations, reviewing your business systems, efficiency and technology, and raising issues for your consideration. We are interested in helping you to run your business proactively and confidently.