Working holiday makers: What employers need to know
Have you considered hiring holiday makers, (also known as backpackers), in your business? If you have been thinking about taking on holiday workers, you aren’t alone. In June 2017 the Department of Home Affairs released its latest Biannual report. It showed a current Working Holiday Visa host rate of over 120,000 individuals.
With access to so many hopeful employees, what do you need to know before you enter into a work agreement or contract with someone who is a working holiday maker?
Who can hire a working holiday maker?
Any employer can hire a working holiday maker. This can be especially useful if you need labour for a short period of time.
If your business has an active ABN, you must register as a working holiday maker employer online through the ATO’s Working Holiday Maker Employer Registration Form. Once registered, you will also need to ensure you have completed a PAYG withholding account registration.
Once you’re registered, what are the next steps?
- Confirm they are legally allowed to work in Australia.
- Check whether they will be an employee or contractor – It is important you get this right as it affects your tax, superannuation and other obligations which could be very costly to your business if you get this wrong.
- If you established that they’re an employee:
- If you’re not currently an employer, you need to register for PAYG withholding to withhold tax from your employees’ wages. (Please note that the tax to be withheld will differ from other non-working holiday maker employees, see below).
- Check if the worker satisfies the Super Guarantee conditions & whether you need to pay superannuation on their wages – if so, register accordingly.
- Register for Fringe Benefits Tax if you are providing fringe benefits to your employees.
- Check if you need to register for payroll tax with your state or territory revenue office.
- If you establish that they’re a contractor:
- You must withhold tax payments from contractors if they don’t quote an ABN or have a voluntary PAYG withholding agreement with you.
How to withhold tax from a working holiday maker
Working holiday makers are not eligible to claim the tax-free threshold. Working holiday makers are taxed at 15% from the first dollar earned up to $37,000, regardless of their residency status. For the full schedule of tax rates, please refer to Table A on the ATO’s website.
The worker must provide you with their Tax File Number. If they don’t you need to withhold tax on all payments at the top rate, being 45%.
If you haven’t registered to host holiday workers, you must withhold tax at a rate of 32.5% from every dollar earned up to $87,000 and foreign resident withholding rates apply to income above this. Penalties will also apply if you employ someone with a visa subclass 417 or 462 but haven’t registered as an employer of working holiday makers.
PLEASE NOTE – The onus of registering as a working holiday maker employer & withholding the correct amount of tax rests with the employer. If you have any doubt regarding whether a potential employee is actually on a working holiday visa, we highly recommend calling the ATO & checking the employee’s working status.
What if their working holiday visa status changes?
If an employee advises you that they are no longer on a working holiday visa, they’ll need to provide you with a new Tax File Number Declaration. From this point forward, you’ll be required to withhold tax at the normal PAYG Withholding rates and provide two payment summaries for the financial year:
- Payment summary while they worked using via subclass 417 or 462
- Payment summary for the period they were not holding a working holiday visa
For more information on employing Working Holiday Makers, visit the Australian Taxation Office website.
For tailored advice on this topic contact your advisor or accountant.