Most businesses, and not-for-profit organisations, use a bookkeeper as the first line of their finance team. Hiring a bookkeeper and putting the right person in this role is critical for the smooth running of the finance department and ultimately the success of the business. The Institute of Certified Bookkeepers (ICB) has put together this handy guide to the things you should look for the next time you hire a bookkeeper, whether it’s an employee or a contractor. While it’s mostly written with small business in mind, the advice is equally applicable to an NFP in most cases.
So, here are some considerations for a business hiring and engaging a Bookkeeper. It is a working guide to help you step-by-step.
The Bookkeepers Role
All businesses in Australia need some form of bookkeeping in their business to help comply with ATO. As a minimum, this is for income tax as well as other financial reporting obligations, such as superannuation or payroll tax. In reality, some businesses do it by themselves, some engage others.
It is the bookkeepers who do the bulk of the day to day work, while accountants and tax agents are typically involved in big-picture planning and end of year tax obligations.
Generally, the bookkeeper will touch every transaction a business is involved in. In contrast, the accountant is looking mainly at reports and accounts rather than the accuracy of individual transactions.
Good Bookkeeping = Good Management Accounts
The bookkeeper creates and/or maintains the general ledger, which is the basis of the company’s management accounts. Doing the bookkeeping yourself potentially increases the risk of problems and mistakes. Common DIY issues are:
- Incorrect claiming of GST resulting in penalties or needing to amend BAS
- Wrong or late payment of superannuation resulting in fines and interest
- Ongoing orders/invoices/inventory problems not resolved
- Employee entitlements not taken care of
- Inaccurate management reports resulting in not having a clear and current picture of your business performance
- Late lodgement of BAS resulting in interest charges
The Role of your Bookkeeper
You can expect a competent bookkeeper to cover a whole range of responsibilities. These can include:
- Establish and maintain a chart of accounts
- Customise templates and forms
- Handle bulk of transactions including:
- accounts payable
- accounts receivable
- Reconciliation of relevant accounts
- Complete monthly journals
- Prepare compliance returns such as Business Activity Statements or VAT returns
- Run management reports
Employee or Contract Bookkeeper?
When you engage a bookkeeper you have two options on how to work with them.
- Employee Bookkeeper
- Contract Bookkeeper
Accordingly, the terms of engagement are quite different for each type of worker.
As an employee, your bookkeeper is entitled to holiday and personal leave and superannuation. For instance, you as the employer direct the hours and type of work and you take the responsibility of the work performed.
However, as a contractor, you pay for the hours worked at the agreed hourly rate or the outcome achieved at the agreed fee. The contract bookkeeper would have a letter of engagement with you setting out their terms and conditions, and would maintain their own professional indemnity insurance. If you engage a contractor and the workload increases, make sure to keep an eye on number of hours work.
Figuring out the Bookkeeper Status
To understand how to hire a bookkeeper, you need to understand the two ways you can engage them. Follow these ATO guidelines, Employee or Contractor and Difference between Employees and Contracts, to be clear about the status of the worker. Essentially, there are several key factors involved in determining the difference between an independent contractor and an employee:
Contract OF Service
Degree of control that can be exercised over the worker – employer directs how, when, where and who is to perform the work—this would be an employee.
Contract FOR Service
The contractor has the freedom to work unsupervised to achieve an end result.
Testing the Bookkeeper Status
The Control Test
In the case, where the employer CONTROLS the service provided, i.e., how they do it, when they do it and the hours they work, then they are likely deemed an employee. BUT if the worker has the right to delegate the work, quote the job for an estimation of time to complete job and determine the work to be done then they are an independent contractor.
The Integration Test
For instance, if the contractor shows they have other clients and are presented to the public as a business and produce a profit or loss of business then they are more likely to be an independent contractor and not an integral part of the employer’s business.
The Results Test
In addition, if the worker is hired to produce a result and complete specific tasks regardless of hours worked, then they are more likely to be an independent contractor.
The Risk Test
Therefore, if the worker is exposed to the risk of the job, prepared to fix any problems or errors and is exposed to a possible profit or loss on the job then they are more likely to be a contractor.
Benefits of the Employee Bookkeeper
There are many benefits of engaging an employee bookkeeper:
- On site all the time, or as agreed for any accounts or payroll matters requiring attention
- Can work on many projects and varied tasks as required
- Bookkeeper becomes an integral part of the business team
- Greater opportunity to know and understand your business in depth and detail
- Loyalty of the employee to your business
- Liaison between suppliers and business
- Bookkeeper can be the point of contact for staff concerns
For instance, your employee bookkeeper will often have other tasks they are expected to perform. Some of these may have nothing to do with bookkeeping. As an example, you may require also administration, reception and sales.
Take care of the different roles your bookkeeper may be asked to encompass. Ask yourself:
- Is the remuneration fair for the different areas of knowledge they are expected to have?
- What is the priority in your business, bookkeeping and accounts or all the other roles?
Above all, be clear about this before you engage a bookkeeper. For example, you may realise that you would be better off hiring an administration person as an employee several days per week, and a contract bookkeeper for half a day per week. However, if you require someone to attend to accounts on a daily basis, you would definitely employ a bookkeeper.
Benefits of the Contractor Bookkeeper
You will benefit from engaging an independent bookkeeper. For instance:
- You may reduce overheads by not having fixed commitment to pay PAYG tax, holiday leave, superannuation, Workcover and personal leave. A contractor will charge a higher rate to cover their costs in this regard
- A contractor is engaged for their independence and that you will be relying on them differently than you are able to do so for an employee
- A contractor may have a wider and more varied level of expertise
- The contractor would be responsible for their own training and ongoing development
- Closer involved production of management reporting
- By paying hourly or for the outcomes required, you only pay for what you use
- You aren’t paying for downtime
- Can provide a different perspective of operations due to wider exposure to various business types
- Not bound by employee regulations
Keep in mind, your bookkeeper is not necessarily your business mentor or general expert in all things related to business! There are many legal obligations a business owner has, which are not connected to the work a bookkeeper does. Above all, do not try to make the bookkeeper responsible for all your own legal business obligations.
Qualities of a Good Bookkeeper
Regardless of the basis of engagement, there are some important qualities you will need in a bookkeeper. Remember that you are giving the bookkeeper access to confidential and sensitive information about your business and potentially other personnel. This article How to Become a Bookkeeper highlights what it takes to qualify as a bookkeeper. Similarly, you want to be certain that this person is trustworthy and able to confidently deal with and report on your financial situation.
- Knowledge of relevant legislation
- Know-how of general accounting principles
- Basic knowledge relevant to your industry
- Speed and accuracy in data entry and typing
- IT general skills, especially pertaining to email, accounting software, basic troubleshooting, portals, and electronic payments
- Honesty—in reporting problems, gaps in knowledge, mistakes made
- Productivity, efficiency
- Able to research and analyse problems and mysteries in the accounts
- Empathy when dealing with staff and payroll matters
- Strong work ethic
ICB Guide to Employing a Bookkeeper
The Institute of Certified Bookkeepers (ICB) provide a great guide to engaging a bookkeeper. Here is a summary:
1. Ask yourselves the question?
- What tasks will the bookkeeper be required to perform?
- How many days/hours a week do we need a bookkeeper?
- What do we need: An ’employee’ or ‘contract’ bookkeeper’?
- What can the business afford?
- Do we need someone to do more than just the bookkeeping and be available throughout the work week?
2. Advertise for a bookkeeper?
- Use internet advertising, agency or word of mouth ie: Accountant Referral
- Advertise on the ICB website – ‘Add a Job Vacancy’
- Seek Resume and referrals from applicants
3. Look for Knowledge & Experience
- Look through their resumes. In particular, search for knowledge and experience to suit your business.
- Phone possible applicants to discuss position
- Invite successful applicants for 1st Interview
4. What to ascertain from Applicant from 1st Interview
- Experience of bookkeeping and software via past working positions
- Knowledge of bookkeeping and industry via questions outlined in ICB kit
- Attitude and personality to work with others
- Aptitude and suitability to this business
- Ask applicant to sit ‘Bookkeeper Skill Test’ in ICB kit
- Ascertain the applicant’s skill level by asking them to use accounting software and perform various tasks
- Discuss role and tasks with Applicant gauging their ability to ask questions, impart knowledge and work with staff
5. What to ascertain from 2nd Interview
- Ask applicant to sit ‘Bookkeeper Skill Test’ in ICB kit
- Test applicants by asking them to use accounting software and perform more advanced tasks
- Provide a an overview of the role and tasks with Applicant gauging their ability to ask questions, impart knowledge and work with staff
6. Successful applicant
- Make a few things clear, like rate of pay, availability and travel arrangements
- Discuss required holiday times
- Outline position and training schedule
In conclusion, you will find hiring a bookkeeper is not easy.
The Institute of Certified Bookkeepers is the largest bookkeeping institute in the world. It promotes and maintains the standards of bookkeeping as a profession, through the establishment of expectations, relevant qualifications and the award of grades of membership that recognise academic attainment, working experience and expertise.