Managing Closely Held Employees

What is a Closely Held Employee?

A closely held employee is one who is not "at arm’s length". This means they are directly related to the entity from which they receive payments. Examples include:

• family members of a family business
• directors or shareholders of a company
• beneficiaries of a trust

If you are unsure of whether any employee in your business is deemed a closely held employee, you can reach out to the ATO. 

How to set up a Closely Held Employee

The steps undertaken to classify an employee as closely held is as follows:

1. Select Payroll from the left hand menu
2. Select the employees name
3. Select Pay Run Defaults from the left hand menu
4. Scroll to the bottom of the page tick the checkbox for Closely-held employee
5. Select Save 

Once the checkbox is ticked for an employee, the employee will not appear in STP events created thereafter. 

Dealing with employees who have been incorrectly marked as closely held or an employee who should have been marked as closely held

If an employee has incorrectly been classified as a closely held employee, follow these steps to correct the issue:

1. Deselect the closely held employee checkbox (from the employee's Pay Run Defaults page) and select Save;
2. Create and lodge an Update Event. This will include the incorrectly classified employee in the event and ensure they are being reported.
3. Pay event lodgements thereafter will automatically include the employee if they were paid.

If an employee has not been classified as a closely held employee (and should have been), and as a result, has been reported to the ATO through STP you will need to get in contact with the ATO to rectify this as the reversal of events are not catered for with the ATO.

To ensure subsequent events do not include the closely held employee, ensure you follow the instructions for Setting up a Closely Held Employee outlined above. 

Closely held employees and STP

Learn how to report Single Touch Payroll (STP) events for closely held employees here: Lodge Single Touch Payroll (STP) events for closely held employees.

_{Content sourced from} Employment Hero