How to hire and pay independent contractors in Australia

If you’re looking to hire a talented contract worker from an English-speaking country, Australia could be a great choice. With its thriving economy, advanced tech infrastructure, and global connections, it’s not surprising that many companies choose to hire independent contractors from Australia.

Hiring the best people for your business is crucial for success. But, complying with foreign laws can be a massive headache. If you don’t know the ins and outs of hiring talent in Australia, you’ll risk facing a number of legal and financial penalties. 

This article will take you through key aspects of hiring and paying independent contractors in Australia. We'll also be talking about the relevant aspects of Australian employment law, tax and compliance practices, and the potential risks of misclassifying Australian independent contractors as employees. 

How to manage independent contractors in Australia 

There are two ways to manage independent contractors in Australia: 

Directly. You can directly employ contract workers (also known as independent contractors or sole traders) in Australia. However, you’ll need to ensure that you comply with the Australian Fair Work Act laws (more on this below). You’ll also need to set up a payment system via which they can invoice your company directly.

Via an international contractor management service. A good independent contractor management service will have legal and HR experts to ensure that you're not breaking any laws and that your intellectual property rights are protected. 

You can easily manage your independent contractors with a platform like Remote, which takes care of global contractor management for you. Remote handles compliance issues and oversees payments in the local currency to keep your business compliant and your contractors happy. From supporting you with localized HR knowledge to providing information on legal requirements, Remote can help with every aspect of contractor management. 

What are the labor laws in Australia?

Australian labor law is primarily governed by the Fair Work Act 2009 and overseen by the Fair Work Ombudsman.

Here are some crucial points to keep in mind:

The standard workweek in Australia is 38 hours. The current national minimum wage for workers over 21 is A$21.38 per hour. Minimum wages are addressed as part of the labor standards of different industries, called awards. Every year, the Fair Work Commission reviews the minimum wage and issues any changes for specific industries. The minimum wage also varies based on the type of employee.

 Australia recognizes nine types of employees: 

• Full-time

• Part-time

• Casual

• Fixed-term

• Shiftworkers

• Daily hire and weekly hire

• Probation

• Apprentices and trainees

• Outworkers

Additionally, Australia has established the National Employment Standards (NES), which are 11 minimum entitlements granted to every employee. These entitlements are based on the type of employment and industry, but they cover the following: 

• Hours of work

• Flexible working conditions

• Parental leave and related entitlements

• Annual leave, usually four weeks plus an additional week for some shift workers

• Personal and caretaker's leave

• Community service leave

• Long service leave

• Public holidays

• Notice of termination and redundancy pay

• Provision of the Fair Work and Causal Work Information Statements

• Causal conversion, covering the right of casual employees to become permanent employees

A unique feature of Australian employment law covering independent contractors is the Independent Contractor's Act 2006, which allows independent contractors to apply to the federal court for remedy if a contract is deemed harsh or unfair. 

What are tax and compliance practices for hiring independent contractors from Australia?

Independent contractors in Australia are responsible for filing and paying their taxes and social security. However, you’ll also need to check whether you have any additional paperwork to submit, depending on the country where your company is based. 

For example, if your company is US-based, the US Internal Revenue Service (IRS) will tax all income paid out to workers outside the country, including international employees and contractors. Workers who are non-citizens living outside the US (called Non-Resident Alien) are taxed differently. US-based companies will have to request a W-8 BEN form (used to establish foreign status) from these workers and submit it to the relevant authority. 

With Remote’s contract management services, you don’t need to worry about tax compliance because we will ensure that you are compliant with local laws and regulations.

Remote’s tax compliance feature is especially useful if you're a US-based company looking to hire international contractors outside the US, including Australia. We automatically generate the relevant tax forms needed for contractors, making it easy for your contractors to submit the information you need. When you’re ready to file your taxes, you have all the details on hand, not just enabling compliance but ensuring that your contractors are properly compensated. 

How do I pay an independent contractor in Australia?

You can pay the contractor directly after they invoice you.  Since independent contractors are responsible for paying their taxes, you don’t need to withhold tax money for this purpose.

You have to make sure you pay them in a way that clearly differentiates your contractor from an employee, such as paying by project rather than a fixed salary. This can help you avoid potential issues with misclassification. We explain the difference between an employee and a contractor below. 

Alternatively, you can also pay your contractors in Australia using a contractor management service like Remote. Remote can handle every aspect of payroll, from managing invoices to automating recurring payments to your contracts in their local currency.

What's the difference between an employee and an independent contractor in Australia? 

In simple terms, an employee works for the company under the terms and conditions set out in their employment contract. On the other hand, a contractor works on their own terms and has the freedom to decide how or where they work. They can also decide to work on multiple projects for different companies at a time.

As an independent contractor may take on the same duties and responsibilities as an employee, the nature of the work is not the sole factor that decides their employment status. Some of the factors that the Australian government considers while classifying a worker as an employee or contractor include:

• Who pays superannuation (Australia's retirement system)

• The intention of both parties

• If the contractor can sub-delegate work

• The amount of control over how the work is performed

• Who bears the financial responsibility and risk

• Who provides the tools and equipment to perform the work

• Who sets the hours of work

• If there is an expectation of continuing work

• Who pays taxes

• Whether paid leave is provided

What are the risks of misclassifying Australian independent contractors? 

When hiring independent contractors in Australia, be sure to classify your contractors and employees correctly. Failing to do so can lead to various fines and penalties.

The penalties for misclassifying an employee relate to “sham contracting” provisions. You may be fined up to A$51,000 for each violation and find yourself liable for retroactive payments and additional taxes. 

An additional issue of misclassifying an independent contractor that isn't often mentioned concerns intellectual property rights. A vague contract and misclassification of a contractor can leave your business vulnerable to questions about who owns the work produced. Make sure your contracts with independent contractors address IP and secure your rights. 

If you need to convert contractors to employees in Australia, Remote IP Guard can offer maximum protection to your company's IP, regardless of where your remote team is located. Remote owns legal entities in Australia and constantly monitors IP laws to ensure you maintain the maximum ownership of your IP. 

How do I convert an independent contractor in Australia to an employee?

You might be happy to continue hiring and paying independent contractors in Australia, as doing so might seem like the easier and cheaper option. However, you’ll always have to deal with the risk of misclassification, which can have long-term consequences, which can lead to fines, penalties, and loss of IP protection. 

To mitigate these risks, it might be beneficial to convert your contractor to an employee. Though you'll have to pay more in employee benefits and taxes, you'll be less likely to lose time to contractor attrition and onboarding new contractors. Employees are also more likely to feel like they're a valued part of your team and contribute accordingly. 

When you're ready to transition your contractor to an employee, Remote can help you make the switch quickly and easily. 

The best way to hire international contractors in Australia

Australia is, no doubt, a great place to find talent and grow your team. Once you understand the difference between a contractor and an employee and gain an understanding of Australian labor laws, you’ll be ready to hire Australian contractors with confidence.

If you want to make your life a lot easier, you’ll want to use a product that can take care of all your contractor management needs from start to finish. 

Remote’s contractor management service offers all the features you need to hire, pay, and onboard your contractors, such as the ability to:

• Onboard contractors in minutes with customizable contracts.

• Save time with automated invoicing approvals and payments.

• Make payments in countries all over the world.

So, to recap, here is Remote’s simple, four-step process to manage your Australian contractors:

1. Sign up for free and onboard your contractors

2. Sign a contract (use ours or develop your own)

3. Have contractors submit an invoice or set up recurring invoices

4. Approve and pay invoices in the local currency

It’s really that easy. Plus, with Remote's Fair Price Guarantee, you only pay for active contractors.

Our friendly team is always happy to answer any questions you may have, so get in touch with us to learn how we can help your business thrive.

If you’re ready to get started with the process and would like to onboard contractors, you can do that right away. Sign up for free and get started in minutes.