Employee On-Cost
Calculator Australia
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Employment Costs in Australia
There are numerous costs associated with hiring and paying employees and staff for employers to be aware of. There include direct costs associated with payroll, superannuation and leave, while there are numerous other indirect costs, such as recruitment, office and IT costs.
The calculator above and description below is primarily focused on direct employment costs, however there is some description of typical indirect costs outlined below.
Superannuation
As an employer, you are required by law to contribute 10% of your employees' ordinary time earnings to a superannuation fund.
This is known as the Superannuation Guarantee (SG) and it's designed to help employees save for their retirement. The SG is calculated as a percentage of the employee's ordinary time earnings and the current rate is 10%.
The SG applies to all employees who are 18 years or older and earn $450 or more (before tax) per month. This includes full-time, part-time, and casual employees, as well as some contractors.
Employers must make SG contributions on behalf of their employees at least quarterly, and the contributions must be paid into a complying superannuation fund or retirement savings account (RSA).
Superannuation must be paid on all base salaries and wages and is sometime paid on bonuses and additional employee payments.
Pay roll tax
Employers are required to pay payroll tax on their total Australian taxable wages. The rate of payroll tax for each state and territory is outlined below.
| State/Territory | Threshold | Payroll Tax |
|---|---|---|
| New South Wales | $1,200,000 | 5.45% |
| Victoria | $700,000 | 4.85% |
| Queensland | $1,300,000 | 4.75% |
| Western Australia | $850,000 | 5.50% |
| South Australia | $1,500,000 | 4.95% |
| Australian Capital Territory | $2,000,000 | 6.85% |
| Tasmania | $2,000,000 | 6.10% |
| Northern Territory | $1,500,000 | 5.50% |
The threshold is based on the company’s total wages bill per annum, and applies to the total wages paid by the company nationally, not just wages paid to employees in the respective state.
Workers' Compensation Insurance
In Australia, employers are required by law to have workers' compensation insurance to protect their employees in case of a work-related injury or illness. Workers' compensation insurance is a type of insurance that provides compensation to employees who are injured or become ill as a result of their work.
Insurance costs vary between states and territories, and the premiums are set by industry type. Average rates are set out below, while rates can be as high as 9% in high-risk industries such as tiling and carpeting and as low as 1% in low-risk areas such as retail.
| State/Territory | Average Premium |
|---|---|
| New South Wales | 1.47% |
| Victoria | 1.27% |
| Queensland | 1.23% |
| Western Australia | 1.82% |
| South Australia | 1.8% |
| Australian Capital Territory | 2.33% |
| Tasmania | 2.08% |
| Northern Territory | Industry based |
Employers are required to take out a policy with an approved insurer, and to pay premiums based on their industry and the number of employees they have. The costs of Workers' Compensation Insurance are based on various factors including:
- Industry: Insurers will set higher premiums for employers in high-risk industries.
- Payroll costs: The higher the payroll spend, the greater the cost of workers' comp.
- Claim history: A good claims history can result in a lower insurance premium.
- Company size: Larger companies may have a different pricing model.
Leave Entitlements
Employees are entitled to various types of leave, including annual leave, sick leave, and long service leave. These entitlements need to be factored into the cost of hiring an employee.
There are several costs associated with employee leave in Australia, including:
Paid Annual Leave:
- Under the National Employment Standards (NES), full-time and part-time employees are entitled to four weeks of paid annual leave per year. The cost of paid annual leave is borne by the employer, as they must continue to pay their employees their normal wages while they are on leave.
- The cost of annual leave is included as a cost accrual, as employers must accrue a leave liability on their balance sheet which is drawn down when the employee takes leave or paid out if the employee leaves the company.
Long Service Leave:
- Long service leave is a type of leave that is granted to employees who have worked for an employer for a certain length of time (usually 10 years or more). The length of leave and the amount of pay vary between states and territories, but the cost is borne by the employer.
- Given that long service is an entitlement to paid wages, it is included as a cost accrual in the calculator above.
Parental Leave:
- Under the NES, eligible employees are entitled to up to 12 months of unpaid parental leave when they have a child. Employers are not required to pay their employees during this time, but they must keep their job open for them to return to when their leave is finished.
Other Indirect Leave Costs:
There are various other kinds of leave that do not directly add to the cost of employment but are still relevant to consider:
Personal/Carer's Leave
Full-time and part-time employees are entitled to 10 days of paid personal/carer's leave per year under the NES. This type of leave can be used when an employee is sick or caring for a sick family member. The cost of personal/carer's leave is also borne by the employer.
Public Holidays
Full-time and part-time employees are entitled to be paid for public holidays that fall on a day they would normally work. The cost of paying employees for public holidays is borne by the employer.
Sick Leave
Employees may also be entitled to unpaid sick leave if they are unable to work due to illness or injury. The cost of sick leave is not borne by the employer, as they are not required to pay their employees during this time.
Other Leave
There are other types of leave that employees may be entitled to under their employment contract or enterprise agreement, such as bereavement leave or cultural leave. The cost of these types of leave is borne by the employer.
Indirect Employee Costs
In addition to these direct costs, there may also be indirect costs associated with employee leave, such as the cost of finding replacement staff, reduced productivity, and the impact on other staff members who may need to cover for the absent employee.
Payroll Administration:
There are costs associated with managing payroll, such as processing wages and salaries, paying superannuation contributions, and managing tax obligations.
Recruitment Costs:
There may be costs associated with advertising for a position, conducting interviews, and undertaking reference checks.
Training Costs:
Employers may need to invest in training their employees to ensure they have the skills and knowledge necessary to perform their role effectively.
It's important for employers to understand these costs to ensure they can budget accordingly and make informed decisions about hiring staff.