Australia's employment landscape is set to undergo a seismic shift with Victoria's state government recently announcing sweeping changes to payroll taxes.
The move, which involves a combination of tax hikes and amendments, is part of the 2023-24 Budget and is poised to impact the business community significantly, particularly businesses with high payrolls. While the amendments may spell a challenging period for businesses, they might also inadvertently ignite a fresh trend: a surge in hiring global talent.
In this article, we're taking a closer look at these payroll tax increases and what they could mean for Victoria businesses. Plus, we'll share how you can continue to hire the help you need without going over budget.
Understanding the payroll tax amendments
As part of its COVID Debt Repayment Plan, the Victorian Government has announced a series of payroll tax changes to come into effect from July 2023 and 2024.
Here's a rundown of the modifications:
- From 1 July 2023, a levy on payroll will apply to businesses with annual Australia-wide taxable wages above $10m.
- From 1 July 2024, the payroll tax-free threshold will increase from $700 000 to $900 000, subsequently increasing to $1m from 1 July 2025.
- From 1 July 2024, the payroll tax exemption for high-fee non-government schools will be removed.
Notably, the government has introduced a COVID Debt Levy on payroll tax, which will be applied as a surcharge on Victorian wages. This temporary measure is set to impact all medium and large businesses, raising operating costs significantly.
The financial implications
For businesses with annual Australia-wide taxable wages above $10m, the surcharge of 0.5% will apply to their Victorian wages that exceed the relevant threshold. For instance, a business with an annual payroll of $12m, employing entirely in Victoria, will be subject to a surcharge of $10,000.
Businesses with annual Australia-wide taxable wages above $100m will bear an additional surcharge of 0.5% on their Victorian wages, exceeding this higher threshold. A business with a payroll of $120m, employing entirely in Victoria, should expect a total surcharge of $650,000. This levy will apply until 30 June 2033.
Despite the government's assurance that the levy targets businesses that thrived during the pandemic, the additional payroll tax burden will inevitably affect all medium and large businesses. Consequently, this could increase service/product rates, strain wages or necessitate cutbacks in service offerings.
With a payroll tax hike like this, many businesses are asking themselves how they're going to afford their current employees and continue their original hiring plans. Thankfully, there may be a solution.
The silver lining: top global talent
With these impending payroll tax changes, the business landscape in Victoria—and possibly Australia—may need to brace for new operational strategies. And one such strategy that's been increasingly gaining traction is offshore hiring.
With the rising costs associated with local hiring—now exacerbated by the new tax hikes—businesses are exploring the potential of international talent pools. Global hiring allows businesses to secure skilled employees at a fraction of the cost without compromising work quality or productivity.
In the face of these rising payroll taxes, international hiring emerges not only as a savvy way to mitigate this financial burden but also as a strategy for smart growth.
Expanding your team dramatically within Australia under these new tax conditions could result in a significant upfront cost, posing a daunting hurdle for businesses needing to scale. By contrast, hiring globally allows businesses to source talent without immediate financial pressure. This approach offers the advantage of flexible, incremental growth.
In other words, as the international team expands and proves its value, individuals or teams could be gradually relocated to Australia as needed, spreading out the associated payroll tax increase over time. This strategy is not only cost-effective but also allows for strategic talent acquisition and retention, building a diverse and dynamic workforce without the sting of a one-time, sizable tax hit.
The EOR advantage
While the benefits of hiring international talent amidst this tax hike are clear, hiring international talent isn't without its challenges. That's where an EOR comes into play.
An Employer of Record (EOR) acts as a legal employer for your international employees, taking care of all HR, payroll and legal responsibilities in the employees' country of residence. However, while the EOR manages these functions, the control and direction of the employees' day-to-day tasks and work remain with you.
In that way, you get the best of both worlds—access to international talent and operational efficiencies without the administrative and legal complexities of global employment or the transparency nightmares of outsourcing. Best of all, it’s highly cost-effective. (Check out more EOR benefits here).
As Victoria's businesses face the impending payroll tax hikes, EOR services might just be the solution to maintain profitability while scaling the workforce.
Traverse the path forward with Outstaffer
Victoria's payroll tax changes are bound to pose significant challenges for businesses. However, the growing trend of international hiring, aided by EOR services, offers a viable solution to navigate this difficult landscape.
Whether you're exploring international hiring or seeking to understand how an EOR service could help your business navigate Victoria's payroll tax changes, we are here to help.
As a global EOR and #WorkFromAnywhre technology company, we help companies find, hire, manage and equip employees from around the world in just a few clicks. Plus, with solutions like managed devices and employee monitoring, we give you everything you need to thrive.
Want to learn more? Schedule your free demo now.
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