If looking to expand your international enterprise into Australia, you will need to engage a workforce on the ground. To do that, you need to understand the compliance requirements for payroll in Australia. In this article, we set out the key compulsory requirements for payroll, whether you employ workers yourself, or engage a Professional Employer Organization to do so on your behalf.
Benefits of Expansion Into Australia
There are many benefits to expanding into Australia. According to 2019 statistics, Australia had its 28th year of consecutive annual economic growth, a record for a developed country. In addition, features which may make Australia an attractive market for international expansion include:
- Strong regulatory institutions;
- The world’s 14th largest economy;
- A diverse economy with low government debt.
While it is not clear yet what the medium-term impact of COVID-19 will be, it is likely that Australia will maintain a competitive edge relative to other developed economies.
Set-up in Australia
One of the first things you will need to consider is the business model for your expansion. This will have a direct impact on your tax and payroll compliance obligations. A common model is to incorporate a company in Australia, perhaps as a subsidiary of a parent company.
The Australian company can be registered with the Australian Government’s business registration service. Then, through the same portal, the company needs to:
- Apply for an Australian Business Number (‘ABN’);
- Apply for a Tax File Number (identifying the company for tax purposes);
- Register for Goods & Services Tax (‘GST’) and ‘Pay as You Go (PAYG). The first tax is what is sometimes called a ‘value-added tax’ in other countries, while the latter is the name for the payroll tax;
One possibility for avoiding these obligations would be, instead of setting up a company, to engage a global PEO based in Australia to employ the workforce on your behalf. It is then the global PEO that is required comply with the various payroll requirements. For more information on when you should set up a company and when you should go with a PEO see Should You Switch From a Global PEO to a Local Entity?
Compensation and Basic Entitlements
So, what are the basic employee entitlements in Australia that your payroll system needs to account for?
Australia has a minimum wage set on a federal level, across the country. As of today’s date (July 2020), it is set at $19.84 per hour, or $753.80 per 38-hour week (Australian Dollars).
There a range of other minimum entitlements that are owed to all workers in Australia called the ‘National Employment Standards’: These are:
- A limit of 38 hours per week, plus reasonable additional hours;
- A requirement to accommodate certain requests for flexible working arrangements;
- Up to 12 months unpaid parental leave, with a right to ask for 12 months more (this is in addition to paid parental leave provided by the Australian Government);
- Four weeks annual paid leave;
- Personal Carer’s Leave, Compassionate Leave, Family and Domestic Violence Leave;
- Community Service leave (for example, for voluntary emergency services or jury service);
- Long Service Leave. This is paid leave for employees who have been with the same employer for a lengthy period;
- Public holidays;
- Notice of termination and redundancy pay: Up to five weeks’ notice of termination can be required and up to 16 weeks of redundancy pay, based on length of service;
- Provision of a ‘Fair Work Information Statement’ to employees setting out their minimum rights.
In addition, Australian has a system called ‘Modern awards’ which applies extra minimum terms and conditions of employment. These are restricted to particular industries covered by the award. They provide entitlements in relation to matters such as:
- Work hours, including how overtime is treated;
- Penalty rates.
All matters relating to employment, both the minimum standards and additional benefits or requirements from the employer, should be included in a written employment agreement.
The mandatory retirement savings scheme in Australia (commonly known as ‘pension schemes’ elsewhere), is called ‘superannuation’. Quarterly, employers are required to contribute a certain amount to a superannuation fund that becomes available to employees on retirement. These contributions:
- Are currently set at 9 percent of the employee’s wage;
- Must be paid and reported electronically in a standard format;
- Must be made to a compliant super fund. Generally, employees can choose their own;
- Will incur an extra charge if not paid in time.
Fringe Benefits Tax
Company income tax and GST will be payable by all companies operating within Australia (unless a few narrow exceptions apply). But these do not directly impact on payroll. For payroll purposes, the key taxes are PAYG and Fringe Benefits tax. Both must be withheld and paid by the company periodically to the Australian Tax Office.
The Fringe Benefits tax covers any non-income benefits, such as:
- Employees using works car for private purposes;
- Providing for an employee’s gym membership;
- Free tickets to concerts;
- Reimbursing expenses incurred by employees.
It is a requirement that employers have worker compensation insurance in place in case of a workplace accident. This provides payments to employees to cover:
- Wages or salary while they are unable to work;
- Medical expenses and rehabilitation.
Unlike the other factors discussed in this article, worker insurance requirements are set by state/territory law, rather than the federal government. Insurance must be provided through an authorized list of provider, maintained by the Government.
There are a range of key payroll requirements in Australia related to pay, minimum standards or work, modern awards, workers compensation, superannuation, and tax. These are all matters that you have to be on top of if employing workers in Australia.
Due to the compliance burden involved, it sometimes makes sense for an international enterprise to engage a global PEO to employ these workers on their behalf. That way, the global PEO becomes responsible for ensuring all that the payroll requirements are complied with.
New Horizons Global Partners operates as a global PEO to take care of payroll and international human resources obligations for client companies in other countries. In addition to reducing the compliance burden, this is often the quickest and cheapest way to move into a new market.