Contractor Payroll in Australia

Positioning a candidate internationally means navigating unfamiliar tax and payroll systems. Not only does this generally mean more work for you, but even small missteps can have serious financial or even legal consequences.

If you want to successfully place a contractor, you should first familiarize yourself with the contractor payroll process in Australia, as well as how you can make the situation simpler.

Contractor Payroll in Australia

Payroll options in Australia

There are several different options for payroll in Australia:

  • The client can provide payroll for the contractor, but not all clients offer this for temporary workers.  
  • The contractor can do it on their own, but this creates serious risk for the end client and possibly your agency, as well. Like most people, many contractors do not specialise in Australia’s tax system, nor do they always have the time or means to pore over complex tax returns.
  • Your contractor can use a local payroll company.

The third option is the simplest and quickest. An even simpler and quicker option is to use an Umbrella Company, as they offer the same services as a local payroll provider in addition to other services that simplify international assignments (such as Work Permit sponsorship).

Check out our FAQ for specific quotes on payroll providers and Umbrella Companies. 

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Common Questions and Answers about Payroll in Australia
Q: How does payroll work in Australia?
A: The employer makes all deductions at source and pays the net earnings to the employee. There is a payroll tax of 4.75 to 6% which varies by state. Your employer (the company sponsoring your visa) pays the candidate on a monthly basis. The employer deducts medicare contributions of 1.5%, occasional compulsory deductions like the recent flood levy and income tax (which ranges from 0-45%) at source and then pays it to the Australian tax authorities. There is compulsory superannuation contibution of 9% which is made by the employer and paid direct to the nominated super fund. Candidates are able to offset their personal taxable income with some business expenses most notably travel and allowances for working from home. The World Bank estimates employers in Australia spend 18 man days per year to ensure compliance with payroll and labour taxes.
Q: What is the monthly cost to outsource payroll in Australia?
A: It costs about 5% of gross salary to outsource the payroll. Compulsory contributions such as payroll tax are on top of this.
Q: What is the estimated net retention for a contractor in Australia earning USD 1000 per day?
A: Going through a standard PAYG (pay as you go) structure the contractor will NET approximately 69% of gross. Using an umbrella company this will increase slightly - especially if making use of legal tax reduction measures like a novated lease on their car. On a sponsored work permit they would net approximately 65%.
Q: What is the minimum salary required per month in Australia when a candidate is sponsored on an Work Permit? 
A: It varies by profession. For IT and Telecommunications it is AUD $8000 per month. For Engineering it is AUD $11400 per month.

Client comment

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