When looking at the benefits framework for hiring employees in Australia, it is important to consider both the Obligations of the employer and the Expectations of the typical Australian employee. Obligations are legislated, largely at a national level, whereas Expectations extend beyond the legal requirements and often the cultural norm in Australia is different to that in the territory of the inward investor. For an ex-pat being transferred from overseas, the employer must meet the Obligations (with certain special provisions regarding Superannuation or "Super") and square the employee's Expectations and existing conditions and benefits with the local norms.
As well as the base salary and any agreed bonus or commission structure which may be agreed with any individual employee, the following conditions or entitlements automatically attach to any contract of employment.
- Minimum rates of pay: Set by the Australian Fair Work Commission (FWC), the current national minimum wage (from 1st July 2016) is $672.70 per week, calculated on the basis of a week of 38 ordinary hours, or $17.70 per hour for full or part-time employees. Casual workers attract a 25% loading.
- Modern Awards: Depending on your market sector, your employees might be covered by a Modern Award, which are enforceable documents containing minimum terms and conditions of employment for a particular industry or occupation over and above any legislated national minimum terms.
- Ordinary Working Hours: Employees may not be required to work in excess of 38 hours per week (averaged over 12 months) plus "reasonable additional hours". In practice, many Australians work in excess of this and are paid overtime or, in "white collar" or managerial roles, salaried employees are expected to fulfil the "reasonable hours" without additional pay or overtime loading.
- Superannuation: All employees earning above certain limits are entitled to minimum superannuation (i.e. pension/401k/RRSPs) contributions to be made on their behalf by their employer to the employee's chosen superannuation fund. Currently set at 9.5%, this is currently legislated to rise to 12% by 2025, with the next uplift to 10% set to commence in 2021/22.
- Minimum Leave conditions: Set by the National Employments Standards (NES) & monitored by the Fair Work Ombudsman (FWO), the following leave entitlements are mandatory:
- Annual Leave: Four weeks (20 days) paid leave after each year of completed service (five if they work continuous shift work).
- Personal/Carers Leave: 10 days paid personal/carers leave (including sick leave) plus 2 days paid compassionate leave per occasion on the death of a close relative.
- Long Service Leave: Typically (it varies from State to State), 2 months paid leave after 10 years of service or 13 weeks after 15 years of service with the one employer or group of employers. The minimum years of services ranges from 7 to 15 years depending on the state.
- Parental Leave: 12 months unpaid parental (maternity, paternity or adoption) leave after 12 months continuous service with one employer
- Public Holidays: Typically (again, the quantum and the days vary from State to State) 11-12 public holidays a year are declared and employees are entitled to paid leave. Special conditions apply to being asked or required to work on public holidays and additional pay is usually expected as compensation (typically double time). Public Holidays in Australia.
In addition, if an employer offers employees fringe benefits in addition to their base salary and financial compensation, the employer is liable to a separate tax - the Fringe Benefits Tax or FBT - on the value of those benefits which they provide to their resident employees. Currently set at 49% (dropping back to 47% from 1st April 2017; i.e. equivalent to the highest individual marginal tax rate plus the Medicare & Temporary Budget Repair levies), the tax applies to benefits provided including: motor vehicles, free or low-interest loans, free or subsidised housing, some free car parking situations, payment of private expenses including private health insurance and excessive Living Away From Home Allowances. See the Fringe Benefits Tax section on the ATO site for more information.
Partly to do with imposts such as the FBT and partly to do with cultural norms, certain types of benefit or perks which may be attractive or the norm in other countries do not apply or apply differently in Australia.
- Company Car: Unless a car is necessary for completion of an employee's duties, the provision of a company car is rare to unheard-of in Australia. Exceptions apply at senior ex-pat executive levels but, at that point, the additional costs of the benefit are marginal in comparison to the overall package.
- Company Apt/Flat/House: Again, a rarity unless it is essential for the discharge of the employee's duties or due to the remoteness of the employment. (See LAFHA below.)
- Health Insurance: Whilst there are certainly companies that package private health insurance as part of their compensation mix, it is neither the norm nor expected. Combined with the free public health service and the plethora of health insurance packages and lifestyle options, typically this expense is left to the individual to choose and pay out of their after-tax income, should they choose to do so. Additionally, for the employer, the imposition of a 47-49% Fringe Benefits Tax on the cost of the premiums means that, for anybody other than their employees at the highest marginal tax rate, it is cheaper to give the employee the cash (possibly grossed up to account for the personal tax) than to pay the premiums directly AND the FBT to the ATO.
- Leave Entitlements: Whilst Australians have a justifiable reputation for being hard working ("hard yakka") and putting in the hours over and above their minimum, they are not to be messed with when it comes to their statutory days off and leave entitlements. Their reputation as a fun-loving and outgoing nation is equally as justified!
- Engagement: Similarly, Australians value other factors about an employer and its culture and will often forego the absolutism of comparing only financial remuneration and actively consider & compare intangible or non-financial rewards.
LAFHA: Living Away From Home Allowance
Falling neither into the Employer Obligations or Employee Expectations categories, Australia's LAFHA Policy has changed of late rendering the benefit - particularly for Ex-Pats working here - negligible to non-existent. In its heyday, it was a legal and effective method of paying certain sums to employees tax-free as compensation for their 'hardship' if expected to be working away from home. For many ex-pats, the irony of the fact that relocating to Australia might be considered a 'hardship' posting was not lost on them!
A combination of two allowances - an actual-cost housing allowance (which faced a "reasonable" test) and an annually-prescribed statutory food allowance (based on the number of family dependents) - the sums could be paid as part of the monthly payroll at 0% tax. For ex-pats with families, though there was a theoretical upper limit (based on the reasonable housing cost test), this could amount to $100K of tax-free income per year and it was - obviously! - very attractive and very popular as a benefit. Usually carved out from a resettling ex-pat employee's transferring base salary (as part of salary packaging), it was a significant - if distorted - component of the overall ex-pat compensation mix.
In Oct 2012, the legislation around LAFHA changed and, though the limits and financial methodology also changed, the key change was that the eligibility restrictions removed a large number of people from the benefit. Though still talked about (longingly!) in ex-pat circles, it is no longer an expectation. It might still apply if you temporarily relocate an ex-pat from their "Normal place of Residence" (e.g. from Sydney to Melbourne for three months) and it still does apply for general temporary relocations (up to 12 months) where the employee retains full access and benefit of residency at their normal place of residence. It's a complex tax concession and financial advice is advised before offering it in genuine cases for eligible employees - paying any allowance which does not meet the regulations surrounding the continuing LAFHA could, and probably would, be considered a benefit subject to FBT (at 47-49%).
Employee Share Schemes (ESS) - Options & Employee Share Ownership
As with many countries, Employee Share Options or Employee Stock Ownership Plans exist and in certain market-sectors (e.g. IT and digital start-ups) are de rigeur. They are not, however, as widely pervasive as similar benefits in countries such as the United States and the United Kingdom. Partly this is to do with the (previously) punitive taxation system which had, until recently, taxed the granting of the option or the shares (even if encumbered or at risk of forfeiture) at full value at the point of issuing or granting the share (i.e. not at Vesting or Execution!). This meant that employees were liable to pay tax on the value of the shares or options, sometimes well before they vested, executed or could be sold. Furthermore, especially in the case of start-ups and fast-growing unlisted companies, the valuation placed on the shares was itself fraught with difficulty.
Various legal (and, admittedly, quasi-legal) structures were put in place to overcome the effects of such taxation to greater or lesser degrees of success. Changes made to the law in 2009 had unexpected effects - effectively ending the issuing of options - and were considered by many - but certainly by affected industry sectors - to be highly unsatisfactory. With new legislation which came into effect in July 2015, Australia's ESS taxation arrangements are now largely in line with (if not quite as generous as) similar laws in the UK, the US and Ireland. There are changes to the Deferred Taxing Point, the Significant Ownership Test and the availability of a potential Tax Refund in certain circumstances. In addition, there are specific concessions for Start-Up Companies - which essentially treat any gain or loss as a CGT assessment - subject to meeting a range of eligibility criteria.
- Compensation & Benefits
- Employee Share Schemes