eCommerce and Web-based platforms tools have equipped Australian businesses to do business more easily overseas, as well as hire and manage remotely based staff. Australian companies commonly open marketing offices in other countries, establish overseas joint ventures and set up overseas manufacturing plans, just to name a few. Along with hiring overseas employees, they often send their Australian management staff overseas to assist with setting up and running a foreign branch of the business.
Australian businesses have always looked overseas to find skilled employees and facilitate their relocation to Australia. More recently there has been a trend towards staff remaining in their home country and working via phone and the internet. If working from home is acceptable, why can’t that home be in New Zealand, France or Malaysia?
What does this mean for businesses in regards to their obligations to overseas employees? Will Australian regulations apply to overseas employees? Below we will examine the requirements and responsibilities of Australian employers when engaging employees based overseas.
The Fair Work Act
The Fair Work Act 2009 (the Act) and the Fair Work Legislation 2009 are the main legislative instruments that govern the employer/employee relationship in Australia. Together they provide a platform setting out key employee entitlements including minimum wages, terms and conditions of employment and flexible work arrangements. The Act not only applies to employees within Australia but in some circumstances, it will also apply to overseas employees. The Fair Work Regulations extend certain powers of the FW Act to apply outside of Australia to Australian employers and Australian based employees.
Under Section 35 of the Act, an Australian employer is defined as:
- A training or financial corporation formed within the limits of the Commonwealth;
- An entity incorporated in one of the Territories (of Australia); and
- Any employer that carries on in Australia and whose central management and control is in Australia.
The definition of an Australian-based employee includes an employee:
- Whose primary place of work is in Australia; or
- Is employed by an Australian Employer (as defined above) regardless of their geographic location.
The Act is not clear on what ‘engaged’ outside of Australia means, but will most likely take into account where the employee was recruited, whether they receive expatriate benefits or are employed under local terms and conditions and if relocation benefits are offered. Traditionally, this extraterritorial application of the Act would apply to employees of Australian employers who were sent overseas to open a branch office, set up an overseas manufacturing plant or establish an overseas joint venture.
But what about employees who are originally based overseas? Does the Act apply to them too? The answer is most likely yes.
Nowadays, with the increased use of and access to the internet along with flexible work arrangements, businesses are not viewing the geographic location as a barrier to employment. Whether it be a computer programmer, software engineer, graphic designer or even a management consultant, businesses will hire based on qualifications and suitability, rather than geographic convenience.
While overseas employees may not have their primary place of work in Australia, they are still employed by an Australian Employer and therefore will fall under the definition of an Australian based employee.
Which Country’s Employment Laws Apply?
If the Act applies to your overseas employees, it will mean that the National Employment Standards will apply, including coverage of any relevant award, and protections for minimum wages and unfair dismissal claims.
Sounds simple enough, but difficulties may arise where the overseas employees of your Australian company are also subject to local employment laws. For example, your Hong Kong-based software developer will fall under not only the Australian Act but also local Hong Kong employment laws. Before engaging an overseas based employee, check for local employment laws that might apply and whether any conflicting provisions exist.
These may include the employee’s right to terminate their employment, minimum wage requirements or additional benefits you as an employer must provide to your employee. Where the employee has different entitlements under the Act and local employment requirements, for example, different minimum notice periods, then the entitlement that is more beneficial to the employee is the one that should apply. Employers should understand both Australian and foreign requirements as they apply to employees. You should cover these bases before you make any offer of employment so you can account for all costs, entitlements and conflicting provisions when determining an overseas employee’s remuneration.
Employees and Tax
Another issue that may arise is whether the employee will need to pay tax in Australia as well as their country of residency. You should confirm whether there is a tax agreement between Australia and the country where your employee lives. Australia has ‘double tax agreements’ with several countries which set out which country has the right to tax each type of income that the employee earns.
Under the National Employment Standards, Australian businesses also have superannuation guarantee obligations for its employees unless they are non-residents for tax purposes and are paid separately for work done outside of Australia. Australian businesses may also be liable to pay superannuation on behalf of the employee. The employee’s country of residence may also require an employer to make superannuation contributions, further complicating the situation.
Key Takeaways
While it might be getting easier for local Australian businesses to use overseas employees, there is still a number of issues that an employer should inform themselves about before hiring an employee who will be based overseas. Whether the Act will apply to the employee and whether the business will need to withhold income tax, pay superannuation to the employee or award them with any additional employee entitlements, are all important questions you should ask.
Ensure that you speak with an employment lawyer for advice about what laws may apply, what obligations you may have as an employer or entitlements you may have as an overseas employee. Questions? Get in touch on 1300 544 755.