Setting up and running a payroll in Australia
Australia has a strong economy, well-educated population, Western business culture, and proximity to Asia, making it an obvious choice for many businesses looking to expand abroad.
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 Australia payroll outsourcing. This means close adherence to the country’s complex set of laws and regulations, many of which differ from other countries. As the Australia payroll outsourcing set-up process can take some time, this can result in delays to expansion. Depending on the size and scope of your expansion, you may also be required to establish an Australian legal entity.
In addition, if you have several international locations, Horizons can provide you with the assurance of one single payroll and human resources provider across all of your international locations.
At Horizons, we provide comprehensive Australia payroll outsourcing for organizations of all kinds. We will set up and run your Australia payroll, giving you full flexibility to focus on expanding your Australian operations, whether or not you have an official entity established in the country.
Why choose the Horizons payroll solution?
If you have an entity
For any organization that already has an official entity in Australia, we can set up and run your in-country payroll, managing everything from HR to contracts and compliance work.
Australia payroll outsourcing is a great option for larger businesses and those committed to a long-term presence in the country.
If you don’t have an entity
We also provide full support for organizations yet to establish an entity in Australia. In these cases, we can offer our Australia PEO to act as employer of record for your employees. In addition to this, we will set up and manage your Australia payroll outsourcing, along with associated administration work.
This level of outsourcing is ideally suited to any organization looking for a flexible, low-risk, and scalable route to doing business in Australia.
Australia payroll guide
Benefits of Australia expansion
There are many benefits to expanding into Australia. While the pandemic has has had a recent impact, 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.
Superannuation (capped at 27,500 AUD per year)
Total Employer Cost
Business 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 specific Australia payroll outsourcing 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 withheld income 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 whether you should set up a local company, or whether 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?
Australian employment laws apply a minimum wage set on a federal level, across the country. It is set at $20.33 per hour or $772.60 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.
A key advantage of Australia payroll outsourcing is that a third party ensures that all payments to employees are made in compliance with basic employee entitlements.
Superannuation and pension schemes
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 10 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.
In an Australia payroll outsourcing solution, a specialist payroll company ensures that compulsory superannuation is withheld from the employee and passed on to the provider.
Withholding payroll, PAYG and fringe benefits tax
Company income tax (generally 30%, but some smaller businesses may qualify for a reduced rate of 25 or 26%) and GST (currently set at 10%) will be payable by all companies operating within Australia (unless a few narrow exceptions apply).
For the purposes of Australia payroll outsourcing, the key taxes to keep in mind are PAYG, payroll tax, medicare levies and Fringe Benefits tax. All must be withheld and paid by the company periodically to the Australian Tax Office.
PAYG follows a progressive taxation model, with employees paying a higher percentage of earnings in taxes at higher income levels. Employers are required to withhold PAYG before salaries are paid and pay the government directly.
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 workers 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 some other requirements, worker insurance requirements are set by state/territory law, rather than the federal government. Insurance must be provided through an authorized list of providers, maintained by the Government.
Through an Australia payroll outsourcing solution, a third party company takes care of workers compensation on behalf of your company.
Severance and termination rules in Australia
Employers will generally be required to make a severance payment when terminating employees, but the rate depends on the individual’s time with the organization. For example, employees with more than one year of employment are guaranteed 21-days of pay, and employees with more than five years are entitled to 30-days for every year.
How to establish an Australia payroll
To hire employees in Australia, you would usually need to set up a payroll, register an Australian entity, and open an Australian bank account. This process can result in significant delays, potentially cutting into revenues and stalling progress for months. A simple solution is to outsource the complex administration to Australia payroll outsourcing experts.
At Horizons, we provide full Australia payroll outsourcing, taking care of everything for you to ensure your organization is compliant and well-equipped to successfully expand into the country. For organizations without an entity in Australia, we can also provide our Australian subsidiary to act as employer of record for your hires.
Manage payroll in Australia
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