How to Pay Contractors in Australia

With its robust economy, skilled workforce, and strong legal framework, Australia offers a great location for businesses looking to expand their global reach. When it comes to paying contractors in Australia, understanding the local regulations and best practices is key to ensuring a smooth and compliant process. 

From navigating tax obligations to adhering to employment laws, understanding what options are available for those wanting to pay contractors here sets businesses up for success. 

What laws govern contractors in Australia? 

In Australia, independent contractors are governed by several important laws that outline their rights, responsibilities, and the obligations of the businesses engaging their services. 

Some key laws that govern independent contractors in Australia include:

1. Fair Work Act 2009: This is the primary legislation governing employment matters in Australia, including the rights and obligations of independent contractors. 

2. Independent Contractors Act 2006: This act specifically addresses the rights and obligations of independent contractors in Australia. It outlines the legal definition of an independent contractor, their entitlements, and dispute resolution mechanisms.

3. Australian Consumer Law (ACL): While not specific to independent contractors, the ACL provides protections for consumers engaging with businesses, including those contracting independent services. It ensures that contracts are fair and transparent and that options for dispute resolution. 

4. Taxation laws: Independent contractors are also subject to taxation laws in Australia. This includes requirements related to withholding taxes, reporting income, and meeting tax obligations as per the Australian Taxation Office (ATO) guidelines.

5. Work Health and Safety (WHS) Laws: Independent contractors are expected to adhere to WHS laws to ensure a safe working environment. Businesses engaging contractors also have responsibilities to provide a safe workplace under these laws.

Classifying contractors vs. employees in Australia 

While contractors offer flexibility and specialized skills, employees come with the whole benefits package and a longer-term commitment. Here are some key distinctions between contractors and employees in Australia:

Contractors:

• Control and independence: Contractors have more control over how and when they perform their work. They are typically responsible for their own tools, equipment, and methods.

• Payment: Contractors usually invoice for their services and are paid based on agreed-upon rates or project milestones. They are responsible for their own taxes, superannuation, and insurance.

• Duration: Contractor engagements are often for a specific project or period, although they can be ongoing depending on the agreement.

• Leave and benefits: Contractors do not receive employee benefits such as annual leave, sick leave, or entitlements like superannuation contributions from the employer.

• Legal status: Contractors are considered self-employed and operate as their own business entity. They are not covered by unfair dismissal laws or entitled to redundancy payments.

Employees:

• Control and supervision: Employees work under the direction and control of their employer. They follow company policies, procedures, and work schedules.

• Payment: Employees receive regular wages or salaries, including entitlements such as superannuation contributions, paid leave (annual, sick, parental), and other benefits as per the relevant award or employment contract.

• Duration: Employment contracts are ongoing unless terminated by either party with notice or for just cause as per employment laws.

• Legal protections: Employees are covered by unfair dismissal laws, redundancy entitlements, and other protections under the Fair Work Act.

• Work rights: Employees have rights related to workplace health and safety, discrimination, and other Australian employment standards.

What tax obligations should you understand before hiring contractors in Australia? 

Depending on where your company is based, you’ll have different tax obligations to fulfill when hiring contractors in Australia. If your business is based in the US, the Internal Revenue Service (IRS) requires that all income paid to individuals outside the country, including international employees and contractors, be taxed. Non-citizen workers residing outside the US, referred to as Non-Resident Aliens, are subject to different tax regulations. US-based companies must request a W-8BEN form, which is used to establish foreign status, from these workers and submit it to the appropriate authority.

PEO and EOR customers at Justworks can easily use our International Contractor Payment tool to simplify contractor payments in Australia while remaining compliant with relevant tax laws. 

What options do foreign businesses have for paying Australian contractors? 

Foreign businesses have a few options for paying contractors in Australia: 

1. Justworks International Contractor Payments. If you are a PEO or EOR customer at Justworks, you can make simple international contractor payments to workers in Australia.

2. Set up a bank account. You can set up a bank account in Australia to pay your contractors. However, you’ll normally need to set up an entity within the country and register with the proper bureaucratic organizations (which can take months). 

3. International money order. One of the common ways to pay an Australian contractor without an entity is to set up an international money order. They can take a while to process, and the contractor will have to physically deposit them. This is a good option when you’re only paying someone one time. 

4. Digital wallets. You can set up a digital wallet through multinational peer-to-peer lending companies like PayPal or Duel that help you deposit and transfer money into your contractors' accounts. This is one of the quickest ways to pay contractors without partnering with an EOR service like Justworks. Most of these services do charge fees, so be aware of that before choosing this option. 

5. Money transfer services. Another popular option for employers looking to send large  amounts of money across borders is using a money transfer service like Payoneer. This option has a high transfer limit, quick transfer time, and different options for sending money. These transfers can occur relatively fast and usually ensure a prompt payment. But, if you transfer money in a different currency than Australian dollars, there usually is a conversion fee. Payoneer, for example, charges $1.50 for domestic transfers and a 2% fee for non-currency transfers. 

What are the risks of employment misclassification in Australia? 

Misclassification of employees as contractors leads to hefty fines in Australia. Businesses can be fined up to $51,000 AUD for each misclassification with additional penalties for those complicit in the misclassification like a manager. You’ll also owe all back payment of employee benefits and taxes.

Justworks for international hiring

Choosing the right Employer of Record (EOR) in Australia can revolutionize your international business expansion. Justworks EOR enables small businesses to swiftly onboard international employees, pay them in the local currency, and offer localized benefits. Navigating the setup abroad can be daunting, but with our in-country legal teams and established entities, we ensure your payroll protection and regulatory compliance.

Accessing top talent globally and streamlining international hiring procedures are just some of the undeniable benefits of partnering with an EOR. Get started today.