No matter what business you're in, hiring overseas contractors can be an affordable and efficient way to get the job done. But if you hire workers based overseas, it's vital that you understand the ins and outs of paying overseas contractors from Australia.
There are tax and super obligations to consider, while you'll also need to find a fast and cost-effective way to pay your international workers. Keep reading for all the key details you need to know.
Do Australian companies need to worry about tax and super for overseas workers?
As a general guide, overseas contractors are responsible for managing their own tax and superannuation obligations. However, requirements can vary depending on where they live, whether they're a tax resident of that country, and whether they're classed as a contractor or an employee.
Difference between employees and contractors
One of the key factors to consider when paying an overseas worker is whether they're classified as a contractor or an employee. There are different tax requirements depending on which category they fall into, so take care to ensure you get it right.
Guidance from the ATO outlines the key differences between employees and contractors, such as:
Serving in your business. An employee serves in your business, while a contractor provides services to your business in order to further their own business.
How, where and when they work. If the person is an employee, your business controls how they complete their work. While you can provide direction about this to a contractor, they have the freedom to choose how, where and when they perform their duties.
Payment. Contractors are contracted to perform a specific task, while employees are paid for the time they work, a price per activity completed, or receive commissions.
Subcontracting or delegating. Employees are responsible for completing the work, while contractors can delegate jobs to others and pay them to complete the work.
Tools and equipment. Your business will provide most or all of the tools and equipment an employee needs to complete their work, while a contractor is responsible for providing their own tools and equipment.
If you need help determining whether a worker is an employee or contractor, speak to a tax expert.
Finder survey: What is the most common region Australians send money to?
Response
Asia
42.22%
Europe
25.56%
Other
13.33%
North America
11.11%
Oceania (including New Zealand)
10%
The middle east
3.33%
Central America
2.22%
South America
1.11%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023
How to deal with taxes for overseas contractors and employees
Contractors are typically responsible for managing their own tax obligations, so you won't have to worry about withholding tax from their payments. However, the tax obligations for overseas employees vary depending on whether they're an Australian resident or non-resident.
Resident
If your employee is an Australian resident working internationally, pay as you go (PAYG) withholding obligations may apply. If they usually live and work in Australia but are temporarily working overseas, your pay as you go (PAYG) withholding obligations remain the same.
The employee will need to report their earnings as assessable income on their tax return, and they may be eligible for a foreign income tax offset.
Non-resident
If the employee is not a resident of Australia for tax purposes, PAYG withholding requirements apply. However, foreign resident tax rates are different to those for Australian residents, and there's no tax-free threshold for the employee.
Do you need to pay superannuation for overseas workers?
Yes, you may have superannuation obligations for overseas workers. However, requirements once again vary depending on whether the worker is an employee or contractor and whether they're an Australian resident or not.
If you're an Australian company paying an overseas employee who is an Australian resident, you'll need to pay super contributions. However, the country where they're working may also require you to make super contributions, so you'll need to be aware of local laws to avoid what's known as 'double super coverage'.
Australia has bilateral social security agreements in place with other countries to help deal with this issue. Under these agreements, you can apply for a certificate of coverage that exempts you from the requirement to pay super in the foreign country.
If your employee is not an Australian resident for tax purposes, you don't need to make Australian super contributions. However, the foreign country the employee is working in may require you to make contributions, so make sure you're aware of local laws.
Finally, independent contractors are typically responsible for managing their own superannuation, so you usually won't have to pay them super contributions.
Best ways to pay international contractors
There are several options to consider when paying overseas freelancers and contractors:
International money transfer. Dedicated money transfer companies specialise in sending international payments. They tend to offer better exchange rates and lower fees than banks, so it's worth comparing a range of money transfer services to find the best deal.
Bank wire transfer. Sending money directly from your business bank account is a secure and convenient option. However, a high exchange rate markup usually applies, while you'll also need to watch out for transfer fees.
Multi-currency account. A multi-currency account allows you to hold several different currencies in the one account, making it quick and easy to pay workers in foreign currencies. This also gives you more flexibility about when you convert to and from AUD, taking advantage of favourable exchange rates to save money.
PayPal.PayPal is another popular option for businesses paying overseas freelancers and contractors. It's quick and easy to use — all you have to do is enter your worker's email address — but high currency conversion charges and other fees mean it's often not the most cost-effective option.
There are plenty of good reasons why you might want to hire an overseas contractor:
Flexible arrangements. Hiring a contractor is a much more flexible arrangement than taking on a full-time employee, allowing you to find a worker with specialist skills whenever you need.
Find the best talent. Looking overseas allows you to expand your search for workers to a much larger talent pool. This can help you find the people with the skills you need to grow your business.
Save money. Hiring overseas contractors is also an affordable way to find workers and improve your bottom line.
Bottom line
There are tax and super obligations to consider when paying foreign workers, but don't let them put you off looking overseas to find the right talent for your business. If you're unsure about your tax obligations when paying overseas contractors or employees, speak to a tax professional.
FAQs
If your business hires independent contractors based overseas, you typically won't need to withhold tax from payments you make to them. However, the contractor will need to pay tax in the country where they live.
Specialist international money transfer services offer competitive exchange rates and low fees, making them a cost-effective option. A multi-currency account can also be a good solution for businesses that need to pay overseas workers and manage currency conversion costs.
There are multiple safe ways to pay an international contractor. Bank wire transfers, specialist transfer services and payment services like PayPal all offer secure international payments. It's worth comparing the cost of each payment method to find one that's right for your needs.
There are many websites that allow you to connect with contractors and freelancers from around the world. Some popular platforms to consider include Upwork, Fiverr, Airtasker and Freelancer.com.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
What are the best options for sending or receiving a large amount of money overseas? Read this $50,000 case study with exchange rates and fees comparison.
Send an international money transfer to someone without a bank account. Get it there instantly and they can pick it up in person, in cash. Get quotes now.
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
