Understanding Payroll in Australia: What Global Companies Need to Know
Companies looking at expansion into the Asia-Pacific region will find few countries more suitable than Australia. One of the world’s largest mixed-market economies, with strong linguistic links to the West and geographical links to south-east Asia, it is an excellent location for global business.
After a recession in the early years of the last decade, the Australian economy has bounced back in recent years. GDP was around $1.39 trillion in 2019, an increase of 15.5% on its 2016 level. Australia currently possesses the 14th largest economy in the world, but with a population of just 25 million people spread across its vast territory, it ranks tenth in GDP per capita.
Although Australia has considerable mining, manufacturing and construction industries, over 60% of its GDP is generated by services, making the country ideal for a wide range of companies. Relatively low unemployment (at least prior to COVID-19), a high quality of life, a well-educated workforce and a welcoming approach to incoming business are further plus points for organizations evaluating an entry into the Australian market. This guide explores the specifics and nuances of Australian employment and payroll which is an ideal place from which to start your expansion plans:
Foreign businesses can 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’.
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)
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.
National employment standards are enshrined in law by the Fair Work Act of 2009, while additional regulations (which sometimes contradict national law) can be applied in unionized industries through collective bargaining.
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 should be paid at 150% of the hourly rate for the first three hours of overtime worked each week, and 200% for any overtime beyond this, and for any work undertaken on Sundays.
Notice periods are progressive, depending on 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.
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, Severance & Retirement
As of July 2020, the federal minimum wage in Australia is AU$19.84 per hour (approximately £11.00; $13.90; €12.10) or AU$753.90 per week (approx. £420; $525; €460). Different rates apply to employees under 21, on apprenticeships or with disabilities. Additionally, other minimum pay rates 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 16 weeks of salary, depending on length of service.
Australia also runs a retirement funding system called superannuation (often abbreviated to ‘super’). Employers must contribute a fixed amount of each employee’s ordinary time salary into this fund that becomes available upon retirement. The current rate is 9.5%, while employees can voluntarily make further contributions if they so wish. From 2019, 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).
Income tax rates are progressive in Australia, but different rates apply to residents and foreign residents. There are bands of resident tax rates: the first AU$18,200 (approx. £10,100; $12,700; €11,100) 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. £100,000; $126,000; €110,000). Foreign residents receive no exemption and pay an initial 32.5% on their earnings. Higher rates of 37.5% and 45% kick in at AU$90,000 (approx. £50,000; $63,000; €55,000) and AU$180,000 respectively.
There are other tax-related considerations employers operating in Australia should be aware of:
- State payroll taxes: levies and thresholds vary between Australian states and territories.
- Goods & Services Tax (GST): 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 ATO, but must also account for and pay GST monthly, quarterly or through an annual return.
- Pay As You Go (PAYG): Australia’s income tax withholding requirement, PAYG obligates employers to file tax withholdings with the ATO. The income tax year runs from July 1 to June 30.
- Fringe Benefits Tax (FBT): must be reported and paid on any non-income benefits employees receive, such as car allowances, entertainment, insurance coverage, etc. The rates for these vary, depending on whether any GST had to be paid for the benefits provided to the employee. Generally, any benefits with a value over $2,000 must be reported on the employee’s PAYG payment summary.
Holiday and Leave Considerations
Employees in Australia are entitled to four weeks’ paid leave each year, as well as time off on national or state holidays (between ten and 13 days, variable by state and territory). 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.
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.
Australia provides 18 weeks of paid parental leave to the primary carer of a newborn or newly adopted child, although this is only paid at the national minimum wage of AU$753.90 per week (approx. £420; $525; €460). Employees can also access 12 months of unpaid parental leave.
Australia’s employment landscape is constantly shifting, so while setting up a business is relatively straightforward, running payroll and fulfilling all the various regulations around tax, withholding and reporting can be extremely complex. It’s in those areas in particular that a global payroll partner can ensure compliance right from the start and take away administrative worries, as you take advantage of all the excellent opportunities Australia has to offer.
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.