From First Contractor To First Employee: Laws, Money, And Mindset

Ready to stop doing everything yourself without breaking the business… or your brain?

In this episode, Aly G and Leethal Lee work through the real leap from first contractor to first employee, drawing on our lived experiences, the wins, the wobbles, and the “why did we think this was a good idea?” moments. We unpack the mindset shift, the money maths, and the legal guardrails that keep you safe while you scale.

We start with the work, not the headcount. Map your tasks. Price your time. Decide what to eliminate, automate and delegate before you add another human to payroll. Then we break down contractor versus employee through the lenses that matter, cost, control, continuity and compliance, plus the warning signs your arrangement is drifting into employee territory.

From contracts and awards to STP, payday super and payroll software, we cover the dry stuff that saves you later, with a few honest truths about the emotional side of hiring and firing too.

And yes we have a blog on this one .... here tis.

If you’re standing at the edge of your first hire and want clarity, confidence and a little courage, this one’s for you.

💥Bold moves. Big wins. Leading the way.

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Ignition | Spending days engaging clients? Chasing late payments? Dealing with scope creep? We get it. Ignition helps accounting and professional services businesses reclaim time, profitability and cash flow. Automate proposals, billing, payments and workflows in a single platform

Transcript

Contractor To Employee: What Changes

SPEAKER_01 0:12

There comes a point in every business where you realise you can't do it all. You're maxed out. The to-do list is longer than you sleep, and suddenly the idea of hiring help feels both exciting and mildly terrifying. In today's episode, we're unpacking the leap from first contractor to first employee, the mindset shifts, the legal realities, and the money moves you need to understand before you grow your team. Because growing your team isn't just about support, it's about strategy. So team, oh my gosh, do we have life lessons here? We have been through it all.

SPEAKER_00 0:46

Um and like I relate it back to having kids when they say having going from one to two is not like doubling the work. It's like tripling, quadrupling.

SPEAKER_01 0:56

It increases the mental load. But I I what I want to do is kind of start right back at the very, very beginning. Because a lot of the questions we get is when do I hire? What's my first hire gonna look like? So what do you see in your world?

When To Hire In Different Industries

Cost, Sourcing, And Skill Shortages

SPEAKER_00 1:08

Um, yeah, I guess it's a tricky one. And every business is different because if you start out in retail, you don't have much time. No, you gotta go. Like if you're seven days a week, you know, nine till nine or whatever, you you have to hire a casual or a a kid or like you know, a cafe, you can't be on your own. Yeah. So you you have to hire immediately. But um if you're a professional services, for a little while you can go on your own and and you know, be the jack of all trades. But then there comes a point where if you grow, you can't do everything yourself. So we went through this, I guess, um here where we we weren't sure where we wanted to employ because we've got the choice of going overseas, obviously. Outsourcing outsourcing, which is a little bit cheaper, um, but it brings its own complexities. Um and you know, if you try hire in Australia, it's actually not as easy as you think. It's hard to find the right person. Yeah, finding the right person and going through that process of of hiring and finding the right fit is really hard. Um you'd think, you know, should be simple. You're like, I just want this person and I'm offering flexibility. And I swear to God, you need psychological testing. You're like, I'm offering this really flexible job that every mum should want, and no one's applying. What am I doing wrong?

SPEAKER_01 2:33

And there are skill shortages in particular industry industries, and unfortunately accounting is one of those. So we do struggle enormously.

SPEAKER_00 2:40

Um yeah, so I guess it's a cost analysis as well. Obviously, hiring in Australia isn't cheap. Yeah. Um you've got to keep, you know, you've got fair work rules in Super and all the things that you've got to consider. So I guess the first decision is how much can you afford? Yeah. Um, and what is your best bang for buck?

SPEAKER_01 3:01

Like, yeah, what is it outsourced, is it contract, is it casual, is it part-time?

Map The Work And Write The Role

SPEAKER_00 3:05

What role, what job, like what are they actually going to do in your business that will help? So I think mapping it out is always the first.

SPEAKER_01 3:13

So getting a list and looking at all the things you're doing, all the things that need to be done, and then assigning what the big bang stuff is for you.

SPEAKER_00 3:20

Yeah, so yeah, what what are you doing that can be pushed down to a lower level that someone else can do to allow you to do the stuff that actually adds the value to the business? So writing out a job description, like um, I know we've done it at times where we're like, oh, we want admin. Okay, well, what is that actually gonna look like? Yeah. What will their day look like week to week? What will what will their month look like? How many hours will they actually need to be here?

SPEAKER_02 3:56

Yeah.

Responsibility And The Risk Of A Bad Hire

SPEAKER_00 3:56

Can I fill it? Um, will will that look appealing? How much will that cost? All of that really needs to be planned out.

SPEAKER_01 4:04

Make sure you've got a job description, make sure there's, you know, if you get them on board, there's a contract.

SPEAKER_00 4:09

The legalities are different again.

SPEAKER_01 4:11

But yeah, yeah, the planning I think is and if you're not sure, speak to your accountant and trust advisor. We've also got a blog on this one, whether to um employ or to outsource. I mean, you have to re-cause it's it's kind of like getting your big girl pants on, like you are then responsible for putting another set of food on someone's table. That's how I think.

SPEAKER_00 4:30

Yeah, it is a big responsibility. Like you you're keeping you you and your family you know running, but you're also contributing to someone else's family and and well-being.

SPEAKER_01 4:40

And if you get that hire wrong in Australia, if they're an employee, you then have to follow rules to get them out, and that can be emotionally exhausting. But also, yeah. I mean, we've and you know, we'll go back basic basically to our firm. We've had very, I guess, very different teams over the years, but we've also had to make some incredibly difficult decisions as part of that. And you've got to do an enormous amount of planning, make sure you've got all you dotted your I's and crossed your T's, make sure the legals are right, but then communicating that's it's horrific.

Contractor Versus Employee Realities

SPEAKER_00 5:14

It is, it's it's really horrific.

SPEAKER_01 5:16

It's not a night like if I can tell a little story. The first time we had to let someone go, um, I'd done it a few times because I'd come from mid-tier big four, but Leek wasn't coping, and she came in and her shirt was just butting with incorrectly.

SPEAKER_00 5:32

There's more to that though, and I don't know if I even told you this bit. I was at like my exercise class that morning and I had to pull out because my heart rate was too hot like and then I'd washed my hair incorrectly and I'd forgotten to wash the conditioner out, so I'd had greasy.

SPEAKER_01 5:51

And this is my thing, what I want to highlight the emotional part of hiring, of working with or potentially firing, you will never experience anything like it. It's it's in fact, if you're going to do it, it's one of the biggest steps you can take. So take it very, very seriously.

SPEAKER_00 6:11

And I guess that leads back to um the the conversation around contractor versus employee, where there's less responsibility, less legality around it. Yeah, for instance, um we do some back-end work for some businesses where we've basically replaced an employee for them because they didn't want the responsibility of an employee. Yeah. It was either too expensive for them to have a full-time employee or you know, the work ebbed and flowed, so they couldn't keep someone but also for that um external finance function.

SPEAKER_01 6:51

Um, they also buy in skill set at every level rather than and that's that that's maybe a point. Like you might actually need somebody that has multiple skills, but you can't afford that person yet.

SPEAKER_00 7:02

So is there an like marketing, right? Like, is there an agency or another business that can absorb some of that work until you can have a full-time person? And and that's again where a contractor might come in, yeah. Where there's a difference tax-wise, there's a difference.

SPEAKER_01 7:20

Um But then you've got to be careful with contractors because if you treat them like an employee, if it looks like an employee and smells like an employee, it's an employee from the ATO's point of view. So then you do have super and work cover.

Systems Before Seats: SOPs And Tools

SPEAKER_00 7:30

So and leave obligation. So you know, a a true contractor is someone that's probably out there doing work for multiple people.

SPEAKER_01 7:39

And you don't mind if somebody else does it, not just them.

SPEAKER_00 7:42

They don't run into your office nine till five and have a lunch break and they get paid by the hour.

SPEAKER_01 7:47

You're not giving them the equipment.

SPEAKER_00 7:49

Yeah. Like a true contractor is where you find someone that's doing that work for multiple people and it's a more casual ad ad hocish relationship, or it's a business to business deal, not just we're trying to cheat the taxes.

SPEAKER_01 8:06

But also, you can let them go very quickly if things aren't going as planned. You can kind of be a little bit more directional with them around and a bit harsher in your communication.

SPEAKER_00 8:15

Business to business they're as a contract. B to be they're actually a business. Yeah. So you have a business to business relationship, so which is easier to manage, I think. You can cut the contract if you can't afford it anymore. Like you might have you don't have as many emotional ties as well. Well, it's not. Um, so you're definitely not regulated as heavily. And yeah, emotionally it's probably not.

SPEAKER_01 8:37

So that might be, you know, if you're really unsure, maybe a good place to start is looking at what you can potentially contract out or outsource. And that might be accounting, marketing, you know, there's yeah, there might be multitude of things. And that's and the other thing I say to a lot of people is give yourself a charge out rate, just in your head, even if you're not, you know, a service-based person, give yourself a charge out rate and say to yourself, is the task I'm currently doing worth the charge out rate that I'm performing? And if not, can somebody else do it at that charge out rate so that then you then have time for the big bang stuff to because your time is best spent either on the tools delivering or going out and getting the work and then building the systems and processes and allowing the people to come in. Also, another thought. Before you run out and find an employee, look at what you can eliminate and automate, right? Delegate. Yeah, automate, eliminate, eliminate, automate, delegate, and do it. It's the framework that I live by, right? So are you doing stuff that you just shouldn't be doing? Can tech do it? Can you put so systems and processes in place? And that's the other thing. Before you get somebody on board, the more the more systems and processes that you can put in place to help that person, if it's repeatable, it should be in a system and a process. So, you know, looking at all of those things before you go out and find someone, because otherwise that person is just going to be spinning their wheels and not actually being productive.

SPEAKER_00 9:54

Yeah, I think that's an interesting one because we talk about we've we used outsourcing in the Philippines and I've had this conversation a lot with people about whether it works or not. And some accounting firms have struggled with it and some have made it really work. And my advice is always don't expect don't have high expectations, I guess. And you have to have the systems and processes in place. If you don't have them in place, you can't expect them to do what you want. They're not mind readers, they're not in the office with you either. So if someone's not physically with you, they have to be able to understand what the how the business works, what it wants from some other way, and that has to be in written documents. Or, you know, if you're a verbal person, you could record it all, I guess, or if you want to film it, film it. Yeah. There has to be something that someone can refer back to because they can't just read your mind.

Boundaries, KPIs, And The 80 Percent Rule

SPEAKER_01 10:47

No, and that's the other thing. You've got to invest time, yeah. Which makes you, it's like the short-term pain, long-term gain for parenting children. You've got to set the boundaries, and this is the other thing, you've got to set the boundaries up front. Like, like actually work with them on goals and key performance indicators and and and give them expectations because otherwise it's like a child with no boundaries, right? And then you want to come and punish them, but you haven't given the boundary.

SPEAKER_00 11:13

And it does, it takes work, so it's like I need it's not immediate relief. You're like, I need to hire someone to relieve me of all this stuff. And two weeks in you're like, well, this hasn't helped, this has added more on my plate, but it's the long-term goal, like you know, you you're going long term on it.

SPEAKER_01 11:28

Well, the elephant in the room there is that you're the problem, not them.

SPEAKER_00 11:31

Well, also, yeah, like you're the roadblock and you're not allowing them to take the work as well. And that's that's another conversation, I guess, as a business owner. Um delegating. Delegating is really hard. Um, and you no one that you hire will be as good as you. Nope. And they won't care as much as you. Nope. Because that's just how it is.

SPEAKER_01 11:53

Do you know what the rule is for delegation? Was it like eight? 80%. If someone can do 80% of it, give it away, and you're just gonna have to deal with the consequence of the other 20 or review it. Yeah, review and correct out, or just accept it.

SPEAKER_00 12:06

Because it it is really hard to um come to terms with the fact that people don't care as much as you do.

SPEAKER_01 12:14

No. They don't they have an employee mentality, not an owner mentality.

SPEAKER_00 12:17

Yeah, and and that can be really frustrating, but when you step back and and you look at it logically, you would probably do the same. And you have done the same as an employee. It's just human nature. Yeah. But yeah, no one will be as invested as you, and no it's just not how it works.

SPEAKER_01 12:35

And sometimes you'll get absolute superstars, and sometimes you'll get people that just plod along, and sometimes you'll get people that just don't work. And you have to go and you have to be open to all of those things and being happy, you know, uh having those open conversations. And you can't all have a like for instance if you're building a team, they can't all be superstars.

Team Design And Playing To Strengths

SPEAKER_00 12:53

No, because you you need some people that are happy just to come in, do their job rather than go home because you can't provide growth and and um you know opportunities to work. Well, you can't promote everybody to the boss because not everyone can be the boss. Yeah. So that's right. You do need different types of people, like in in accountings. Sometimes you just need someone that is happy to sit at their desk and punch out work. Yeah. Other times you need someone that will be the client-facing chattier person, right? That's comfortable picking up the phone, taking the meetings, different skill sets, but add same value kind of thing, but they're different. And so you need to identify what you're looking for and what value people can bring. And I think we always say like once we get someone in and we work out pretty quickly what their their strengths are, we then sort of adapt their role to you know, play to your strength. What do you say? Play to your strengths and stop gap your weaknesses. Weaknesses, yeah. Um, so that's really like you know, it might evolve what what that looks like, what their role looks like might evolve as you have to be open that yeah as you learn their skill sets. Yeah, it might go in a completely different direction that you didn't ever expect. Yeah. But you've got to be open to the flex. And that makes people happier. They're doing what they're good at.

Sponsor: Ignition

Onboarding Compliance And Awards

SPEAKER_01 14:12

Oh, 100%. It brings them more joy. That's a really great spot for us to kind of stop for to listen to our sponsor. So uh we'll be back in just a moment. This episode is sponsored by Ignition, the software built for accountants by an accountant. Simplify proposals, automate billing and collections, and streamline your workflows. Save time, make money, get Ignition. We're gonna get to the dry side. Yeah. So there are lots of legalities from an ATO perspective, from a fair work perspective, around employing somebody either on a casual, part-time, full-time basis. Did you kind of want to start? Oh god.

SPEAKER_00 14:50

Well, I guess it starts at the onboarding. Um, you need to, you know, collect the data. These days there's software out there that can we use employment hero. Yeah, we do. We use employment hero, but there are others. But you know, it's about you've got to provide um a fair work statement, you've got to provide a super choice form, um, tax file number declaration, contract. Always a good idea to have a contract. Please, please, please. Even if it's basic.

SPEAKER_01 15:16

And like, you know, what we did for us is we got a lawyer to help us draw up our first commercial one, and then you know, you need to get it refreshed every now and again, but you can then use that as the template.

SPEAKER_00 15:25

But employment here has some of those templates on there as well. So if it's a casual or a full-time or a part-time, yeah.

SPEAKER_01 15:31

You need to be careful around um if you've got an industry awards, yeah, what award applies, more any sort of peculiar things in each award, because each award is very and that's where you if you're in an industry that has an award go like joining the association, getting access to their HR um and award interpretation is super important.

SPEAKER_00 15:51

Um we're in South Australia, but business SA for us great research. Great tools. Um Fairwork has some really great stuff on their website. So their website's really um interactive as well, so you can plug stuff in and it'll give you an answer. Yeah. But you you need to do all of those sort of get all the forms out, get everything designed, have it all documented so that if anything happens down the track, everyone's on the same page and we know what the expectation was early and what the terms and conditions were of the employment.

SPEAKER_01 16:25

And if you don't have that, you are setting yourself up for a fair work claim. Um because it it's it's just who knows what's gonna happen. There are no expectations, there's no boundaries, it's just it's open slatter.

SPEAKER_00 16:38

And not just fair work, but you might find that um some of your IP might get stolen or IP clients or you know if you don't have some sort of protection for yourself in there as well, uh it you don't know what could happen.

Payroll, Super, And Penalties

SPEAKER_01 16:53

Um I'm gonna stick with this one in there. We did have a team member take IP and we're still pretty cut about that. And so we had to update our contract. You know, you learn the hard way.

SPEAKER_00 17:04

Yeah, you do. You you yeah, everything in your business is learnt the hard way, I think. But um it is really important that you do, especially initially, probably with your first employee, I guess, is consult someone like a lawyer or just anyone that sort of knows because you can use the same thing once you're not one, yeah, you can roll it out over and over again. But to have it in place the first time is really important.

SPEAKER_01 17:28

And you can, you know, heavily rely on Chat GPT, but first time around you must get some loyal legal advice across it because chat GPT is can be confidently wrong. And so it's it's super important that you get somebody against it.

SPEAKER_00 17:42

Even if you drafted it and just get someone to check it, yeah. Um because yeah, like we said, diff especially with awards, it's very particular for different industries. So you just never know.

SPEAKER_01 17:54

And there's another concept I want to kind of bring forward here, and there are two different types of people. There are people that resource up early and are okay to be over-resourced because they want the stress at the sales level, and there are people that under-resource, as in I'm just gonna push myself and my people to the point of collapse before I bring somebody else in. So work out what type of person you are, but also understand that that impacts your culture. Um, so that's something to be really mindful of as well.

SPEAKER_00 18:20

But and it might mean that you compensate your staff a little bit more. Yeah. That's still cheaper than getting more staff.

SPEAKER_01 18:27

Absolutely, but you've got to be aware of it, you've got to have that awareness around it.

SPEAKER_00 18:30

Money doesn't solve everything.

SPEAKER_01 18:32

No, you can throw money in employee, you'll get by another six to twelve months, I reckon.

SPEAKER_00 18:36

Um culture will eventually win out.

SPEAKER_01 18:39

If I go back to the compliance side, um you'll also need a uh payroll compliance software. Yep. Like zero, because now you have to log single touch payroll. Yep. Then you've got to do the annual return. Yep. Um, you've also got to do super annuation, and we're coming one July to payday super.

SPEAKER_00 18:56

Payday super.

SPEAKER_01 18:57

So you pay super at the same time. And look, if you don't pay your super, I don't like you. But also the law is coming down hard. It becomes non-deductible, interest charges, admin fees. It is a nightmare.

SPEAKER_00 19:08

Well, with um SDP or single touch payroll, uh the ATO knows. Yes. They know what you should have paid and when. And so in the past, it's been something where you could sneaky you know, get away with it, or it'll take adjust it year end. No, no, no. It'll take them two years to find you, or inevitably it's um a disgruntled ex-employee that'll drop you in button, however, we've found it.

SPEAKER_01 19:35

If you don't pay super, they will dob you in and they're all over it like a hot rash.

Insurance, FBT, And Paying Correctly

SPEAKER_00 19:39

But even like um super funds like Australian Super now. Oh, dobby win. They message their um members like being like, Oh, I don't think your employees paid this month. But legally, right at this minute, you can actually play pay every three months. But Australian Super are like, no, it must be monthly.

SPEAKER_01 19:56

So it it's a big push, and it and rightly so, because super is part of someone's remuneration and that's what you're not paying for your that's right, you're not paying them their salary, and it's one July paying them off. It's one July 26th that um the same day super comes in.

SPEAKER_00 20:11

So um, yeah, and where that will you'll need the software to start sorting that out because the compliance behind that is tricky if you're trying to pay. Well, you need to pay software, yeah. Um everything every week.

SPEAKER_01 20:23

And we use zero, a lot of people use zero for that. Um also return to work in it's called in South Australia. Workers. Oh, work cover, yeah, workers' insurance.

SPEAKER_00 20:32

It runs a little bit different in each state. Like some states are run by actual insurance companies and you choose which one you want to use and you pay a little premium, and at the end of each year you tend to reconcile it to make sure you've paid the right amount. And if you're an owner, it's actually a really cheap form of insurance. If you have to be able to do it. I always say that, put yourself on it because it's not a bad way of protecting yourself, especially if you're in a physical industry. Yeah, yeah, return to work that has to have an annual return to work.

SPEAKER_01 21:01

Also, uh fringe benefits tax, we hate it. Um but if you're providing fringe benefits to your employees or associates, you have to be careful. Yeah, you do. You can't just put your head in the sand, these taxes exist. And if you get yourself on the wrong side, like if you the one thing the story that always comes to mind if you pay the wrong amount, you know, is the George Columbara story where he underpaid staff. Like, there are massive consequences and reputation risks attached.

SPEAKER_00 21:28

Um my experience from doing bookkeeping and and that sort of stuff is people don't like not being paid right. They'll pick you up the people.

Culture, Resourcing Style, And Planning

SPEAKER_01 21:40

Even if you pay a day late, right? Like it's a thing. Yeah. It's a thing. People are some people live paycheck to paycheck. So if your pay goes in one day late, you might have missed all your direct debits. So you've got to be across it. You have to prioritize it. You you cannot put your head in the sand, you can't claim ignorance. It doesn't work here. You need to be a responsible employer.

SPEAKER_00 22:02

Yeah. And that's right. The answer is not that, oh, I didn't know because that doesn't fly. If you choose to employ someone, you are taking on the responsibility of knowing the rules for yourself.

SPEAKER_01 22:14

Yep, absolutely. So I can't believe we've nearly got to the end of this episode. This could be and I'm sure we'll do follow-ups on this one. What we want to do is just try and get some catalogue down first. Any parting words of wisdom, Lee?

Final Advice And Listener CTA

SPEAKER_00 22:28

Um, I guess it's know what you want and have a budget for it. Yep. And do your research first. Don't just go in and go, I've done this now. Well, oh no, I haven't planned.

SPEAKER_01 22:40

Plan, plan, plan, plan, plan, plan, plan, plan, plan, plan, plan, plan. Love it. Awesome. Well, thanks everyone for listening in. We'll be back soon. And that's a wrap on today's episode, everyone. Thanks for hanging out with us. We're very aware you could have been scrolling, snacking, or ignoring emails instead. So we appreciate you choosing us. If this episode gave you a light bulb moment, a laugh, or a quiet, oh wow, same, do us a favour and hit follow, leave a review and rate the podcast. It helps other brilliant people find us and makes the algorithm gods very happy. So share it with a mate, a bizbesti, or that friend who's building something big and pretending they're not stressed. Until next time, use bold moves, chase the big winds and lead the way.