How to pay overseas staff and contractors from Australia

To pay overseas staff from Australia, you need four things in place: a clear relationship (employee or contractor, and under which country’s law), a reliable payment method, an agreed currency, and records that would satisfy the ATO. For staff who live and work overseas, the ATO says you don’t have to pay super for non-resident employees who work outside Australia, and PAYG withholding is unlikely to be required for most of their pay. The rest is process.

This guide covers each step for Australian businesses paying staff or contractors in countries such as the Philippines, from classifying workers correctly to choosing how you make international payments and keeping records the Australian Taxation Office will accept. It is general information, not tax or legal advice, so confirm your structure with a qualified adviser before your first pay run.

Are your overseas workers employees or contractors?

Settle this first, because it decides what you owe and how you pay.

• A contractor (an independent contractor) runs their own business, invoices you for their services and handles their own tax and contributions in their country.
• An employee works for you under an employment contract. If they live and work overseas, their employment is generally governed by the law of the country they work in, which brings its own employer obligations.

The label on the contract does not settle the employment relationship. In Australia, the Fair Work Ombudsman warns that telling a worker they are a contractor when they are in fact an employee can be sham contracting, with maximum penalties of $546,000 per contravention for businesses with more than 15 employees. Sham contracting is prohibited under the Fair Work Act. Other countries apply their own tests under their local laws. If you set the hours, supervise the work and treat the person as part of your team like a full time employee, get advice on whether a contractor arrangement holds up. Getting overseas workers correctly classified at the start is cheaper than fixing it later.

In the Philippines, employers carry statutory obligations of their own. Our guides to super and Philippine employer costs and 13th month pay explain what an employment arrangement there usually includes.

What are your tax obligations when you pay overseas staff?

Super. The super guarantee is Australia’s compulsory employer super contribution. The ATO’s guidance on who you have to pay super for says you don’t have to pay super for non-resident employees who work outside Australia. That is not the same as sending an Australian employee to work overseas temporarily. In that case the ATO says you must keep paying super in Australia, so you still pay super guarantee for that person.

PAYG withholding. The ATO says that if you are a resident employer, you may be required to withhold tax for foreign resident employees performing services outside Australia, depending on the employee’s circumstances. Withholding is unlikely to be required for payments that are not related to entertainment, sports, construction or gaming junket activities. It may be required where the income is Australian-sourced and assessable and a tax treaty gives Australia a taxing right, or where there is no tax treaty and the income is Australian-sourced and not exempt.

Foreign resident withholding. The ATO’s separate foreign resident withholding regime applies to payments to foreign residents for entertainment or sports activities, construction and related activities, and casino gaming junket activities. If your overseas contractors do bookkeeping, admin or customer service, foreign resident withholding is unlikely to apply.

Payroll tax. Payroll tax is a state and territory tax on wages, not a federal one. Revenue NSW, for example, says wages paid in NSW are exempt from payroll tax if the employee has performed services wholly overseas for a continuous period of more than 6 months, and taxable if the overseas period is 6 months or less. Rules differ by state, so check where your business pays wages.

Residency. Most of these answers assume the person is a foreign resident. The ATO’s 183-day test treats someone who is physically present in Australia for 183 days or more in an income year as generally an Australian resident, unless their usual home is overseas and they don’t intend to live here. If a hire plans long stays in Australia, revisit your tax position.

For a typical arrangement, such as a bookkeeper or assistant who is resident in the Philippines and works there for your business, neither super nor PAYG usually applies. Because the answer turns on residency and the source of the income, confirm it with a registered tax agent before you start. Our article on super for offshore staff covers this in more depth.

Do you need to withhold taxes from contractor payments?

Usually not, if the contractor is a foreign resident working overseas. The rules that catch Australian contractor payments work differently for overseas contractors.

• No ABN withholding. If an Australian supplier doesn’t quote an Australian business number, you generally must withhold 47% unless an exception applies. One exception, the ATO says, is where the supplier is a non-resident who is not carrying on an enterprise in Australia. The ATO also says foreign residents generally don’t need an ABN unless they carry on an enterprise in Australia.
• Document it. The ATO’s Statement by a supplier not quoting an ABN form lets the contractor record why no ABN is quoted. Keep it with your records for that supplier.
• Check the activity. Foreign resident withholding covers the entertainment, sports, construction and gaming junket activities listed above.

If you pay contractors who are based overseas but spend time working in Australia, or who have an Australian branch or agent, get advice before you pay.

How do you pay overseas staff and international contractors?

There are three common ways to move the money, and the same options work whether you pay international employees or pay overseas contractors.

Method	How it works	What to check
International bank transfer	Your Australian bank sends funds to the worker’s bank account overseas	The transfer fee, the exchange rate your bank applies, and how many days the money takes to arrive
Online money transfer service	A specialist service converts AUD and pays out in the local currency	The fee plus the rate margin, payout speed, and whether the worker’s bank or e-wallet is supported
Employer of record or payroll platform	A provider becomes the local employer, or runs payroll, and pays them on your behalf	The monthly fee, what it includes, and who is the legal employer

How an international bank transfer travels. Banks often route international payments through correspondent banks, which are overseas intermediary banks that pass the money along. One major Australian bank’s fee schedule says it uses correspondent banks and that overseas banks’ charges may apply on top of its own fees. That is why the amount that arrives can be less than you sent, and why you should ask your hire to tell you what lands in their account after the first pay.

Whatever payment method you pick:

• Compare the total cost, not the headline transfer fee. A low fee can come with a weaker exchange rate, and the exchange rate margin is a cost too. Compare how much arrives in the worker’s account for the same AUD amount.
• Set payment terms. Agree a payday in the contract, for contractor payments as well as wages, and send early enough for the money to land on time. Late pay damages trust fast, wherever someone lives.
• Use one method consistently. It makes reconciliation and record keeping simpler.
• Collect bank account information securely. Get the account name, number, bank and branch or SWIFT code in writing, and confirm any change by phone or video before you pay to the new account.
• Keep payment confirmations. Save the confirmation for each transfer.
• Keep payment authority onshore. Your staff member should never be able to approve their own pay.

We do not recommend specific providers. Compare current pricing on each provider’s own website before you choose.

Should you pay in Australian dollars or local currency?

This is a currency exchange decision about who carries the risk when exchange rates move.

• Fixed amount in local currency (for example, pesos): your hire’s pay is predictable and easy for them to budget. Your AUD cost moves with the exchange rate.
• Fixed amount in AUD: your cost is predictable. Your hire’s take-home pay rises and falls with the exchange rate.

Agreeing the salary in local currency matches how local pay is benchmarked and avoids awkward conversations when the rate moves. Whichever you choose, write the currency into the contract and keep it the same every pay.

For your books, the ATO explains that foreign currency amounts can be translated into Australian dollars using daily rates, average rates (over a period of no more than 12 months, if they reasonably approximate spot rates), or rates consistent with an audited financial report. The ATO says to keep the rate used and the source of the rate with your records. Your bookkeeper or accountant will usually set this up once in your accounting software.

What invoices and pay records do you need?

For contractors, ask for an invoice each period showing their name and address, the period covered, the services, the amount and currency, and their bank details. Check it against what was agreed before you pay.

For employees, keep the employment contract, a pay record for each pay showing gross pay, deductions and net pay, and any leave taken. Local law may set its own requirements for payslips and contributions, which is one reason businesses use an employer of record or local payroll support.

In both cases, file the proof of payment from your bank or transfer service with the invoice or pay record.

How long do you keep the records?

The ATO’s record-keeping rules say you must keep records of all transactions relating to your tax and super affairs. Most records must be kept for 5 years, and they must be in English or able to be easily converted to English. At a minimum, each record should show the date, amount and description of the transaction, plus its purpose.

For overseas pay, that means keeping:

• the contract or engagement letter
• each invoice or pay record
• proof of each payment
• the exchange rate used and its source
• any advice you received on super, PAYG or classification

How does payroll processing work with an employer of record?

An employer of record (EOR) is a provider that becomes the legal employer of your staff member in their country. It holds the local employment contract, runs payroll, handles local tax and statutory contributions, and manages leave. You direct the day-to-day work and pay the EOR one monthly invoice.

An EOR suits you if you want the person to be a proper local employee, with local employee benefits and contributions, but you do not want to set up a local entity in a foreign country, learn local payroll law or send international transfers yourself. For Australian businesses without a payroll department, it is a practical way to manage international payroll and ensure compliance with local regulations. It also suits businesses with staff in multiple countries, because one provider handles global payroll in each employee’s country. The trade-off is a monthly fee for as long as the arrangement runs.

Tarino EOR is our optional service, powered by Deel. It costs $387 per employee per month and includes the employment contract, payroll processing, tax and compliance, leave management and dedicated Australian support. It is separate from our recruitment fee, and you can use it for a hire Tarino finds for you.

If you prefer to run the arrangement yourself, you can. Under the direct-hire model, you pay your hire each month using one of the methods above.

How does Tarino fit in?

Tarino recruits Philippines-based staff for Australian businesses. You hire and pay them directly, or through Tarino EOR. Our recruitment fee is $5,000 excl. GST per placement: $250 upfront, credited back when you hire, plus $4,750 on hire, with no monthly fees. See pricing and how it works.

For a step-by-step view of the whole process, read our guide on how to hire Filipino staff from Australia. To see what a hire would cost all-in, use the cost calculator.

A simple checklist before the first pay

1. Confirm employee or contractor, and get advice on super, PAYG and classification.
2. Sign a contract that states the pay, currency, payday and payment method.
3. Choose a payment method and test it with a small transfer.
4. Set up the expense or wage account and exchange rate method with your bookkeeper.
5. Keep payment approval with an authorised person in your business.
6. File every invoice or pay record, proof of payment and exchange rate for 5 years.

If you want to talk through whether to pay directly or use an EOR, book a 30-minute call and we will walk you through how other clients set it up.