It is one of the most common questions foreign companies ask when evaluating their Australian hiring options. The answer is direct: no.
Payroll outsourcing — where a third-party provider processes wages, tax, superannuation and compliance reporting on your behalf — requires you to already be the legal employer of the people you are paying. You cannot be the legal employer in Australia without a registered Australian legal entity. That entity is either a Pty Ltd (an ACN issued by ASIC) or a registered foreign company with an Australian Registered Body Number (ARBN).
An Employer of Record solves this problem by being the registered Australian entity itself. When you use an EOR, the provider signs the employment contracts, runs payroll under its own ABN, and carries the employer obligations under Australian law. You direct the work; the EOR is the employer of record.
Understanding this distinction precisely — not approximately — is the foundation of a compliant Australian hiring strategy. Getting it wrong does not produce a minor administrative inconvenience. It produces unregistered employment, unpaid superannuation, Fair Work exposure, and potential ATO liability.
This guide covers both models in full: what each requires, what each costs, what each covers under 2026 compliance requirements, and how to choose and transition between them.
Definition — Employer of Record (EOR) An EOR is a third-party organisation that becomes the legal employer of your Australian staff through its own registered Australian entity. It holds the employment contracts, runs payroll under its own ABN, pays superannuation, manages PAYG withholding and STP reporting, and carries the employer obligations under Australian law. You direct the day-to-day work; the EOR is the employer on record.
Definition — Payroll Outsourcing Payroll outsourcing is a service where a third-party provider processes wages, tax withholding, superannuation payments and compliance reporting on behalf of a company that is already the legal employer. The provider handles the administration; you carry the legal employer obligations. You must have a registered Australian entity to use this model.
The primary difference is legal employer status. With an EOR, the provider is the legal employer. With payroll outsourcing, your company is the legal employer — the provider merely administers the payroll function on your behalf. This single distinction determines which model is available to you based on whether you have a registered Australian entity.
The confusion between these two models is understandable. Both involve a third party managing payroll. Both handle superannuation, PAYG withholding and ATO reporting. Both produce payslips and compliance documentation. But the legal structure underneath is entirely different — and that difference is what makes one available to companies without an Australian entity and the other not.
To legally employ someone in Australia as their direct employer, you need one of two registered structures:
Option 1: Australian Pty Ltd (Proprietary Limited Company)
A Pty Ltd is a separate Australian legal entity registered with ASIC. It receives an Australian Company Number (ACN), and must have at least one director ordinarily resident in Australia, an ABN, PAYG withholding registration, workers' compensation insurance in each state where staff work, and superannuation registration. This is the most common structure for foreign companies establishing a long-term Australian presence.
Option 2: Registered Foreign Company (ARBN)
A foreign company can register directly with ASIC under Part 5B.2 of the Corporations Act 2001 and receive an Australian Registered Body Number (ARBN). This allows the parent company itself — not a new Australian entity — to carry on business in Australia as a registered foreign company. The registered foreign company must appoint a local agent who is answerable to ASIC for compliance, maintain a registered office in Australia, and meet ongoing financial statement lodgement obligations.
Both a Pty Ltd and a registered foreign company (ARBN) can legally employ Australian staff and use payroll outsourcing. Neither requires the creation of a new separate company.
Option 3: Employer of Record (when you have neither)
If you have no Pty Ltd and no ARBN, you cannot legally employ Australian staff directly. An Employer of Record resolves this by employing your Australian staff through its own registered Australian entity. You have no Australian registration, no ABN, no PAYG withholding account — and no need for any of them while the EOR arrangement is in place.
The critical nuance about ARBN:
Many guides simplify this to "you need a Pty Ltd." That is not precisely correct. A registered foreign company with an ARBN can run payroll in Australia. However, an ARBN registration is not faster or simpler than a Pty Ltd for most foreign companies — it still requires a local agent, ongoing ASIC compliance and financial reporting — and does not give you the limited liability separation that a Pty Ltd provides. For most foreign SMEs, a Pty Ltd is the more practical structure. The key point is that either qualifies you to use payroll outsourcing rather than EOR.
|
Dimension |
EOR |
Payroll Outsourcing |
|---|---|---|
|
Do you need an Australian legal entity? |
No — EOR provides its own |
Yes — Pty Ltd or ARBN required |
|
Who is the legal employer? |
The EOR |
Your company |
|
Who signs the employment contract? |
The EOR |
Your company |
|
Who holds the ABN and PAYG account? |
The EOR |
Your company |
|
Who carries Fair Work Act obligations? |
The EOR (primarily) |
Your company |
|
STP Phase 2 reporting lodged by |
The EOR (under its ABN) |
You / your payroll provider (under your ABN) |
|
Superannuation paid by |
The EOR |
Your company (administered by provider) |
|
Workers' compensation coverage |
EOR's policy |
Your policy |
|
State payroll tax registration |
EOR's registration |
Your registration |
|
Modern Award classification |
EOR's responsibility |
Your responsibility (provider advises) |
|
Monthly cost per employee |
AUD $600–900 |
AUD $100–300 |
|
Setup time to first hire |
Days to 2 weeks |
Weeks to months (entity setup required) |
|
Visa sponsorship capability |
No — only registered entities can sponsor |
Yes — your entity can sponsor |
|
R&D Tax Incentive access |
No |
Yes — your entity can claim |
|
Exit flexibility |
High — cancel contract |
Low — employment obligations remain |
|
Best for |
Pre-entity, market testing, <5 employees |
Post-entity, established team, >5 employees |
An EOR in Australia signs Australian employment contracts, runs payroll through Single Touch Payroll Phase 2 reporting, pays superannuation within the 7-business-day Payday Super requirement, manages Modern Award classification, administers PAYG withholding, and handles workers' compensation insurance — all under its own registered Australian entity and ABN.
What an EOR covers:
What EOR does not cover:
EOR costs in Australia in 2026:
EOR fees in Australia typically cluster between AUD $600 and $900 per employee per month, depending on the provider and service level. This fee covers the provision of the legal entity, legal employer status, and full employment-risk transfer — not just payroll administration.
At the lower end, a single employee costs approximately AUD $7,200 per year in EOR fees — before salary, super and any benefits. The 5 to 10× premium over payroll outsourcing reflects what you are actually buying: a registered Australian entity and the compliance infrastructure to employ legally without one of your own.
Who EOR is for:
With payroll outsourcing, you are the legal employer. Your Pty Ltd or registered foreign company (ARBN) holds the employment contracts, the ABN, the PAYG withholding account and all employer obligations. The payroll provider processes wages, calculates tax and super, manages STP reporting and produces compliance documentation — but the legal and statutory responsibility remains with you.
What payroll outsourcing covers:
What payroll outsourcing does not cover (and what you carry directly):
Payroll outsourcing costs in Australia in 2026:
Payroll outsourcing fees in Australia typically run AUD $100–300 per employee per month for a full-service managed payroll arrangement. The lower end covers standard processing; the higher end covers more complex setups including multiple awards, variable pay components, and management reporting.
Who payroll outsourcing is for:
Whether you use EOR or payroll outsourcing, the underlying Australian compliance obligations are the same. What changes is who bears them. Under EOR, the provider bears them. Under payroll outsourcing, you bear them (administered by the provider). Either way, your Australian employees have the same rights and your business has the same exposure if those obligations are not met.
Payday Superannuation — mandatory from 1 July 2026
From 1 July 2026, superannuation contributions must be received by each employee's super fund within 7 business days of every payday — not quarterly as previously required. Under an EOR, the provider manages this through its own super clearing house integration. Under payroll outsourcing, your provider manages this on your behalf, but the SGC liability for late payment rests with your entity.
Annual Wage Review — effective from 1 July 2026
The Fair Work Commission lifted Modern Award minimum rates 4.75% and the National Minimum Wage 5.97% from the first full pay period on or after 1 July 2026. Under EOR, the provider applies updated award rates automatically. Under payroll outsourcing, the provider loads updated rates into your payroll configuration and you approve the changes.
Right to Disconnect — ongoing from August 2024
Employees under EOR and employees under your own entity have identical Right to Disconnect entitlements. The obligation to manage offshore contact outside contracted hours sits with the directing company — meaning you, regardless of model. Your offshore managers need to be briefed regardless of whether your Australian staff are employed by an EOR or by your own entity.
Single Touch Payroll Phase 2 — current requirement
STP Phase 2 reporting is mandatory for all employers with Australian employees, regardless of company size or country of incorporation. Under EOR, the provider lodges reports under its own ABN at every pay run. Under payroll outsourcing, the provider lodges reports under your entity's ABN. Both models comply with STP requirements — but under payroll outsourcing, your entity's ABN is the one registered with the ATO for withholding purposes.
State payroll tax — applies above state thresholds
State payroll tax is one of the most overlooked obligations for foreign companies hiring in Australia. Each state and territory has its own threshold and rate. For a company with employees in Sydney, Melbourne and Brisbane, that means three separate state revenue office registrations, three different thresholds and three different returns. Under EOR, the provider manages this under its own registrations. Under payroll outsourcing, your entity is responsible for registration and lodgement in each relevant state.
Most foreign companies use EOR as a first step and transition to payroll outsourcing once their Australian Pty Ltd is established and the market is validated. Managing this transition correctly avoids compliance gaps and employee disruption.
The transition process — in order:
Step 1: Register the Pty Ltd before terminating the EOR Do not give notice on the EOR arrangement until your Pty Ltd is fully operational — ACN issued, ABN active, PAYG withholding registered, super clearing house connected, STP Phase 2 payroll software configured. The entity setup takes 8 to 16 weeks for a foreign company (Director ID for overseas directors takes 28 to 56 days). Start the entity process 3 to 4 months before you intend to transition.
Step 2: Issue new employment contracts under the Pty Ltd Employees transferring from EOR to your own entity must receive new employment contracts. Critically, the new contracts must recognise the employee's continuous service from their original start date — not from the transfer date. Annual leave balances, sick leave accruals and long service leave entitlements all carry over. The EOR should provide a formal statement of entitlement balances for each transferring employee.
Step 3: Set up payroll infrastructure before the transfer date Configure your STP Phase 2 compliant payroll software with:
Step 4: Coordinate the final EOR pay run and first entity pay run The EOR should run final payroll up to and including the transfer date. Your first payroll run under the new entity covers from the day after the transfer date. Ensure there is no gap — no employee should miss a pay cycle during the transition.
Step 5: Notify the ATO Register your new entity for PAYG withholding if not already done, and ensure STP reporting switches to your entity's ABN from the first pay run. The ATO does not automatically know about the entity change — you must register and begin reporting under your new entity.
Step 6: Workers' compensation insurance Workers' compensation is state-based and required before your first employee is on your entity's payroll. Register in every state where your employees are based before the transition date.
|
Your situation |
Right model |
|---|---|
|
No Australian Pty Ltd or ARBN |
EOR — only option |
|
Have a Pty Ltd, team of 5+ |
Payroll outsourcing |
|
Have a Pty Ltd, team of 1–4 |
Payroll outsourcing or EOR both viable — cost comparison |
|
Need first hire operational in < 4 weeks |
EOR |
|
Need to sponsor 482 visas |
Pty Ltd + payroll outsourcing (EOR cannot sponsor) |
|
Need to access R&D Tax Incentive |
Pty Ltd + payroll outsourcing (EOR not eligible) |
|
Testing Australia before committing |
EOR |
|
Long-term committed market presence |
Pty Ltd + payroll outsourcing |
|
ARBN registered (registered foreign company) |
Payroll outsourcing available |
|
Budget priority: minimise fixed overhead |
EOR (no entity maintenance costs) |
|
Budget priority: minimise per-employee cost at scale |
Payroll outsourcing (lower per-head fee) |
The headcount cost crossover:
At 5 employees paying AUD $750/month EOR fees each, your annual EOR cost is AUD $45,000. Your annual payroll outsourcing cost at AUD $200/month per employee is AUD $12,000. Your annual entity maintenance overhead (resident director, accounting, ASIC) is approximately AUD $12,000–18,000. Combined payroll outsourcing + entity cost: AUD $24,000–30,000 vs AUD $45,000 EOR. Entity wins at 5 employees.
At 2 employees, EOR is AUD $18,000. Payroll outsourcing + entity is AUD $16,800–22,800. Entity barely wins or is comparable — but only if you already have the entity. If you are building the entity from scratch, add AUD $11,000–20,000 first-year setup cost. EOR is cheaper for the first year with a small team.
Expandys provides both models as part of an integrated Australian market entry service. The difference from standalone EOR or payroll platforms is context: we understand why you are hiring in Australia, not just how to administer the payroll.
If you need EOR (no Australian entity yet):
If you need payroll outsourcing (Pty Ltd or ARBN already in place):
Most companies using Expandys EOR are operational — employment contracts signed and first payroll processed — within 2 weeks of engagement. Most Pty Ltd payroll setups are live within 4 to 6 weeks of entity registration.
Download our Australian HR Compliance Checklist 2026 → A free PDF covering EOR vs entity requirements, payroll setup steps, Payday Super obligations and every compliance deadline from July 2026.
No. Payroll outsourcing in Australia requires your company to be the legal employer of the people being paid — and to be the legal employer, you need a registered Australian entity: either a Pty Ltd (with an ACN from ASIC) or a registered foreign company (with an ARBN). Without one of these, you have no ABN, no PAYG withholding registration and no capacity to legally employ Australian staff. If you have no Australian entity, an Employer of Record is the only compliant path to hiring in Australia.
Legal employer status is the defining difference. With an EOR, the provider is the legal employer — it signs the employment contracts, holds the ABN, runs STP reporting and carries Fair Work Act obligations through its own registered Australian entity. With payroll outsourcing, your company is the legal employer — the provider administers payroll on your behalf but you carry all statutory employment obligations. EOR removes the entity requirement; payroll outsourcing assumes it already exists.
EOR fees in Australia typically run AUD $600 to $900 per employee per month, depending on the provider and service level. At the midpoint of this range, a single employee costs approximately AUD $9,000 per year in EOR fees before their salary and superannuation. The fee reflects the full-service nature of EOR: a registered Australian entity, legal employer status, employment-risk transfer, and all compliance administration including Payday Super, STP Phase 2 reporting and Modern Award management. Payroll outsourcing, by contrast, typically costs AUD $100 to $300 per employee per month — significantly cheaper, but requiring your own entity to be in place.
An ARBN (Australian Registered Body Number) is the identifier issued by ASIC when a foreign company registers directly in Australia under Part 5B.2 of the Corporations Act 2001. A registered foreign company with an ARBN can legally employ Australian staff and use payroll outsourcing — it is a valid alternative to a Pty Ltd for this purpose. However, ARBN registration requires a local agent answerable to ASIC, ongoing financial statement lodgement obligations, and maintenance of a registered office in Australia. For most foreign SMEs, a Pty Ltd provides limited liability separation and is generally the more practical structure. Both qualify you to use payroll outsourcing rather than EOR.
EOR is the faster option by a significant margin. An established EOR provider can have your first Australian employee on payroll within 1 to 2 weeks of engagement — no entity registration, no Director ID, no bank account required. Payroll outsourcing requires your Australian entity to be fully operational first: for a Pty Ltd, that means ASIC registration (1–3 days once Director ID is obtained), ABN and TFN (up to 28 days each for foreign-owned companies), PAYG withholding registration, super clearing house integration, STP Phase 2 payroll software setup, and workers' compensation registration. The realistic timeline from decision to first hire through a new Pty Ltd is 8 to 16 weeks for a foreign company. EOR is the right answer when speed is a constraint.
The transition typically makes sense when one or more of the following apply: your Australian team reaches 5 or more employees on a sustained basis (where the entity's fixed overhead is offset by the per-head cost saving over EOR fees); you need to sign Australian commercial contracts, leases or licences in your own name; you want to sponsor employees on Subclass 482 visas (only a registered entity can apply to become an approved sponsor); you want to access the Australian R&D Tax Incentive (43.5% refundable tax offset, only available to incorporated Australian entities); or you are committed to Australia as a long-term market. The transition should be managed as a coordinated project, ensuring the entity is fully operational before the EOR is terminated.