Why do business in Australia?
Australia is building a reputation as an international business powerhouse. You won’t find yourself tied up with red tape when doing business here.
Australian consumers are among the world’s richest and have plenty of spending power. Australia also boasts a diverse community of citizens from all over the world, so you’ll have plenty of choice when targeting customers and hiring employees.
Finally, Australia has positive trading relationships with countries all over the world. Australia and the UK are intrinsically linked on political and economic grounds, while wealthy nations in the Asia-Pacific region are closely connected to Australian business opportunities.
EDST (GMT (+11))
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2020
How to set up payroll in Australia
You’ll need to meet particular parameters before setting up a payroll in Australia. Whether establishing a subsidiary business or opening an Australian branch of your company, you need to ensure that you are legally compliant.
Before you start a payroll, you’ll need an Australian Business Number, aka ABN, and a Tax File Number, aka TFN. In addition, you must register for the Goods and Services Tax, aka GST and a Pay as You Go withholding tax.
You will also need to pay your employees from a business bank account in Australia. Your business must be registered in Australia to qualify for such an account. This means that you cannot open an account without an ABN. You can start this process from overseas.
You will be responsible for withholding income tax from your employees. This is known as the PAYG system. You must submit these funds to the Australian Taxation Office, or ATO.
Tax rates in Australia vary depending on the salary of the employee. The tax exemption rate in Australia is AU$18,200. The minimum tax rate, starting at earnings of AU$18,201, is 19% of an annual salary. Taxes are capped at 45%. This peak tax rate applies to salaries of AU$180,000 or above.
In addition, you will need to contribute to an employee’s superannuation fund. This is colloquially referred to as a super. This is the Australian equivalent of a state pension. Any employee that earns AU$450 net per month must be paid a minimum contribution of 9.5% into their super. Some employees may choose to sacrifice more of their salary for an enhanced super contribution.
You will also be liable to pay tax on your payroll on Australia. Rates vary, depending on which state your business is registered within. Expect to pay anywhere from 4.75% to 6.85% tax on your payroll.
Australian employment law and HR considerations
The rights of employees are protected under the Fair Work Act of 2009. The following statutory rights apply to Australian citizens and foreign nationals alike:
- The right to work on a safe environment, free of harassment
- Minimum wage of AU$740.80 per week, paid on a contractually agreed date
- Cap of 38 working hours per week, unless additional time has been mutually agreed
- Minimum of 20 days of paid holiday per year (pro rata for part-time employees)
- Minimum of 10 paid sick days per year (pro rata for part-time employees)
- Up to 12 months of unpaid parental leave for the primary caregiver of any child
- Flexibility in working arrangements to accommodate personal circumstances
- Redundancy payments if a role is dissolved for business reasons
Further non-salaried benefits are also recommended, though these are discretionary. The use of a company-paid mobile phone for business calls is common in Australia, while many businesses also offer financial bonuses for high performance, loyalty rewards for lengthy service, and employee well-being benefits.
Setting up a subsidiary or branch entity in Australia
When setting up your business in Australia, you have two choices. You can open a branch of your existing business. This means that, while the practices of your branch must comply with Australian law, your company will still be recognised as an international business based elsewhere. Alternatively, you create a subsidiary company.
An Australian branch of your business will require more administrative work. You’ll need to provide significant financial data that proves solvency and legal compliance. You will not automatically be subjected to an audit by the Australian Securities Investment Commission, but this may be requested. Once approved, you will be provided with an Australian Registered Body Number (ARBN).
A subsidiary company will be an entirely new company that trades exclusively in Australia. Typically, your existing business will own the shares of this company. A subsidiary company can be owned by an overseas business, but at least one director position must be held by an Australian national.
It’s the tax implications that really separate a branch from a subsidiary company. If you open an Australian branch of an overseas business, you will only pay business tax on profits generated in the country. However, any losses to the bottom line of an Australian branch will be absorbed by the overseas business. This can impact profit margins.
If you create a subsidiary company, your global profits will be assessed by the Australian tax authorities. This, naturally, can lead to greater tax repayments. However, there is also an element of security to this approach. Losses incurred by an Australian subsidiary business are the sole reserve of this company.
Weigh up these pros and cons and decide whether an Australian branch of your existing company or a new subsidiary business will meet your needs best.
As with all countries, Australia has some particular business nuances that must be taken into consideration.
Arguably the most important of these is the legal requirement to make superannuation contributions. Always remember that you will be expected to pay an additional 9.5% on top any employee salary. You may wish to consider this when making a salary offer and negotiating any increase.
Legally, an Australian employee must be permitted an 8-hour break between any working patterns or shifts. This means that you may not be able to have all employees present in a workplace at the same time. If you want employees to work more than 10 hours in a single day, they will need to sign a contract approving this. Most Australian employees will agree to this without complaint.
Be aware that, in Australia, legislation is split between state and commonwealth. Many individual states have unique legal practices that a business must adhere to. Study these, ensuring that you remain legally compliant at all times.
Australian culture is famously laid-back, and this can apply to the workplace too. Australians are hard-working and professional – lateness is a big cultural no-no, especially in business. All the same, expect your colleagues to socialise outside of work most evenings. Small talk and polite conversation are anticipated ahead of a meeting. Do not launch straight into business. This can be considered rude.
Don’t be shocked by any salty language, either. An employee will never verbally harangue a colleague or client, and slurs based on ethnic background, sexual orientation or gender are strictly outlawed. Australian nationals do have a dry, self-deprecating sense of humour, though. The way colleagues greet each other and refer to themselves may raise an eyebrow until you adjust.
Setting up in Australia FAQs
The ombudsman of Australia dictates minimum notice periods for employment termination. These break down as follows:
• 1 year of service or less – 1 week
• Service of 1 to 3 years – 2 weeks
• Service of 3 to 5 years – 3 weeks
• Service of 5 years of more – 4 weeks
Note that an employee that aged 45 or older with in excess of 2 years’ service is automatically entitled to an additional week of notice. The notice period required of an individual choosing to terminate their employment can be negotiated in a contract.
A superannuation is the employer’s contribution to an employee’s pension in Australia. All employees in Australia are entitled to these contributions if they work over 30 hours per week and earn more than AU$450 per month. The minimum employer contribution is 9.5% of standard earnings. Overtime and bonuses are not eligible for superannuation contributions.
There is no minimum share capital required to set up a business in Australia, as long as you provide something. This could be as little as AU$1.
We recommend allowing 10 weeks for a fully managed incorporation of a local entity. The exception to this is when the Australian Securities Investment Commission needs to review your application. If you are opening a branch of an overseas business, you will also be asked to provide more data to the ASIC.
Any company trading in Australia must have an active business account registered within the country.
If your business is a proprietary company, at least one Australian resident must act as a director. For a public company, a minimum of three directors are required, no less than two of which must be Australian residents.
A standard Australian working week should be 38 hours, Monday to Friday. This breaks down as 7.6 hours per day. Unless specified in an employment contract, anything beyond this will be considered overtime.
Benefits vary from business to business and will be outlines in an employment contract. Overall, the following are considered common employment benefits in Australia:
• Flexible working hours
• Financial bonuses
• Wellbeing practices (i.e. complimentary gym membership, free flu vaccinations)
• Company-sponsored mobile phones or cars (where appropriate)
• Parental leave upon the birth of a child
• Loyalty rewards for long-term service, i.e. additional paid holiday
Australian law protects employees from unfair dismissal. Underperformance or undesirable behaviour are rarely grounds for instant termination of employment. The employee will need to be considered guilty of serious misconduct. Examples of this include:
• Physical or verbal assault on colleagues, customers or clients
• Intoxication at the workplace
• Wilful refusal to follow instruction
Serious misconduct must be proved to be deliberate, harm the reputation or profitability of the employer, risk the health or security of others, and make continuing employment untenable. If a misdemeanour does not meet these criteria, an employer could be sued for unfair dismissal.
All employees in Australia are entitled to a minimum of 20 paid holiday days per year. This is complemented by a further 8 public holidays. Employers are welcome to offer more paid holiday. Shift work, in particular, often offers 25 holiday days to prevent employee burnout.
For an international business to open an Australian branch, it must first register as a foreign company, as per the Corporations Act of 2001. This is achieved by supplying legal and financial data to the Australian Securities Investment Commission (ASIC). Once this branch has been registered, at least one Australian resident must be employed as a local agent. This individual will be responsible to ensuring the branch complies with the Corporations Act.