The land “down under” commonly inspires images of kangaroos, famed outdoorsmen, surfing, and its famous Sydney opera house. These images certainly may not have been deciding factors for companies who have chosen to operate in Australia, but let’s discuss some country facts before we delve into an overview of Australia payroll. After all, you never know what new detail you learn will spark a new idea for further operational success!
Australia is the 6th largest country in terms of landmass but its population density is only around 3.1 people per square kilometer. Another interesting fact to note is that approximately 85% of its population lives within 50 kilometers or roughly 30 miles of the coast. In 1856, stonemasons in Victoria Australia took action and established the first 8-hour workday, which became the global standard. For all the sun lovers out there, if you visited a different beach in Australia every day, it would take you just over 29 years to see them all.
Importing and exporting to/from Australia is regarded as very difficult. Both the cost at the port and the time it takes to process each step ranges from three to five times more than the OECD average.
Something else worth noting is that Australia is not terrible when it comes to getting electricity, but prices of electricity are the highest in the world. The average electricity consumer in South Australia spends three times what a US consumer would. Although, it is noteworthy to state that the US has the cheapest electricity cost out of the high-income countries.
If you would like a full guide on starting a business in Australia, the Australian Government website has a great full guide here.
Australia is not considered a very difficult country when it comes to importing skilled workforce members, but there are a few hoops. To see the skill as an employer, you have the option to sponsor employees on a temporary (subclass 457) or permanent basis. The permanent sponsorship program is broken down into a national (subclass 186) or regional basis (subclass 187). For more detailed information on immigration requirements and processes, you can see the Australian Border.gov guide here. Individuals can also apply for work visas by matching one of Australia’s “skill shortages” which you can see here.
As of July 1 2017, Australia has a minimum hourly wage of $18.29 AUD and weekly (based on 38 hours) of $694.90 AUD. This is roughly equivalent to $14.40 USD per hour.
Overtime is allowable but has to be considered “Reasonable.”
According to Australia’s National Employment Standards (NES), a mandatory 4 weeks minimum paid vacation leave is required. Annual leave that the employee does not take will accrue and will be paid out on termination. Public holiday leave is not included in the 4-week minimum. There are eight national holidays that most employees are entitled to. Employees are also entitled to 10 days or personal or care leave; this type of leave will not be paid out on termination.
Australia’s Superannuation program is like a mandatory 401K that employers have to pay into for every employee. As of July 2014, employers must pay a minimum contribution of 9.5%. In July 2021, this will increase to 10%. For more information about planning and compliance for Superannuation or “Super” for short, take a look at this blog post we put together.
For employees without health insurance, employers are required to contribute between 1% and 1.5% depending on compensation.
Taken from Thomson Reuters Westlaw:
Foreign nationals domiciled in Australia must generally lodge a tax return and pay tax on income earned in Australia under the Pay-As-You-Go tax withholding system (PAYG). Employers must withhold PAYG withholdings and remit them to the Australian Taxation Office on behalf of relevant employees.
Tax rates are based on earnings brackets. The highest marginal rate for the 2016-2017 financial year is 45% plus the Medicare Levy of 2% (a compulsory contribution for state-funded healthcare). Currently, there is also a “temporary budget repair levy”, which is payable at a rate of 2% for taxable incomes over A$180,000.
The tax rates are below (for both Australian nationals and foreign nationals):
For Australian nationals:
• earnings between A$0 and A$18,200: nil;
• earnings between A$18,201 and A$37,000: 19c for each A$1 over A$18,200;
• earnings between A$37,001 and A$87,000: A$3,572 plus 32.5c for each A$1 over A$37,000;
• earnings between A$87,001 and A$180,000: A$19,822 plus 37c for each A$1 over A$87,000;
• earnings of A$180,001 and over: A$54,232 plus 45c for each A$1 over A$180,000.
For foreign nationals:
• earnings between A$0 and A$87,000: 32.5c for each A$1;
• earnings between A$87,001 and A$180,000: A$28,275 plus 37c for each A$1 over A$87,000;
• earnings of A$180,001 and over: A$62,685 plus 45c for each A$1 over A$180,000.
Foreign nationals’ rate of income tax is higher and they are generally not required to pay the Medicare Levy.
Fringe benefits tax (FBT). FBT is an employer paid tax on non-cash benefits (for example, entertainment) provided to employees or their associates. The FBT system applies to Australian residents and foreign nationals. The FBT year runs from 1 April to 31 March.
For the FBT years ending 31 March 2016 and 31 March 2017, the rate is 49% and for the year ending 31 March 2018 the rate is 47%. This rate is applied to the gross-up value of the benefit, which is the amount that an employee would have received in their gross salary if they paid for the benefit themselves in after-tax dollars. This is taxed at the highest marginal rate plus the Medicare Levy.
There are certain exemptions available, including for employees that live away from home. In these cases, the employer can obtain a tax benefit by way of an exemption.
For more detailed information on Australia payroll requirements and employment, breakdowns take a look at this full guide from Thomson Reuters.
Thank you for taking the time to look through this post on the ins and outs of Australian payroll. If you need a consolidated payroll solution that guarantees compliance in Australia, do not hesitate to reach out to us. We are here to help!
**This article is for informational purposes only. It is not intended to constitute legal advice.