Australia Payroll and Benefits Guide

What global businesses need to know about payroll in Australia

Australia shut itself off more than most countries during the most difficult times of the pandemic. But it’s now fully open for business once again, and its status as one of the best places to do business in the Asia-Pacific region is well and truly restored.

This may only be a country with a population of around 26 million, but by GDP it has the 14th-largest economy in the world, bigger than much more populous nations like Spain and Indonesia. The combination of being English-speaking, and geographically close to Asian giants like China and Japan, means it can get the best of both worlds. And while services now make up more than 60% of its economy, mining and agriculture across its vast terrain also play a major part.

Invest in Australia and you get access to a well-educated workforce and a country that is a melting pot of different cultures and philosophies. But like anywhere, it has its own quirks from a payroll and employment standpoint. We’ll cover the most important of them in this guide.

Getting Started

Foreign businesses can be set up in Australia as foreign branches or as Australian subsidiary companies. Which is more suitable will vary from business to business, and there are different tax implications: for example, branch offices may not necessarily be subject to Australian tax, depending on whether it constitutes a ‘permanent establishment’. 

If you’re setting up a company in Australia, then at least one registered Director and one registered Secretary must be residents within the country.

In any case, companies must register and incorporate with the Australian Securities and Investments Commission (ASIC), and obtain:

  • An Australian Business Number (ABN)
  • A Tax File Number (TFN)
  • Registration for Goods & Services Tax (GST) and Pay As You Go (PAYG)

You can go through these functions online through the Business Registration Service. You’ll also be required to pay an annual fee to ASIC for their yearly review, and it’s worth searching for business permits on the Australian Government’s website to see if there are any licenses you need to operate legally.

Employment Considerations

Australia gives its own workers preference in the job market, so recruiting Australians is easy but hiring foreign workers can be difficult. To bring in a foreign worker, an employer must sponsor an employee, who must also have a valid visa for work. Generally speaking, overseas workers are only allowed to fill job roles on the Australian government’s skills shortage list. It’s also important to note that 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.

The maximum working week in Australia is 38 hours, although an employer can make ‘reasonable’ requests to employees to work hours in excess of this, or to allow the 38-hour weekly limit to be applied as a rolling average across a longer period.

Overtime is generally paid for any work beyond 38 hours in a week, and/or beyond ten hours in a day, as long as they are covered by ‘Industrial Award’ agreements. The rates of overtime pay are agreed upon in employment contracts. Employees who aren’t covered by ‘Industrial Awards’ don’t have any statutory right to overtime pay.

Notice periods are progressive, depending on the length of service, starting at one week during the first year of service, and with extra weeks added after one, three, and five years of service. The standard probation period is between three and six months, but can be extended by written agreement in the employment contract. 

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.

Compensation and Severance

As of July 2023, the federal minimum wage in Australia is AU$23.23 per hour (approximately £12.30; $15.60; €14.30). Different rates apply to employees under 21, on apprenticeships or with disabilities. Additionally, other minimum pay rates are required for certain jobs in certain states.

Severance pay should be paid to employees made redundant who have at least one year of service. Rates vary between four and sixteen weeks of salary, depending on length of service; rates increase after each year of service, and reach the highest level after ten years.

Tax and Social Security Considerations

Income tax rates are progressive in Australia, but different rates apply to residents and foreign residents. There are five bands of resident tax rates: the first AU$18,200 (approx. £9700; $12,200; €11,200) is untaxed before the first band of 19% is introduced. Further bands of 32.5% and 37% apply, before the top rate of 45% kicks in for earnings over AU$180,000 (approx. £96,000; $121,000; €111,000).  Foreign residents receive no exemption and pay an initial 32.5% on their earnings. Higher rates of 37% and 45% kick in at AU$120,000 (approx. £64,000; $81,000; €71,000) and AU$180,000 respectively.

Goods & Services Tax is a broad tax of 10% on most goods, services, and other items sold in Australia. Businesses can claim credits for GST that’s included in the price of the goods and services they sell from the Australian Taxation Office, but must also account for and pay GST monthly, quarterly, or through an annual return.

Social security-related contributions and other taxes can vary slightly from state to state, including payroll tax (between 4.75% and 6.85%), Medicare (2%), and superannuation (11%, rising to 11.5% on 1 July 2024, and 12% on 1 July 2025. These contributions are made by employers only. 

All employers are now required to use the Single Touch Payroll (STP) system for reporting superannuation, tax, and payroll information to the Australian Taxation Office (ATO).

Holiday and Leave Considerations

Employees in Australia are entitled to four weeks’ paid leave each year (five weeks for those who do shift work), as well as time off on national or state holidays (between ten and thirteen days, variable by state and territory). Collective bargaining and enterprise agreements can often increase entitlement for employees beyond the statutory minimum.

Sick leave entitlement is ten paid days per year, and as well as being used if the employee is sick themselves, it can also be used if a family member needs care. Bereavement leave entitlement is two days.

Long Service Leave (LSL) is a type of leave only found in Australia and New Zealand, and is a key factor in encouraging employee loyalty. Rates vary from state to state, but most offer 2-3 months of paid leave to employees who reach ten years of service. Employers should note that LSL is payable upon termination if unused.

Maternity leave entitlement in Australia is 12 months, which is among the highest figures anywhere in the world but is generally unpaid. It is possible to apply to the federal Government for up to 18 weeks of maternity pay, while many employers choose to offer paid maternity leave as a benefit. Paternity leave entitlement is five days unpaid, and fathers can apply to the federal Government for more time off if they feel they need it.

In Summary

Collective bargaining, differences between states, and variations in rules for non-Australians mean that running payroll in Australia isn’t the easiest. The Australian authorities also take any transgressions or non-compliance very seriously, so it’s vital that you’re up to speed on what you need to do, right from the start. If you feel you might need some help, or want to focus solely on growing your Australian operation, then working with a global payroll provider can give you extra support and expertise.

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.

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