How to Pay Contractors in Australia: Complete 2025 Guide

Why This Guide Is Different

Paying Australian contractors has unique requirements: ABN verification, GST considerations, superannuation exemptions, and ATO compliance. This guide covers everything you need to know whether you're an Australian business paying Australian contractors, or an international business paying contractors in Australia.

Most guides focus on US or UK tax rules. This guide is specifically for businesses working with Australian independent contractors and self-employed professionals.

Payment Methods Compared

Recommended: PayID for Australia, Wise for International

If you're an Australian business paying Australian contractors: Use PayID through your Australian bank. It's free, near-instant (usually under 60 seconds), and contractors receive AUD directly in their Australian bank account. Most Australian banks support PayID.

If you're an international business paying Australian contractors: Use Wise. You'll get mid-market exchange rates (3-4% better than PayPal or banks) and low fixed fees ($5-10 AUD per transfer). Contractors receive AUD in 1-2 days.

How to set up Wise payments to Australian contractors:

1. Create a Wise business account (free)
2. Get contractor's Australian bank details (BSB and account number)
3. Send AUD to their Australian bank account
4. Wise converts at mid-market rate if you're paying from USD, EUR, GBP, etc.
5. Contractor receives AUD in 1-2 business days

Understanding ABN (Australian Business Number)

The ABN is the most important requirement when paying Australian contractors. Without an ABN, you must withhold 47% tax from payments—a massive compliance burden.

What is an ABN?

An Australian Business Number (ABN) is an 11-digit identifier for businesses and sole traders. Contractors should have an ABN to operate legally in Australia.

Why ABN matters for payments:

• With ABN: Pay contractor full amount (no withholding)
• Without ABN: Must withhold 47% tax and remit to ATO
• Verification: Always verify ABN on ABN Lookup (abr.business.gov.au)
• Record keeping: Keep ABN details for 5 years

How to verify ABN:

1. Request ABN from contractor
2. Visit ABN Lookup (abr.business.gov.au)
3. Enter the ABN to verify it's active and matches contractor's name
4. Check if they're registered for GST (important for invoicing)
5. Keep screenshot or record of verification

GST (Goods and Services Tax)

Australian contractors must register for GST if their turnover exceeds $75,000 AUD annually. Once registered, they charge 10% GST on their invoices.

How GST works:

• Contractor charges 10% GST on invoices (if registered)
• You pay the GST amount to them
• They remit GST to ATO quarterly
• If you're GST-registered, you can claim input tax credits (ITC)
• If you're not registered, it's an additional 10% cost

Example invoice with GST:

You pay $1,100 AUD to the contractor. If you're GST-registered, you claim $100 AUD back as an input tax credit on your BAS (Business Activity Statement).

Superannuation (Super) for Contractors

One of the biggest questions: Do you need to pay superannuation for contractors? Generally, no—but there are exceptions.

When super is NOT required (true contractors):

• Contractor provides a quote or tender for the work
• Contractor is paid for results, not time
• Contractor uses their own tools and equipment
• Contractor controls how the work is done
• Contractor can delegate or subcontract the work
• Contractor works for multiple clients

When super MAY be required:

• Contractor is paid mainly for their labor (not results)
• You provide tools, equipment, or workspace
• You direct how, when, and where work is done
• Contractor works exclusively for you
• Arrangement looks like employment

Current super rate: 11.5% of ordinary time earnings (as of July 2024, increasing to 12% by July 2025)

Pro tip: If unsure, use ATO's Employee/Contractor Decision Tool or consult with an accountant. Getting this wrong can result in back payments and penalties.

Tax and Compliance Requirements

What You Need from Australian Contractors

Before paying any Australian contractor, collect:

• ABN: Australian Business Number (verify on ABN Lookup)
• Invoices: Proper tax invoices for all work completed
• GST status: Whether they're registered for GST (shown on ABN Lookup)
• Bank details: BSB and account number for direct transfers
• TFN declaration (if required): Only if you determine super is payable

What You Need to Keep

ATO requires you to keep records for 5 years. You should maintain:

• All contractor invoices
• ABN verification records
• Proof of payment (bank statements, Wise receipts, PayID confirmations)
• Contracts or statements of work
• GST documentation (if claiming ITCs)
• Superannuation payment records (if applicable)

Pro tip: Kontrable automatically stores all invoices, contracts, ABN records, and payment confirmations in one place, making ATO audits stress-free.

Common Mistakes (And How to Avoid Them)

Mistake 1: Paying Without Verifying ABN

Problem: You pay a contractor without verifying their ABN. Later, ATO audits and determines the ABN was invalid. You're liable for the 47% withholding tax you should have deducted.

Solution: Always verify ABN on ABN Lookup before first payment. Keep screenshot of verification. Kontrable automatically prompts for ABN verification during contractor onboarding.

Mistake 2: Not Claiming GST Input Tax Credits

Problem: You're GST-registered but don't claim input tax credits on contractor invoices. You're paying 10% more than necessary.

Solution: Ensure contractors provide proper tax invoices with GST breakdown and their ABN. Keep all invoices organized. Claim ITCs on your BAS.

Mistake 3: Misclassifying Employees as Contractors

Problem: You treat someone as a contractor but they work exclusively for you, use your equipment, and follow your directions. ATO audits and determines they're actually an employee. You owe back super, PAYG withholding, and penalties.

Solution: Use ATO's Employee/Contractor Decision Tool. Ensure contractors control their work methods, use their own tools, and can work for other clients. Document the relationship properly.

Mistake 4: Using PayPal for Currency Conversion

Problem: You're a US business paying Australian contractors via PayPal. PayPal's exchange rate is 3-4% worse than mid-market. For a $5,000 USD payment, you lose $150-200 USD to bad exchange rates.

Solution: Use Wise for international payments. You get mid-market rates and save 3-4% on every payment. For $50,000 USD/year in contractor payments, that's $1,500-2,000 USD saved.

Tools for Australian Contractor Management

For payments:

• PayID via your Australian bank (free for Australia-to-Australia)
• Wise (best for international to Australia, $5-10 AUD per transfer)
• PayPal (convenient but higher fees)

For compliance and management:

• Xero or MYOB (accounting software, $25-60 AUD/month, not contractor-specific)
• Spreadsheets (free but error-prone and time-consuming)
• Deel or Remote.com ($65-130 AUD per contractor per month, built for EOR not contractors)

For contractor operations:

Kontrable is built specifically for managing independent contractors, including Australian contractors:

• ABN verification and storage
• Invoice management and approval workflows
• Payment tracking (works with PayID, Wise, PayPal, any payment method)
• Contract storage and e-signatures
• 5-year record retention (ATO compliant)
• Project and milestone tracking

Pricing: $99 USD/month ($150 AUD/month) for up to 25 contractors. No per-contractor fees. Early access users get 50% off for 6 months.

Frequently Asked Questions

Get Started

Managing Australian contractors?

1. Request and verify ABN on ABN Lookup
2. Set up PayID (Australia) or Wise (international)
3. Require proper tax invoices with GST breakdown if applicable
4. Keep records for 5 years
5. Assess super requirements (usually not required for true contractors)

Want to automate this?

Kontrable launches Q1 2026 with contractor management tools built for Australian compliance. ABN verification, invoice workflows, payment tracking, 5-year record retention, and contract storage. $99 USD/month for up to 25 contractors.