Many companies consider conducting international business in Australia for a multitude of reasons but are far less clear on their options for Australia hiring. Many businesses love Australia for its economic stability and resiliency; according to the Australian trade commission, it has had 25 years of uninterrupted GDP growth averaging about 3.3%. Australia’s GDP did not drop even in 2008. Australia can also serve as an English-speaking hub for companies who want to do more business in the Asia-Pacific region; 42% of Australia’s GDP can be attributed to trade with Asia. Lastly, Australia has a great workforce and embraces innovation; Australia’s CSIRO (Commonwealth Science and Industrial Research Organisation) ranks in the top 1% of the world’s scientific institutions in 15 research fields.
Here are your options for employment relationships if you wish to hire or do business in Australia:
Each one of these methods has positives and negatives. Many times the deciding factor simply comes down to budget or timeline. This makes many companies lean towards entering a foreign independent contractor route. We will go into more details below. But we want you to know that there are many hidden risks in that method.
Traditional Method: Australian Foreign Subsidiary Company Establishment
Many companies choose to create a foreign subsidiary company when they are entering a new target country. This involves incorporating a new company in Australia, very similar to establishing a C-Corp or LLC in the United States. This company has to be compliant with all Australian employment regulations and the sole burden falls on you. Many countries require a person to be present for signatures on banking and corporate documents. Make sure you expect to be putting in a lot of executive level time. We actually put together a long list of all the reasons why foreign subsidiary creation is so difficult.
If your budget commitment is extensive and you are sure that your business needs to operate indefinitely in Australia -OR- if your core business model requires you to hold physical assets (land, buildings, equipment, etc.) then a foreign subsidiary company is most likely your best option. The process of just creating the entity so you can get your first hire can take at least a few months, so make sure you allow for this time as well. There are companies that can help make a foreign subsidiary, get in touch if you want some connections.
Many of the companies we talk to are not in a place where they know for sure they will be in a country indefinitely. Many of the companies we speak to are looking to either test a market’s viability, are only going to be in a country for a specific amount of time, or simply don’t need to be able to hold physical assets there. Many companies are just looking to get sales and marketing representatives into country, so they end up falling into the trap of using foreign independent contractors.
Lightweight but Risky Method: Foreign Independent Contractor Relationship
Many companies look to a contractor relationship because of how fast and simple the relationship can be created. There is nothing false about that statement, it is extremely fast and simple to CREATE a contractor relationship. What many companies are not aware of is the lack of any real IP protection, control around competition engagement, and the biggest killer which is called “contractor misclassification.” The problem with contracting a person to your domestic entity is that you have no enforceability in Australia from what they would consider a foreign company. If something were to happen, the Australian courts would nullify your contract with this person. Even if they have done serious and irreversible damage.
The worst scenario is when you are treating a contractor like an employee, but paying them through a contract. The Australian labor board, if this is discovered, may require you to create a foreign subsidiary company and pay all your back employee contributions and such just to keep the right to work in country. This doesn’t sound too bad if your business isn’t going well there, you would just walk away, but what if it is going really well? You can be looking at hundreds of thousands of dollars to remedy the situation.
Just to summarize again there are a few risks of foreign independent contractors that we find can vary from crippling to killing the operations in Australia:
- Contractors in many countries are not legally obligated to protect your IP. Plus, the concept of “non-disclosure” may not be legally enforceable depending on target country.
- Contractors treated like employees may try to enforce the local termination policies and potentially cause a labor board investigation. We have seen an investigation like this cost a company $375K USD and 11 months in court.
- In many countries, it is illegal to have a Non-Compete agreement for a contractor.
We wrote a post a while back about the top 5 international hiring compliance traps as well as another post about why you cannot hire your overseas contractor to your domestic entity.
Lightweight, Service Oriented, and Compliant: FSaaS (Foreign Subsidiary as a Service)
There is a third option if the risk of using a contractor seems too high but the investment of time/money for a foreign subsidiary is not in the cards, or if all you are looking to do is place sales/marketing representatives in Australia. Foreign Subsidiary as a Service (FSaaS) is when a third party company serves as the “employer of record” for your company in Australia and manages the compliance, HR, payroll, etc. aspects for you.
Velocity Global is the only provider of FSaaS. We can typically have an employee hired in a target country within 72 hours of contracts signed. Basically, all HR functions pass through us and you retrain all administrative control of the employee. The other benefit of FSaaS is that it retains the “turn-key” element, without the hidden risks.
Lets us know if you have any questions or you can learn more here about FSaaS.