Yes—but only if done through the trustee, and under strict legal, fiduciary, and taxation conditions. This article examines the legal mechanics of employing individuals under a family trust in Australia, including trustee powers, fiduciary constraints, employment law compliance, and tax implications. It also explores how these obligations change depending on the nature of the employee—such as a trustee, beneficiary, or unrelated party.
Can a Family Trust Be an Employer?
No, a family trust itself cannot be an employer because it is not a separate legal entity. Under Australian law, a trust is a legal relationship, not a person or company. It must act through its trustee, who holds legal title to the trust property and enters into contracts—including employment contracts—on behalf of the trust.
Therefore, while a family trust cannot hire staff directly, its trustee can lawfully employ people if permitted under the trust deed and if the employment furthers the trust’s purpose. In practice, it is the trustee who becomes the legal employer.
When Is a Family Trust Legally Permitted to Employ Staff?
A family trust can employ staff—via its trustee—when the following legal conditions are met:
- The trust deed expressly allows it. The deed must include a power to engage employees or conduct business activities that require staff. If this authority is absent or unclear, a deed variation may be required.
- Employment supports the trust’s purpose. The trustee must demonstrate that hiring employees benefits the trust and its beneficiaries, rather than serving private interests.
- All legal registrations are in place. The trustee must register for an ABN, PAYG withholding, superannuation obligations, and Single Touch Payroll with the ATO.
- Employment law is followed. All employees must be engaged in compliance with the Fair Work Act 2009 and relevant state-based employment laws.
- Workers’ compensation and insurances are obtained. The trustee, as employer, must hold all necessary insurances including workers’ compensation for employees.
If these requirements are not met, the trustee risks breaching fiduciary duties and triggering personal liability.
Fiduciary Duties and Employment Under a Trust
A trustee must not only comply with employment law but also meet fiduciary obligations imposed by trust law. This includes:
- Acting honestly and impartially among beneficiaries
- Avoiding conflicts of interest (e.g., hiring oneself or close relatives without oversight)
- Using trust assets only for trust purposes
- Ensuring the trust is not exposed to unnecessary legal or financial risk
Trustees who improperly employ individuals, mismanage payroll, or benefit personally from employment arrangements may be found in breach of trust and personally liable.
Can a Trustee or Beneficiary Be Employed by the Trust?
Yes—but strict conditions apply depending on the role.
- Trustee as employee: Generally, a trustee should not be employed by the trust they administer due to a conflict of interest. As the employer, the trustee would effectively be setting their own remuneration. Such arrangements are only permissible if explicitly allowed by the trust deed or sanctioned by a court. Without these safeguards, the arrangement may constitute a breach of trust.
- Beneficiary as employee: A beneficiary may be employed by the trust if the employment is genuine, necessary, and arms-length. The role must involve real work, with salary and entitlements aligned with market standards. Importantly, wages paid for employment must be distinguished from discretionary trust distributions to avoid triggering tax consequences or compliance issues with the ATO.
In both cases, trustees must document the arrangement clearly and seek professional advice to ensure compliance with fiduciary obligations and taxation law.
Employment Structure: Family Trust vs Company
While both family trusts and companies can engage employees, they operate under different legal frameworks:
- Family Trust:
- Trustee hires employees on behalf of the trust
- Income is distributed at trustee discretion
- Limited capacity to retain profits
- Greater fiduciary responsibility and personal exposure
- Company:
- Legal entity; hires employees directly
- Income taxed at corporate rate
- Can retain earnings for reinvestment
- Directors owe statutory (not fiduciary) duties
For this reason, legal practitioners often recommend a corporate trustee or a hybrid structure for family businesses employing staff, to limit liability and simplify compliance.
Taxation and Regulatory Obligations
Employing staff through a trust triggers standard employer obligations, including:
- PAYG Withholding: Deduct and remit employee income tax to the ATO
- Superannuation Guarantee: employee obligations include super payments (currently 11%)
- BAS Reporting: Lodge Business Activity Statements where applicable
- Single Touch Payroll (STP): Real-time reporting of wages and super
- Payroll Tax: If total wages exceed state-based thresholds
- Fringe Benefits Tax (FBT): If providing non-cash benefits to employees
Failure to meet these obligations can lead to penalties, audits, and in serious cases, trustee disqualification.
Common Scenarios Where Trusts Employ Staff
Legitimate scenarios where a family trust may lawfully employ individuals include:
- Running a family-operated business (e.g., retail, consultancy, farming) – trusts employing staff usually run businesses that generate income for beneficiaries.
- Managing investment properties or a family office
- Appointing administrative staff for internal trust operations
- Employing family members under arms-length, legally valid contracts
Each scenario must be reviewed for legal validity, commercial necessity, and documentation adequacy.
FAQs: Can a Family Trust Have Employees?
A short transition before the questions:
The legal ability for a trust to employ raises a host of related questions. Below are common search-based queries and expert-informed answers.
Can a Trustee Also Be an Employee of the Trust?
This creates a fiduciary conflict and is generally not recommended. Any such dual role must be authorised in the trust deed and structured with independent oversight to avoid breach of duty.
Can a Beneficiary Be Paid as an Employee?
Yes, if the role is legitimate and pay reflects fair market value. However, employment income must be kept separate from discretionary beneficiary distributions.
What Are the Payroll Requirements for a Trust Employer?
The trustee must comply with all employer obligations, including PAYG tax, superannuation contributions, and STP reporting. Trusts are treated the same as any other employer.
Does a Trust Need an ABN to Hire Employees?
Yes. An ABN is necessary for registration with the ATO, hiring employees, and meeting compliance requirements such as PAYG withholding and BAS lodgements.
Can a Family Trust Pay Family Members Wages?
Only if the work is real and the compensation is arms-length. Paying wages without substantiated work may be viewed as tax avoidance and could invalidate deductions.
What If the Trust Is an Irrevocable or Discretionary Type?
Employment permissions depend more on the deed than on trust type. However, irrevocable trusts often require stricter adherence to original terms and may have less flexibility.
Can a Trust Be Liable for Workers' Compensation?
Yes. The trustee must obtain workers' compensation insurance in accordance with state law. Failure to insure can lead to severe penalties.
Conclusion: Employment Through Trusts Requires Legal Discipline
While a family trust may employ staff in Australia, it cannot do so independently. The trustee, acting within their legal authority and fiduciary duty, bears the full responsibility of compliance.
From the deed to Fair Work to the ATO, employment under a trust is legally valid—but only when carried out with precision, legal advice, and ongoing administrative rigour.
For trustees considering hiring under a family trust, seeking legal review of the deed and obtaining accounting guidance is strongly recommended to avoid regulatory exposure and personal liability. Families unsure where to begin may first want to explore how to find a good family law lawyer, ensuring access to tailored advice on structuring trust employment arrangements lawfully.
