Employer of record or your own subsidiary: how to hire in Australia

An employer of record (EOR) lets a foreign company hire someone in Australia without setting up an Australian entity. The EOR provider employs the worker under an Australian employment contract, runs payroll, withholding, super and workers compensation, and charges you a fee, while the worker does the work for your business. It is quick and useful for a first hire or a market test. What it does not do is change what your business is actually doing in Australia, so it does not settle tax presence questions, ownership of the work product or the risk that the arrangement is characterised differently from how the contracts describe it. Many groups use an EOR first and move to their own Pty Ltd once the Australian team or revenue grows.

This page compares the two routes neutrally. We provide resident directors for Australian companies, so we have an interest in the subsidiary route; we have tried to set out where an EOR is the better choice too.

What an employer of record actually does

In a typical EOR arrangement:

• The provider (or its Australian entity) is the legal employer. It signs the employment contract with the worker.
• It registers for and runs the employer obligations: PAYG withholding, Single Touch Payroll reporting, super contributions, payroll tax where applicable and workers compensation insurance.
• It applies Australian minimum standards: the National Employment Standards, any applicable modern award, leave, notice and termination rules.
• You direct the worker's day-to-day work under a services agreement with the provider, and pay the provider the employment cost plus a fee.

Some providers also handle visa sponsorship, equipment and benefits. Scope varies widely, so read the service agreement rather than the marketing page.

What an EOR solves

• Speed. You can usually have someone employed and paid correctly much faster than you can incorporate, register for tax, open a bank account and set up payroll.
• No entity to run. No ASIC annual review, no Australian financial statements, no resident director, no company tax return.
• Compliance with employer obligations. The provider takes responsibility for getting payroll, super and award conditions right, which are areas where foreign businesses commonly make mistakes. The business.gov.au hiring guide gives a sense of how many moving parts there are: award classification, minimum pay rates, hours, breaks, allowances, penalty rates and leave.
• An exit that is simple. If the market test fails, you end the arrangement under the contract terms and the provider handles the employment ending.

What an EOR does not solve

Tax presence (permanent establishment)

The biggest misunderstanding is that an EOR removes Australian tax exposure for the foreign company. It does not, on its own. Whether your company has a permanent establishment (PE) in Australia turns on what is done here and on any applicable tax treaty: for example, whether someone habitually concludes contracts for you, or whether there is a fixed place of business at your disposal. An EOR changes who employs the person, not what the person does. A senior salesperson employed by an EOR who negotiates and signs deals for your foreign company can still create PE risk. See permanent establishment in Australia.

The ATO's fact sheet for foreign resident employers shows how the employee side works where a foreign company employs someone in Australia directly. Australian-sourced employment income of foreign-resident employees is subject to PAYG withholding unless a treaty's short-term visit exception applies. That exception generally requires, among other things, that the person is not present for more than 183 days in the relevant period, is paid by a non-resident employer, and that the salary is not deductible against the profits of an Australian PE of the employer. The ATO also notes super guarantee may apply even where no PAYG withholding is needed. An EOR is one way to avoid running those obligations yourself; it does not answer the PE question.

Employee or contractor

Some "EOR" offers are really contractor arrangements, and some companies skip both and engage an Australian person as a contractor. The ATO's guidance on the difference between employees and independent contractors follows the High Court's 2022 decisions in Personnel Contracting and Jamsek:

• the relationship is assessed from the legal rights and obligations in the contract, which may be written, oral, implied from conduct or varied by conduct
• the label the parties use, such as "independent contractor", does not determine the relationship
• the critical question is whether the worker serves in your business, as its representative, or provides services to further their own business.

If someone working full-time for one company, under its direction, on its products, is called a contractor, the risk is unpaid PAYG withholding, super guarantee charge and award entitlements. The ATO has a separate page on employees incorrectly treated as contractors. Under Fair Work law, from 26 August 2024, businesses covered by the national system on constitutional grounds, which include Pty Ltd companies, work out whether someone is an employee by looking at the real substance, practical reality and true nature of the whole relationship, not just the contract label; see the Fair Work Ombudsman's whole of relationship test.

Ownership of IP and confidential information

Under an EOR, the worker's employment contract is with the provider, not with you. Whether inventions, code and other work product end up owned by your company depends on the chain of assignments: from the worker to the EOR, and from the EOR to you. Ask to see both clauses. Also check confidentiality and post-employment restraints, which need to protect your business, not just the provider's.

Fair Work obligations do not disappear

The provider is responsible as employer, but your instructions shape the job. If you require hours, duties or a location that breach the applicable award or the National Employment Standards, the problem is real for the worker and reputationally for you. Treat award compliance as a shared concern.

Payroll tax and grouping

Payroll tax is a state tax based on total Australian wages over a threshold (business.gov.au). States have employment agency provisions; Revenue NSW, for example, describes an employment agency contract as one where an agent obtains a worker to provide services to a client for a fee, without the worker becoming the client's employee. How EOR wages are treated, and whether they count towards your group's threshold once you also employ directly, is a question for the relevant revenue office or your adviser. See payroll tax for foreign-owned companies.

Commercial limits

• An EOR worker generally cannot sign contracts for an Australian entity, because there isn't one. Customers, landlords, government tenders and banks may want an Australian contracting party.
• Visa sponsorship through an EOR depends on the provider. Sponsorship is tied to the sponsor's business; see sponsoring overseas staff.
• Costs scale with headcount.

EOR or subsidiary: a comparison

We don't quote EOR prices. They vary by provider, worker salary, benefits and contract length. The useful comparison is your total EOR fees for the expected headcount against the fixed annual cost of running a company. Our cost calculator helps with the company side.

When moving to your own Pty Ltd makes sense

Groups commonly make the move when one or more of these happen:

• the Australian team grows beyond a handful of people
• someone in Australia starts negotiating or signing customer contracts, or leads the local business
• customers, partners, banks or government buyers want an Australian entity
• you need to hold leases, licences or registrations in Australia
• you want to sponsor visa holders directly
• EOR fees for the team exceed the cost of running the company.

Compare a subsidiary with a branch before deciding, because a registered foreign company is another option.

Transition steps from EOR to subsidiary

1. Take tax advice first on the structure, the intercompany arrangements and any PE exposure for the period before the switch.
2. Incorporate the company and appoint directors, including an Australian-resident director. See setting up an Australian subsidiary.
3. Register for tax: ABN, TFN, PAYG withholding before the first pay run, and GST if required.
4. Set up payroll with Single Touch Payroll, super and workers compensation in each state where you employ. Check payroll tax registration once wages approach the threshold. See hiring employees in Australia.
5. Plan the employee transfer with the EOR: notice periods, how accrued leave and continuity of service are handled, and new employment contracts with the company. Get employment advice on how the Fair Work transfer of business rules apply to your move.
6. Move IP and contracts: assignments of work product from the EOR period, intercompany services or distribution agreements, and customer contract novations if needed.
7. Bank account for the company, which can take time for foreign-owned entities; see opening a business bank account.

Where we fit

If you decide on a subsidiary, AG Resident Directorship can act as resident director and company secretary and keep the company's records in order while your accountant runs payroll and tax. See pricing or start here.

General information about Australian law and practice, not legal or tax advice for your circumstances. Check the official sources, or ask your adviser, before you act.