Australia is one of the world’s most attractive markets for international companies building distributed teams. It offers a large, highly educated English-speaking workforce, a stable legal system derived from English common law, advanced digital infrastructure, and strong institutional credibility across financial services, technology, resources, and professional services. Sydney and Melbourne routinely rank among the world’s top ten cities for quality of life and talent attraction, and Australia’s time zone position makes it a natural hub for companies serving Asia-Pacific markets.
For international employers, however, Australia is one of the most technically complex payroll and employment law environments in the developed world. The interaction between federal minimum standards, a system of over 120 industry and occupation-specific Modern Awards, state-based payroll tax obligations, state-based workers compensation schemes, and a superannuation system now shifting to real-time employer contributions creates a multi-layer compliance stack that is easy to misconfigure and difficult to correct once errors accumulate.
This guide covers every employer obligation a company must manage to hire compliantly in Australia in 2026: statutory contributions, income tax withholding, Modern Awards, leave entitlements, termination obligations, and the most significant recent change to Australian payroll, the introduction of Payday Super from 1 July 2026.
The Legal Framework: Fair Work Act 2009 and the National Employment Standards
Australia’s federal employment law framework is governed by the Fair Work Act 2009, which establishes the National Employment Standards (NES), the Modern Award system, the enterprise agreement framework, and the jurisdiction of the Fair Work Commission (FWC) and the Fair Work Ombudsman (FWO).
The NES comprises 11 minimum entitlements that apply to all employees covered by the national workplace relations system, regardless of their award, agreement, or contract. These entitlements cannot be excluded or reduced by any award, enterprise agreement, or employment contract. They are:
Maximum weekly hours (38 ordinary hours plus reasonable additional hours); requests for flexible working arrangements; parental leave and related entitlements; annual leave; personal and carer’s leave and compassionate leave; family and domestic violence leave; community service leave; long service leave; public holidays; notice of termination and redundancy pay; and the Fair Work Information Statement.
The NES sets a floor. Modern Awards layer occupation-specific and industry-specific minimum rates, penalty rates, overtime rates, and allowances on top of the NES. For any employer in Australia, identifying the correct Modern Award (or Awards) that cover their workforce is an essential first compliance step. A software company hiring developers is unlikely to have award coverage for those roles (most technology professionals are award-free), but the same company hiring a cleaner, a security guard, or an administrator may have specific Award obligations for those employees. Getting the Award classification wrong creates underpayment liability that accrues from the first pay period.
The National Minimum Wage
The national minimum wage is set annually by the Fair Work Commission following its Annual Wage Review, which considers economic conditions, inflation, productivity, and living standards. Increases take effect from the first full pay period on or after 1 July of each year.
From 1 July 2026, the national minimum wage increased to AUD 1,004.90 per week, equivalent to AUD 26.44 per hour based on a 38-hour ordinary work week. This represents a 6% increase from the prior year rate of AUD 948 per week (AUD 24.95 per hour), which applied from 1 July 2025.
The national minimum wage applies to employees not covered by a Modern Award or enterprise agreement. Most employees in Australia are covered by a Modern Award, which will specify minimum rates that at least equal and in many cases exceed the national minimum wage for the relevant classification level. Employers must apply whichever is higher: the award rate or the national minimum wage.
Casual employees are entitled to a casual loading of at least 25% on top of their base rate (or the relevant award minimum) in lieu of paid leave entitlements.
Income Tax Withholding: PAYG and the ATO Tax Brackets
Australia does not use the PAYE terminology common in the UK and Africa. The Australian equivalent is called Pay As You Go (PAYG) Withholding. Employers are required to withhold income tax from employee wages at each pay period and remit it to the Australian Taxation Office (ATO) on a monthly or quarterly basis, depending on the employer’s annual withholding obligation.
The income tax rates for Australian resident employees for the 2025-26 financial year (1 July 2025 to 30 June 2026) are:
0% on taxable income of AUD 0 to AUD 18,200 (the tax-free threshold); 16% on AUD 18,201 to AUD 45,000; 30% on AUD 45,001 to AUD 135,000; 37% on AUD 135,001 to AUD 190,000; and 45% on income exceeding AUD 190,000.
In addition to these rates, most employees pay the Medicare Levy of 2% on their entire taxable income (with low-income reduction thresholds applying for lower-earning employees). The Medicare Levy funds Australia’s universal public health insurance system.
From 1 July 2026, the 16% rate on income between AUD 18,201 and AUD 45,000 reduces to 15%, providing a further ATO-administered benefit to low and middle income earners without any employer action required beyond updating payroll software to reflect the new withholding tables.
PAYG withholding for non-resident employees (foreign nationals working in Australia without Australian tax residency) uses different, higher withholding rates with no tax-free threshold. Employers hiring foreign nationals must confirm residency status for withholding purposes.
All employers must report PAYG withholding and payroll information to the ATO through the Single Touch Payroll (STP) system. STP Phase 2, which is mandatory for all employers, requires disaggregated reporting of gross pay into separate components (salary, allowances, bonuses, termination payments, lump sums) using ATO-defined income type codes and employment basis codes (full-time, part-time, casual, labour hire). STP Phase 2 reporting occurs on or before each pay day.
Superannuation: The Employer Contribution Obligation
Superannuation is Australia’s mandatory retirement savings system. Employers are required to contribute a minimum percentage of each eligible employee’s ordinary time earnings (OTE) to a complying superannuation fund. This minimum is called the Superannuation Guarantee (SG).
From 1 July 2025, the SG rate increased to 12%, the final scheduled increase in a decade-long legislative escalation from 9.5%. The 12% rate is now legislated as the permanent ongoing rate, with no further increases scheduled.
Superannuation contributions are calculated on ordinary time earnings, which includes regular wages, commissions, and certain allowances, but excludes overtime, reimbursements, and termination payments. The Maximum Contribution Base (MCB) for 2025-26 is AUD 62,500 per quarter (AUD 250,000 per year). Employers are only required to pay SG contributions on OTE up to the MCB. OTE above the MCB in any quarter does not attract a mandatory SG obligation, though many employment contracts or enterprise agreements require contributions on total salary above the cap.
From 1 July 2026, a structural change to superannuation administration takes effect: Payday Super. Under the current system, employers are required to pay superannuation contributions quarterly (by the 28th day after the end of each quarter). From 1 July 2026, employers must pay superannuation contributions to the employee’s chosen fund with every pay run, on or before payday. The ATO will monitor Payday Super compliance through expanded STP reporting that captures both ordinary time earnings and super liability for each employee at every pay event.
Payday Super is the most significant operational change to Australian employer obligations since STP Phase 1 was introduced. It requires payroll systems to integrate super payment disbursement into the pay run process rather than managing it as a separate quarterly obligation. Employers who are unprepared for this shift, particularly those on manual payroll processes or legacy payroll software, face significant administrative restructuring before 1 July 2026.
From 1 July 2025, the federal government also began paying superannuation contributions on top of government-funded Paid Parental Leave payments, a change that affects the total cost of parental leave for employees receiving the government scheme.
Leave Entitlements Under the National Employment Standards
Annual Leave. Full-time and part-time employees are entitled to 4 weeks of paid annual leave per year, accruing progressively throughout the year. Shift workers who regularly work on Sundays and public holidays are entitled to 5 weeks. Casual employees are not entitled to paid annual leave. Annual leave accrues based on ordinary hours worked and must be paid at the employee’s base pay rate (not including allowances or loadings), plus any annual leave loading if the Modern Award or enterprise agreement specifies it (commonly 17.5%).
Personal and Carer’s Leave. Full-time employees accrue 10 days of paid personal and carer’s leave per year. This covers personal illness or injury (sick leave) and caring for an immediate family or household member who is sick or needs care. Part-time employees accrue on a pro-rata basis. Casual employees are entitled to 2 days of unpaid carer’s leave per occasion.
Compassionate Leave. Employees are entitled to 2 days of paid compassionate leave per occasion for a member of their immediate family or household who has a life-threatening illness or injury, or on the death of a family member. Casual employees receive this leave unpaid.
Family and Domestic Violence Leave. All employees, including casuals, are entitled to 10 days of paid family and domestic violence leave per year, implemented for large employers in February 2023 and extended to all employers from August 2023. This leave does not accumulate from year to year.
Parental Leave. Employees who have completed at least 12 months of continuous service are entitled to up to 52 weeks of unpaid parental leave, with the right to request a further 52 weeks (which an employer may refuse only on reasonable business grounds). The entitlement applies to birth parents, adoptive parents, and (following legislative amendments) parents in same-sex relationships on equivalent terms.
The government-funded Paid Parental Leave scheme provides income-replacement payments funded by the Commonwealth government, not the employer. From 1 July 2026, the scheme provides 26 weeks of government-funded leave (increased from 22 weeks previously), paid at the national minimum wage rate (AUD 26.44/hour from 1 July 2026), and is shareable between eligible parents. Employers do not fund this payment but must administer unpaid leave protections during the period.
Long Service Leave. Long service leave is notably absent from the NES and is instead governed by state and territory legislation, creating material variation across jurisdictions. In New South Wales, long service leave accrues at the rate of 1/5 of a month of leave per year of service, with entitlement accessible after 10 years (with a proportionate entitlement on termination after 5 years). In Victoria, the entitlement is 1/60 of the period of continuous employment, accessible after 7 years. In Queensland, 8.6667 weeks after 10 years. Each state’s long service leave law applies based on where the employee performs their work, not where the employer entity is registered.
Public Holidays. Employees are entitled to a paid day off on each public holiday, or penalty rates for working on a public holiday as specified in the applicable Modern Award or enterprise agreement. Australia has 8 national public holidays plus state-specific and territory-specific holidays. New South Wales and Victoria do not share all the same public holidays. Employers with multi-state workforces must manage public holiday entitlements separately per state.
State Payroll Tax: A Compliance Layer That Surprises International Employers
Unlike most countries, where employer payroll tax obligations are federal, Australia imposes a separate layer of payroll tax at the state and territory level. Each state and territory operates its own payroll tax system, with its own rate, its own annual wage threshold above which payroll tax applies, and its own rules for grouping related entities and apportioning wages between states.
Payroll tax applies to the total New South Wales or Victorian (etc.) wages paid by an employer above the relevant annual threshold. It is an employer-only tax. There is no employee contribution.
The key thresholds and rates for the major states in 2025-26 are:
New South Wales: 5.45% on taxable NSW wages above an annual threshold of AUD 1,200,000. Victoria: 4.85% on taxable Victorian wages above AUD 900,000 (with a 1% combined surcharge applying to employers with total Australian wages above AUD 10 million). Queensland: 4.75% on taxable Queensland wages between the annual threshold of AUD 1,300,000 and AUD 6,500,000, rising to 4.95% on the portion above AUD 6,500,000.
Grouping provisions are a critical compliance point for international employers. Where two or more entities are associated (by common ownership or control), their wages may be aggregated for payroll tax threshold purposes. An international parent company and its Australian subsidiary are typically grouped, which means the Australian subsidiary’s wages may be assessed against a shared threshold or, in practice, subject to payroll tax from the first dollar of Australian wages paid if the group’s total wages clearly exceed the threshold.
For an international company hiring its first employee in New South Wales at a salary of AUD 120,000 per year, payroll tax is not triggered at that headcount (AUD 120,000 is well below the AUD 1.2M threshold). For a company with 15 employees in NSW at an average salary of AUD 100,000 (AUD 1.5M total wage bill), payroll tax at 5.45% applies on the AUD 300,000 above the threshold, generating AUD 16,350 of payroll tax per year. The same employer must check whether it has payroll tax obligations in Victoria or Queensland if it has employees in those states, even though the same employees cannot trigger payroll tax twice for the same wages.
Payroll tax returns are typically filed monthly with annual reconciliation, using each state revenue authority’s online portal (Revenue NSW, State Revenue Office Victoria, Queensland Revenue Office).
Workers Compensation: State-Based Insurance
Workers compensation insurance is mandatory for all employers in Australia and is another area governed entirely at the state and territory level, with no federal workers compensation scheme covering private sector employees in most circumstances.
Each state and territory operates its own workers compensation scheme with its own premium calculation methodology, return-to-work obligations, dispute resolution process, and accepted insurer framework. Premium rates vary by industry (construction and manufacturing typically attract higher rates than professional services) and by the employer’s own claims history.
New South Wales: icare (Insurance and Care NSW) is the dominant insurer, with mandatory coverage for all employers. Victoria: WorkSafe Victoria, with premiums calculated as a percentage of rateable remuneration. Queensland: WorkCover Queensland, with industry-classified premium rates.
For an international employer, the practical consequence is that workers compensation must be obtained in each state where employees are based, from the relevant state authority or approved insurer, before the first employee commences work. An employee who is injured before workers compensation coverage is active creates personal liability for the employer.
Workers compensation premiums are an employer cost, not a deduction from employee wages. Premiums are not included in STP reporting.
The Modern Awards System: Minimum Rates Beyond the National Minimum Wage
The Modern Award system is one of Australia’s most distinctive and complex employer compliance features. There are over 120 Modern Awards, each covering a specific industry or occupation type, that prescribe minimum rates of pay, penalty rates, overtime rates, allowances, and conditions for employees covered by that award.
The key principle is: an employer must pay an employee the higher of the applicable Modern Award rate or the national minimum wage. Modern Award minimum rates are reviewed annually by the Fair Work Commission in the Annual Wage Review and typically increase in line with the Commission’s minimum wage decision.
An employee may be award-covered (subject to the specific terms of a Modern Award), award-free (typically senior professionals, managers, and some technical specialists whose remuneration is negotiated directly and who are not covered by any award classification), or subject to an enterprise agreement (a collectively-negotiated agreement that must pass the Better Off Overall Test against the applicable Modern Award).
The most commonly encountered Modern Awards for international companies hiring in Australia include the Professional Employees Award (which covers engineers, scientists, and ICT professionals at defined classification levels), the Clerks Private Sector Award (office and administrative staff), the Banking, Finance and Insurance Award, the Retail Industry Award, and the Hospitality Industry Award.
Misclassifying an employee as award-free when they are in fact award-covered, or applying the wrong award classification level, generates underpayment liability from the first week of employment. The Fair Work Ombudsman’s enforcement activity has increased substantially, with several large-scale underpayment recoveries against international companies operating in Australia in recent years.
Employment Classification: Casual vs Permanent and the Contractor Distinction
Casual Employment. Australian law recognises three primary forms of employment: full-time, part-time, and casual. Casual employees work irregular or variable hours, have no guaranteed ongoing employment, and receive a casual loading (minimum 25%) on their base pay rate in lieu of paid leave entitlements. Under reforms introduced through the Fair Work Legislation Amendment (Closing Loopholes) Act 2024, casual employees who have worked on a regular and systematic basis for 6 months (or 12 months in small businesses with fewer than 15 employees) have a right to request conversion to permanent employment. Employers must provide a Casual Employment Information Statement (CEIS) at the commencement of casual employment.
Independent Contractors. The classification of a worker as an independent contractor versus an employee is determined by the substance of the working relationship, not the label used in the contract. Following the High Court decisions in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations v Jamsek (2022), the primary test looks at the rights and obligations of the parties as defined in the written contract, assessed in the context of the actual conduct of the relationship. Key indicators examined include control over the manner of work, ability to subcontract, provision of equipment, integration into the business, risk of profit and loss, and whether the worker is performing work for their own business or for the principal’s business.
The ATO operates an Employee vs Contractor assessment tool aligned to these tests. The consequences of misclassifying an employee as a contractor include liability for unpaid superannuation (including the Superannuation Guarantee Charge and associated penalties), liability for unpaid PAYG withholding (including penalties and interest), and potential Fair Work Act claims for unpaid entitlements.
Termination: Notice, Redundancy, and Unfair Dismissal
Notice Periods. Employers must provide minimum notice of termination as prescribed by the NES. Notice is based on continuous service with the employer:
Less than 1 year: 1 week. 1 to 3 years: 2 weeks. 3 to 5 years: 3 weeks. More than 5 years: 4 weeks. Employees aged 45 years or over with at least 2 years of continuous service receive an additional 1 week of notice on top of the tenure-based entitlement. The maximum NES notice period is therefore 5 weeks.
Modern Awards, enterprise agreements, and individual contracts may prescribe longer notice periods but cannot reduce the NES minimums. Employers may elect to pay in lieu of notice rather than requiring the employee to work out their notice period.
Redundancy Pay. When an employee is made redundant, the employer must pay statutory redundancy entitlements in addition to notice (or payment in lieu of notice) and any accrued leave. The NES redundancy pay scale, calculated in weeks of base pay:
1 to 2 years of service: 4 weeks. 2 to 3 years: 6 weeks. 3 to 4 years: 7 weeks. 4 to 5 years: 8 weeks. 5 to 6 years: 10 weeks. 6 to 7 years: 11 weeks. 7 to 8 years: 13 weeks. 8 to 9 years: 14 weeks. 9 to 10 years: 16 weeks. 10 or more years: 12 weeks.
The reduction at 10 years is not a drafting error. It reflects the historical availability of a long service leave entitlement at the 10-year mark that was considered to partially offset the redundancy calculation at that tenure level.
For 2025-26, the tax-free component of a genuine redundancy payment is AUD 13,100, plus AUD 6,552 for each completed year of service. The remainder is subject to concessional tax treatment.
Employers with fewer than 15 employees are exempt from the NES redundancy pay obligation (though they remain subject to applicable Award or enterprise agreement redundancy provisions).
Unfair Dismissal. After completing a minimum employment period (6 months, or 12 months for employers with fewer than 15 employees), an employee can bring an unfair dismissal claim to the Fair Work Commission if they believe they were dismissed in a manner that was harsh, unjust, or unreasonable. A claim must be lodged within 21 days of the dismissal date. This is a hard deadline. The FWC has limited discretion to extend it. The FWC conciliation process resolves the majority of unfair dismissal claims before hearing. Unresolved claims proceed to arbitration before a Commissioner.
The practical implication for international employers is that employment contracts, performance management processes, disciplinary procedures, and termination decisions in Australia must follow procedurally fair processes from the commencement of employment. A dismissal that is substantively warranted can be overturned as unfair if the employer failed to give the employee an adequate opportunity to respond to the concerns that led to termination.
The Employer Compliance Checklist for Australia
Before the first Australian employee commences work, an employer (or its EOR provider) must ensure the following are in place: employer registration with the ATO for PAYG withholding; STP Phase 2-compliant payroll reporting capability; superannuation default fund selection and complying fund status confirmation for employee-directed fund choices; state payroll tax registration in every state where employees will be based; workers compensation insurance in every relevant state; correct Modern Award identification and classification; a Fair Work Information Statement and Casual Employment Information Statement (for casual hires); employment contracts compliant with the NES and applicable Award; and a Payday Super-compatible payroll system ahead of the 1 July 2026 implementation date.
Global Deployments in Australia
Global Deployments provides Employer of Record services in Australia through its vetted in-country partner network, covering the full federal and state compliance stack for Australian employment. For international companies entering the Australian market, Global Deployments provides employment contracts compliant with the Fair Work Act 2009 and applicable Modern Awards, PAYG withholding and STP Phase 2 reporting, superannuation contribution management including Payday Super readiness from 1 July 2026, state-by-state payroll tax compliance, workers compensation insurance coordination, and compliant management of all NES entitlements including annual leave, parental leave, and long service leave obligations by state.
Global Deployments | Part of Africa Deployments Ltd. Address: The Strand, Beau Plan Business Park, Mauritius BRN: C19167158 | VAT: 27738392 global-deployments.com | Phone: +23057138629
Conclusion
Australia’s employment compliance environment in 2026 is defined by the interaction of federal NES minimums, a 120-award system that sets occupation-specific rates and conditions, an employer superannuation obligation now at 12% and shifting to real-time Payday Super from 1 July 2026, eight separate state and territory payroll tax regimes, eight separate workers compensation schemes, and an unfair dismissal framework that requires procedurally sound employment management from the first day of engagement. For international companies building their first Australian team, the multi-layer compliance architecture is one of the most demanding in the developed world relative to the size of the employer obligation. An Employer of Record with genuine Australian compliance depth, state-by-state payroll tax capability, Payday Super readiness, and Modern Award expertise provides the fastest, most compliant, and most cost-efficient path to a legally employed Australian workforce.
