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One of the key benefits of setting up and operating a business in Australia is access to a highly educated, multi-cultural workforce.
Not only do 40% of the workforce have a tertiary education, they benefit from an internationally recognised education system, quality scientific research institutions and an availability of specialised training services for further development.
The diverse culture of the Australian workforce is also perfect for global companies expanding to Australia – almost 30% of workers are born overseas, with 2.1 million able to speak an Asian language, and 1.3 million speak a European language.
Employing Australians, will, however, require a knowledge of the Australian payroll system. It is a statutory requirement that all businesses pay their employees correctly and on time.
The government departments that enforce major fines on non-compliant employers include:
- Fair Work Ombudsman – Regulates minimum wages, pay awards for different industries, and employee entitlements. They set the workplace rights and obligations of employers.
- Australian Taxation Office (ATO) – All employees are required to pay tax on their wages and salaries. The amount is set by the ATO and paid to them on behalf of employers, on a regular basis.
Australian payroll is a specialist set of knowledge and skills that are unique to this function and often underestimated. It is important to keep accurate records, monitor payroll changes and not miss deadlines.
Accounting software
Most accounting software and cloud solutions available have a payroll function for businesses to easily pay their employees or there are companies which you can outsource payroll.
By engaging these payroll alternatives, your business can minimise the risk associated with payroll and reduce compliance costs.
Here are the essentials you need for Australian payroll compliance –
Employing staff
When employing staff, they must be legally able to work in Australia. Australian citizens, Australian permanent residents and New Zealand citizens are all eligible to work in Australia.
If you are hiring a visitor, ensure they have the appropriate visa with the Dept of Immigration and note the expiry date.
It is the duty of the business to take reasonable steps to ensure they are not employing, referring or contracting illegal workers.
Tax File Number
All eligible workers will have an ATO assigned tax file number (TFN). This is unique to each employee and is required for taxation and superannuation purposes.
The Australian tax file number is similar to the Social Security number in the US, Social Insurance Number in Canada, PRC in China, Hong Kong Identity Card in Hong Kong, Aadhaar card in India, National Identification number in Germany and National Insurance Number in the UK.
Wages and Salaries
An employee’s minimum pay rate comes from an award, enterprise agreement, or other registered agreement or the national minimum wage. These can be found at Fair Work.
Payment is made to each employees’ bank account either weekly, fortnightly or monthly.
Taxation
Tax on wages and salaries, called Pay As You Go (PAYG) is deducted from each employee’s pay, before payment to the employee is made. The amount of PAYG deducted is then paid by the employer to the Australian Taxation Office, usually monthly.
This tax is similar to FICA in the US, PAYE in the UK, and IIT in China.
The ATO outlines the amount of tax to be deducted from each employees wages or salaries based on the tax tables that they publish each financial year. Use the tax table according to the frequency with which you pay your employees – weekly tax table for those paid on a weekly basis, etc.
Superannuation
Superannuation, also shortened to super, is an amount of money employers pay on their employees’ behalf to save for their retirement.
Superannuation is paid on income over $450 a month and is currently 9.5% of income, including bonuses, commissions and loadings. This is called the Super Guarantee and it is a statutory requirement that every employer must make on behalf of its employees.
The superannuation guarantee is paid into an approved super fund of the employees choice and there are restrictions on when and how employees can access the funds.
Super payments are usually paid monthly or quarterly straight into each employee’s super fund. Employers must report super payments to the ATO using the electronic reporting standard known as the SuperStream. There are penalties to an employer for non-payment.
Similar retirement savings are the 401K in the US, State pension in the UK, Pension Insurance in China, although they are not calculated the same.
Employee Leave Entitlements
There are minimum leave entitlements for employees as set by the National Employment Standards. An employer can arrange for different leave entitlements for employees but they cannot be less than the entitlements in the standard.
Leave entitlements cover public holiday leave, annual holiday leave, sick and carers leave, compassionate and bereavement leave, long service leave, maternity and paternity leave, and community service leave.
Here is more information on the types of leave and the minimum entitlements.
Payment Summary
A payment summary is created for each employee that was paid during the financial year and outlines the total wages you paid to the employee, tax withheld, and superannuation paid.
Each employee receives their own payment summary and the employer submits an annual report of all employee payment summaries to the ATO by the 14th August of each year, for the previous financial year.
Workers Compensation
Workers compensation is an insurance payment that all employers must pay to cover them, in the case an employee is injured at work or becomes sick due to their work.
Workers compensation includes payments to employees to cover their:
- Wages while they are not fit for work
- Medical expenses and rehabilitation
The amount of workers compensation is based on employees wages and salaries, superannuation and the type of industry.
Payroll Tax
This is a state tax on the wages paid by employers. It is calculated on the amount of wages employers have paid per month and collected in each state or territory that your employees are located in. It is paid on a monthly basis to the employee’s state or territory.
Not all employers are eligible for this tax. Payroll tax is payable if your total Australian wages exceed the threshold that applies in your state or territory. Each state or territory has differing tax-thresholds.
Fringe Benefits Tax
If an employer provides fringe benefits to their employees they may have to pay Fringe Benefits Tax (FBT).
These fringe benefits include the private use of a work car, paying private expenses such as school fees or health insurance costs.
Read our Guide to FBT in Australia
Record Keeping
Information such as employee details, wage details, hours of work, leave, superannuation contributions, individual agreements, and employment termination need to be kept for seven years.
They should be readily accessible for the ATO or Fair Work Inspector, be legible and in English.
Further reading
Doing Business in Australia FAQ. We cover off some useful things to consider when setting up a business in Australia
Should I hire a contractor or an employee? When business is growing fast, it’s hard to know which to choose. We take a look at the pros & cons of each.
How we can help
International Accounting Solutions Services have provided payroll services and payroll outsourcing for over twenty years to many Australian and overseas companies operating across a wide range of industries.
Our services allow for scaling of these payroll services and seamless integration into your accounting system.
If you would like more information, please contact us using the form on this page, or call 1300 302 448. (International callers: +61 2 8298 5301)