For companies looking to grow their global operations, Australia can be a smart location for overseas expansion. As one of largest mixed market economies in the world, Australia has experienced a quarter century of continuous growth – making it one of the few nations to dodge the full effects of both the early-2000s dot-com bust and the more recent global financial crisis.
Though some predict a coming slowdown for the Australian economy, the nation’s citizens currently enjoy a low unemployment rate of 5.7 percent and a quality of life that was rated the seventh highest in the world. The government is also remarkably welcoming to new business entities. Australia was ranked 15th out of 190 economies for ease of doing business, and fifth when compared to economies with a similar or larger population.
By opening their doors in Australia, organizations can capitalize on cost-competitive office space rates, a well-educated workforce, and a robust, transparent regulatory environment. Step one to enjoying Australia’s advantages: Navigating the many nuances of its complex payroll and tax requirements. Here’s a guide to the most important things to know.
As with most instances of overseas expansion, companies launching or exploring operations in Australia must decide whether it is best to conduct their Australian operation as a foreign branch or an Australian subsidiary company. The answer depends on a range of factors, including the tax implications involved. For example, a branch office may not be taxable in Australia (depending on whether it constitutes a “permanent establishment”) the way an Australian incorporated subsidiary company would be.
If a multinational organization intends to do business in Australia long-term, however, it will need to incorporate with the Australian Securities and Investments Commission. Following the establishment of a formal entity, a company must then:
- secure an Australian Business Number (ABN);
- obtain a Tax File Number (TFN) (necessary for any trading activity); and
- register for the Goods & Services Tax (GST) and ‘Pay As You Go’ (PAYG) withholding tax.
Given how skilled the Australian workforce is (and how robust the nation’s economy), the Australian government wants employers hiring indigenous workers. So while recruiting Australians into expanding businesses is regarded as fairly easy, onboarding employees from other countries can be complicated.
If an employer can’t find the right hire inside Australian borders, it must apply to become a ‘sponsor’ to recruit individuals from overseas. With some exceptions, however, only positions on Australia’s list of skill shortage areas are eligible to be filled by international talent. All individuals need a visa to enter Australia – whether to work or even just to visit – and certain visas can only be administered upon the issuance of a job offer or the express notification of an individual’s intent to develop, manage, or invest in a business.
While not required, employment contracts or agreements are common in Australia and should include standard conditions of employment, termination of employment provisions, and employer protection clauses. They should also outline all provisions dealing with breaks, job responsibilities, and leave entitlements.
When making any employment offer, Australian-located companies should be mindful of the ten national employment standards laid out in the Fair Work Act of 2009 (several of which are addressed in the sections below). Additional workplace rules and employee protections apply in unionized industries or according to Enterprise Bargaining Agreements. Such agreements can sometimes contradict national law, and failure to meet them can result in penalties.
As a best practice, stakeholders of multinational companies should familiarize themselves with all of the ins-and-outs of Australia’s industrial relations law – as well as its state-based laws – before entering the country. Employment legislation is a frequently changing and highly politicized area of Australian policy.
Compensation, Severance & Retirement
The federal minimum wage in Australia, for individuals over the age of 21, is AU$13.74. An employee is entitled to at least the federal minimum wage if there is no appropriate 'Australian Pay and Classification Scale' that applies to his or her position. (There are lists of pay rates for different jobs in different states.)
Workers in Australia are subject to a maximum of 38 ‘ordinary’ hours per week, though agreements may be implemented to allow for necessary shifts. In instances where termination of employment is for redundancy and the employee has provided at least 12 months’ continuous service, severance pay is required under Australian law – with the pay amount scaled according to the length of the employee’s service.
Australia also requires employees to participate in ‘superannuation,’ its government-supported retirement program. On at least a quarterly basis, companies must contribute a fixed amount of each full- or part-time employee’s salary (currently 9.5 percent) into a superannuation fund that becomes available to the worker upon retirement.
All information on funding superannuation transactions must be recorded and communicated to employees on a quarterly basis, at minimum. Since 2016, the Australian Taxation Office (ATO) mandated that all employers report ‘super’ payments using an electronic reporting standard known as SuperStream. In 2019, all employers will be required to use the Single Touch Payroll (STP) system for reporting tax and payroll information to the ATO, regardless of employee headcount. Global payroll organizations should ensure that their Australian payroll providers comply with the most recent requirements; if they’re not, they risk incurring noncompliance penalties.
Superannuation is far from the only withholding concern for multinational companies with Australian operations. As mentioned previously, the GST and PAYG are two notable Australian tax considerations, and a third is the FBT or ‘fringe benefits’ tax. In addition, employers are subject to State Payroll Tax rates and thresholds that vary among Australian states and territories.
The GST is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia. Businesses whose sales are taxable generally include GST in the price they charge for their goods and services. If they do so (and are registered for the GST with the ATO) they can also claim credits for the GST included in the price of their business purchases. Companies must account for GST; set funds for aside for payment; pay the GST and log all transactions – either by completing activity statement every month or quarter, or by filing an annual GST return.
PAYG is Australia’s ‘pay as you go’ income tax withholding requirement. Similar to other countries’ requirements, companies must withhold an income tax amount (dependent on earnings) from employees’ pay and file the deductions with the ATO. At the end of the financial year, employees are responsible for squaring up with the ATO via their individual tax returns. The income tax year in Australia runs from July 1st to June 30th of the following calendar year.
Lastly, organizations must report and pay the fringe benefits tax or FBT if they provide employees with any non-income benefits, such as car allowances, entertainment, insurance coverage, or otherwise. FBT is calculated according to two separate “gross-up” rates, with the appropriate amount dependent on whether the employer is entitled to a credit for any GST paid on the benefits provided to an employee. Generally, any benefits with a value over $2,000 must be reported on the employee’s PAYG payment summary.
Leave & Insurance Considerations
Employers in Australia are required to cover their employees with workers’ compensation insurance in case of accidents in the workplace, and they must have coverage in each state and territory in which they hire workers. Premiums are based on factors such as the type of industry, remuneration, and claims history.
Long Service Leave (LSL) is unique to Australia and a key factor in encouraging employee loyalty and maintaining the commitment of the workforce. LSL entitles an employee who has worked with the same company for a set number of years to take an extended period of paid leave in addition to regular annual leave. The years of service required and duration of leave granted vary from state to state, but a general guide would be that an employee who has worked 10 years with the same company would be entitled to two months of LSL. Employers should note that LSL is payable upon termination if unused.
Both full- and part-time employees in Australia enjoy strong worker protections and a generous allowance of four weeks’ paid annual leave per year based on their ordinary hours of work. They are also entitled to receive 10 days’ paid personal/sick or “carer’s” leave per year, accruing on a pro-rata basis, plus an additional two days of unpaid carer’s leave and a further two days of paid “compassionate” or bereavement leave. Any applicable enterprise agreements or other registered agreements may provide employees with more annual leave than the national rules specify, but never less.
Australia’s guidelines for parental and maternity leave are evolving (check here for updates) but are likewise highly generous to the country’s workers. Eligible employees who are the primary carers of newborns or adopted children get up to 18 weeks' leave paid by the Australian government at the national minimum wage in addition to any paid leave from their employer. Employees are also entitled to 12 months of unpaid parental leave and can request an additional 12 months of leave.
In addition to multiple state-specific holidays, Australia recognizes eight national holidays annually, as outlined in the table below.
|Date||National Public Holiday|
|January 1st||New Year's Day|
|January 26th||Australia Day|
|Friday before Easter Sunday||Good Friday|
|Monday after Easter Sunday||Easter Monday|
|April 25th||Anzac Day|
|June 10th||Queen's Birthday (except QLD, WA)|
|December 25th||Christmas Day|
|December 26th||Boxing Day (except SA)|
While setting up a business in Australia is relatively simple, paying employees can be complex thanks to the country’s continually evolving (and highly regulated) employment landscape. Especially since companies must report and submit payments to multiple different third parties, outsourcing Australian payroll to a trusted managed services provider can be a smart way to ensure all requirements are met in an accurate and timely manner.
The most valuable managed services partner can pair their local expertise in Australian payroll with a global set of standardized processes. By incorporating Australian payroll operations into a holistic global payroll solution, organizations can cultivate better intelligence on their entire global workforce while injecting greater transparency into their satisfaction of Australia’s many evolving regulatory requirements and compliance guidelines.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.