Payroll tax in Australia: What global employers need to know

February 25, 2022

Have you heard? “The Land Down Under” is a booming hub for global businesses.  

Australia’s geographical location opens the door to new trade opportunities in the Asia-Pacific region. Plus, their open market approach with minimal trade restrictions makes it easier to do business. 

But once you’re paying workers there, you’ve got to know the ins and outs of payroll tax in Australia.  

Here’s a primer on the Aussies’ tax and benefit withholdings. 

Why hire in Australia? 

Australia might be in the far corner of the globe with plenty of distance between it and major global business markets like the United States or Europe—but that’s not holding them back.  

In fact, Australia’s location has opened the door to new trade opportunities, including free trade agreements with countries like: 

  • China 

  • Japan 

  • Chile 

  • Malaysia 

  • Singapore 

  • Thailand 

  • New Zealand 

  • Republic of Korea 

In addition to free trade, Australia is well-known for its skilled workforce and low unemployment rates. For global employers, this means a new talent pool with lower investments in training and development.  

Australia also has a strong GDP powered by the service industry–supporting growth in emerging industries like MedTech (medical technology) and FinTech (financial technology).  

Plus, the country is focused on ‘going green’ with clean energy and net-zero carbon. Expanding your global business to Australia could be a good look for your corporate sustainability agenda and diversity. 

The ins and outs of taxes when paying employees in Australia 

Setting up shop in Australia is a good option for business growth, but it comes with its own set of challenges. A new government and a new set of cultural norms mean you’ll need to learn new rules and regulations.

Before you can hire and pay employees, here’s what you need to know about payroll tax in Australia. 

  • Australia has a hybrid public-private healthcare system.  

  • The term ‘payroll tax’ in Australia refers to a specific social tax burden. It’s different than the collective global definition of ‘payroll tax’, which includes a variety of withholdings and allocations for different taxes and benefits. We’ll cover both. 

  • Benefits like company cars for personal use or gym memberships have a special fringe benefits tax. 

  • Common categorical payroll taxes include the usual suspects, like individual income tax, retirement schemes, and Medicare. 

Australia’s payroll tax 

In Australia, there is a ‘payroll tax’ paid to the Consolidated Fund of Western Australia to cover social welfare programs like education, healthcare and public safety. This tax is set at the state or territory level but paid to a federal fund. That means the tax rates and thresholds vary between states and are dependent on where you do business. 

Employers are required to: 

  • Register for payroll tax online 

  • Estimate their payroll tax burden on a monthly cycle and make required payments 

  • Conduct an annual audit and reconcile payroll tax liability 

  • Pay penalty taxes for underreporting or other compliance failures 

Mainland Australia is divided into six states and two territories, each with its own minimum thresholds and payroll tax rates. 

Chart sourced from link above 

Categorical payroll taxes in Australia 

In addition to Australia’s payroll tax scheme, employers are also tasked with calculating and withholding these additional taxes:  

  • Federal income tax 

  • Superannuation 

  • Fringe benefits tax 

  • Medicare 

Individual income taxes 

Australia uses a familiar tiered tax structure to assess individual income tax. Employers calculate withholdings during payroll using a ‘pay as you go’ system. Employees reconcile their taxes at the end of the year, typically receiving a refund.  

Australia’s individual income tax rates vary between 19-45% of an individual's income. 

Superannuation 

Superannuation—or just ‘super’ for short—is Australia’s social retirement fund. Similar to old-age social security systems in other countries, a compulsory withholding is taken for every payroll cycle during an individual's working years. The money is earmarked to provide financial support during retirement beginning at age 65. 

Superannuation withholdings apply to all employees aged 18 or older, earning $450 or more per month. Super also applies to any working individual below the age of 18, who meets a minimum earning threshold amount and works full-time (more than 30 hours per week). 

Fringe benefits tax 

Fringe benefits—or ‘perks of the job’—are taxable in Australia. Definitions can get a bit wonky here, and the fringe benefits tax can be a stumbling block for global employers who aren’t familiar with the structure. 

For one, the definition of an ‘employee’ is broad when it comes to fringe benefits tax. It can cover anyone receiving a fringe benefit, including current, future or past employees, as well as directors and trust beneficiaries. 

What exactly is considered a fringe benefit? Examples include: 

  • Driving a company car for personal use 

  • Employee discounts on loan terms or merchandise 

  • Gym memberships, event tickets and other leisure perks 

  • Tuition or education-related reimbursements 

  • Any type of salary sacrifice arrangement (e.g. employee gives up a portion of their salary in exchange for a car, shares or stocks or expense payments like a cell phone) 

As of 2022, the fringe benefits tax rate is an astounding 47%. After figuring the extra taxes, that sweet ride that comes with the job might not be the big bonus it looks like. 

However, employers and employees can generally claim a portion of this tax for a credit when they file their reconciliations.  

Medicare 

Australia’s public healthcare program is broken down into two taxes.  

A standard 2% Medicare levy is applied to all residents at the federal level. Plus, high-earners and those without appropriate private health insurance coverage may be assessed a second surcharge tax. The surcharge rate adds an additional 1-1.5% to the typical Medicare tax. 

The bottom line on payroll taxes in Australia 

Hiring in Australia can offer global businesses big benefits—and Australia’s payroll taxes aren’t really that different from most other countries. Each has its own version of individual income tax, healthcare provisions and retirement schemes that are paid for through employer-sponsored payroll allocations.  

The challenge country-to-country is figuring out what rates apply to which employees—and who to pay the liabilities to. Plus, of course, staying on top changes to local requirements. 

It’s the local expertise that can be a sticking point for multinational employers.  

That’s where a global payroll provider can help.  

Speak with an expert to learn more about how Safeguard Global can ensure compliance and streamline payroll processing in over 150 countries.  

 

 

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