Is offshore hiring legal? Fair Work / Closing Loopholes 2026

Offshore hiring is legal in Australia and New Zealand. When talent performs all their work overseas, the Fair Work Act generally does not apply under section 35(3), and the 2024–2025 Closing Loopholes reforms did not change that. The legal risk sits in misclassification, not location. Pear Tree structures every placement so Australian and New Zealand businesses stay compliant.

Is offshore hiring legal in Australia and New Zealand?

Yes. There is no law in Australia or New Zealand that prevents a business from engaging a professional based in the Philippines or South Africa. Businesses do it every day, and 300+ Australian organisations already employ around 44,000 Filipino workers (Offshore staffing data 2024).

The question is not whether offshore hiring is legal. It is whether the relationship is set up correctly. Get the classification, contract and payment structure right and offshore hiring is straightforward. Get them wrong and you expose yourself to the same penalties as any other workplace breach.

Pear Tree is a direct offshore talent placement company that connects Australian and New Zealand businesses with vetted Filipino and South African professionals. Compliance is built into every placement, not bolted on afterwards.

Does the Fair Work Act apply to offshore workers?

The Fair Work Act generally does not apply to a worker who is engaged outside Australia to perform all their duties outside Australia. Section 35(3) of the Fair Work Act excludes from the national system any employee "engaged outside Australia and the external territories to perform duties outside Australia and the external territories" (Fair Work Act 2009).

In plain terms, a professional hired in Manila or Cape Town to work entirely from Manila or Cape Town falls outside the Australian workplace system. Local employment law in their home country governs their pay, leave and statutory entitlements instead.

One trap is worth knowing. Some courts have found that where the employment contract is formed inside Australia, an offshore worker can still argue for Fair Work coverage, because contract formation happens where the employer accepts the signed agreement (Kingston Reid 2024). This is exactly the kind of detail a compliant provider gets right, and a DIY hire can miss.

What did the Closing Loopholes laws change in 2024 and 2025?

The Fair Work Legislation Amendment (Closing Loopholes) Act made three changes that matter for anyone engaging contractors, whether onshore or offshore. It introduced a new statutory test for who is an employee, tightened the sham contracting defence, and made deliberate underpayment a criminal offence.

From 26 August 2024, a new "whole-of-relationship test" under section 15AA decides whether someone is an employee or a contractor. The Fair Work Commission now looks at the real substance, practical reality and true nature of the relationship, not just the words in the contract (Fair Work Ombudsman 2024). A label of "contractor" no longer settles the question.

From 1 January 2025, intentional wage underpayment became a criminal offence. Companies face fines up to $8.25 million or three times the underpayment, whichever is greater, and individuals face up to $1.65 million and up to 10 years' imprisonment (Fair Work Ombudsman 2025). Honest mistakes are not caught, but deliberate underpayment now carries jail time.

What is sham contracting and what are the penalties?

Sham contracting is when a business labels a worker a contractor to avoid employee entitlements, when the relationship is really employment. It is unlawful under the Fair Work Act, and the Closing Loopholes reforms made it easier to prosecute.

Before August 2024, an employer could defend a sham contracting claim if it was not "reckless" about the misclassification. That recklessness test has been replaced with a tougher "reasonableness" test. An employer must now prove it reasonably believed the worker was a genuine contractor at the time (Workforce Advisory 2024).

The maximum penalty for sham contracting is $18,780 for an individual and $93,900 for a company, per contravention (Fair Work Ombudsman 2025). Serious or systemic contraventions attract higher civil penalties again, up to $469,500 for a company (Fair Work Ombudsman 2025). The Fair Work Ombudsman investigates 12,000+ businesses for contractor misclassification each year (Fair Work Ombudsman Annual Report 2024).

How do you classify an offshore worker correctly?

Classify the worker against how the relationship actually operates, not the title on the contract. Under the section 15AA whole-of-relationship test, the factors that matter include control over how work is done, who carries the commercial risk, whether the worker can delegate, and how integrated they are into your business (Fair Work Ombudsman 2024).

There are two compliant models for offshore hiring. The first is a genuine contractor arrangement, where the offshore professional works for you directly under a contractor agreement. The second is an Employer of Record (EOR) or Contractor of Record (COR), where a compliant entity in the worker's home country formally employs or engages them on your behalf.

An EOR is a third party that legally employs the worker in their own country and handles local payroll, tax and statutory entitlements. A COR does the same for contractor engagements. Both remove the misclassification risk because a compliant local entity carries the employment relationship. Pear Tree offers EOR and COR services from $400 per month per contractor.

What about New Zealand employment law?

New Zealand law follows the same principle: a worker engaged in the Philippines or South Africa to work entirely from there is governed by their home country's law, not the Employment Relations Act 2000. New Zealand businesses hire offshore talent lawfully every day.

New Zealand courts are tightening the contractor versus employee tests, and increasingly scrutinise arrangements where a "contractor" looks like an employee in practice (NZ Employment Court / MBIE 2025). The safeguard is the same on both sides of the Tasman: classify honestly, contract properly, and use an EOR or COR where the relationship is closer to employment. Pear Tree is the only major offshore provider with genuine presence in both Australia and New Zealand, with offices in Sydney and Auckland alongside Cebu, Manila, Cape Town and Hawke's Bay.

The bottom line

Offshore hiring is legal in Australia and New Zealand, and the Closing Loopholes reforms did not change that. What they changed is the cost of getting classification wrong, with criminal penalties now attached to deliberate underpayment. Hire through a partner that structures each placement correctly, and offshore hiring stays firmly on the right side of the law.

AUTHOR BIO: Frank Kight is Co-Founder of Pear Tree, a direct offshore talent placement company helping Australian and New Zealand businesses hire world-class Filipino and South African professionals, with deep expertise in offshore talent sourcing, compliance and operations across the Philippines and South Africa. With offices in Sydney, Auckland, Cebu, Manila, Cape Town and Hawke's Bay, Pear Tree has placed talent with 750+ companies and maintains a 90% retention rate.