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Australia Engaging a Worker Guide

engaging a worker in Australia. The guide covers: the employer checklist (the "steps before the worker starts") — the employer must complete the following steps before the worker commences the employment: (a) verify the "worker's entitlement to work in Australia" (the "visa status" and the "work rights"), (b) obtain the "TFN declaration" from the employee (the "Tax file number declaration — the NAT 3092") within 14 days of the commencement, (c) register for the "PAYG withholding" through the "Business Portal" if not already registered, (d) choose the "STP-ready payroll software" (the "Single Touch Payroll"), (e) enrol for the "superannuation" by offering the "choice of fund" to the employee, (f) obtain the "workers' compensation insurance" (the "state-based insurance" — the "WorkCover" in the Victoria, the "icare" in the NSW); the employee vs contractor decision (the "correct classification") — the employer must determine whether the worker is the "employee" or the "independent contractor" before the engagement; the misclassification can result in the "PAYG withholding liability", the "superannuation guarantee charge" and the "penalties"; the ATO provides the "Employee/Contractor Decision Tool" on the ATO website to assist the classification; the ongoing obligations (the "payroll and the super cycle") — the employer must: (a) withhold the "PAYG" from the employee's salary and the wages (the "tax withheld" reported through the STP each pay run), (b) report the "STP data" to the ATO in the real time, (c) pay the "superannuation guarantee" at 11.5% (for the 2024-25) to the employee's chosen super fund by the quarterly due date (the "28th day after the end of the quarter"), (d) report the "fringe benefits tax" (the "FBT" at 47%) on the non-cash benefits provided to the employee, (e) maintain the "payroll records" for 5 years.

New Employer Registration

  • Tax and super registrations: The new employer must register for: (a) the "PAYG withholding" through the "Australian Business Register (the ABR)" or the "Business Portal", (b) the "STP reporting" through the "STP-ready software", (c) the "superannuation" through the "choice of fund" arrangements, (d) the "payroll tax" with the "state revenue office" if the total wages exceed the "payroll tax threshold" (the "$1.2 million in NSW, the $700,000 in Victoria, the $1.3 million in Queensland").
  • Single Touch Payroll setup: The employer must choose the "STP-ready payroll software" and configure the "employee details" (the "name, the TFN, the date of birth, the address, the super fund"). The software sends the STP data to the ATO each pay run. The employer must also set up the "superannuation clearing house" (the "employer's super fund portal" or the "ATO Small Business Super Clearing House").
  • Workers' compensation insurance: The employer must obtain the "workers' compensation insurance" from the "state-based insurer" (the "WorkSafe" in the Victoria, the "WorkCover" in the NSW and the Queensland, the "ReturnToWorkSA" in the South Australia). The insurance covers the "medical costs and the lost wages" if the employee is injured at the work.

For the FBT obligations and the reporting, see our Fringe Benefits Tax Guide →.

Engaging the Contractor

  • Contractor engagement steps: If the worker is the "genuine independent contractor", the employer must: (a) obtain the "ABN" from the contractor, (b) verify the "ABN is active" through the "ABN Lookup" on the ABR website, (c) do not withhold the PAYG (unless the contractor fails to provide the ABN — the "no ABN withholding" at 47%), (d) do not pay the superannuation guarantee (the contractor arranges the own super), (e) obtain the "public liability insurance" confirmation from the contractor.
  • No ABN withholding rule: If the contractor does not provide the ABN, the employer must withhold the "PAYG withholding at the highest marginal rate of 47%" (the "45% plus the 2% Medicare levy") from the payment. The employer must report the withheld amount to the ATO through the "PAYG withholding" reporting. The contractor can claim the credit at the year end.
  • Industry-specific rules: The "construction industry" has the additional rules for engaging the contractors — the employer must issue the "tax invoice" and the "payment summaries" under the "Building and Construction Industry (BCI) reporting". The "IT industry" and the "transport industry" also have the specific ATO guidance for the contractor engagements.

For the employee vs contractor classification, see our Employee vs Independent Contractor Guide →.