A number of awards contain allowances that can be added to an employee’s hourly rate, which are paid for all purposes (such as calculating leave, penalties, pro rated payments on termination and overtime). These are commonly found under the “All-purpose allowances” section of your relevant award.
An example of this is the Industry Allowance within the Electrical, Electronic and Communications Contracting Award 2020 (MA000025):
18.3 All-purpose allowances
(a) Industry allowance
[18.3(a) varied by PR729280 ppc 01Jul21]
An all-purpose allowance of $33.28 per week will be paid as compensation for the following disabilities associated with on-site work:
(i) climatic conditions when working in the open on all types of work;
(ii) the physical disadvantage of having to climb stairs or ladders;
(iii) the disability of dust and fumes blowing in the wind, brick dust and drippings from newly poured concrete;
(iv) sloppy and muddy conditions associated with the initial stages of on-site construction work;
(v) the disability of working on all types of scaffolding, excluding swing scaffolding; and/or
(vi) the lack of usual permanent amenities associated with factory work.
Under Single Touch Payroll Phase 2, you must report any all-purpose allowances against the relevant allowance category. Many employers have historically included this within the employee’s rate of pay, however it is important for these allowances to now be identified with the introduction of STP Phase 2 as they are treated differently from an ATO standpoint, and not being able to identify them may disadvantage your employees (such as when making a benefit claim with Services Australia).
With the disaggregation of gross wages, the STP Phase 2 reporting – Quick reference guide is useful to find out how each of your payment types should be allocated for Single Touch Payroll reporting.
Example – Electrical Worker Grade 2 Under the Electrical, Electronic and Communications Contracting Award 2020 (MA000025):
Hourly pay rate paid under Flat Rate: $18.45
|Pay Item||Rate of Pay||STP Classification|
|Flat Hourly Rate||$18.45||Gross Wages|
Correctly disaggregated for STP Phase 2:
- Industry Allowance = $27.61 per week / 38 = $0.73 per hour
- Hourly Rate = $18.45 (incl industry allowance) – $0.73 per hour = $17.72 per hour
|Pay Item||Rate of Pay||STP Classification|
|Hourly Rate||$17.72||Gross Wages|
|Industry Allowance||$0.73||Task Allowance (allowance type KN)|
Exceptions to Disaggregating Allowances
Employers must separate allowances within Single Touch Payroll Reporting, unless an exception applies. This will allow the Australian Tax Office to identify which amounts are treated differently for different purposes, such as PAYG Treatment and Super calculations.
These exceptions include:
- The allowance forms part of overtime: In this case, the allowance must be mapped to an overtime reporting category
- You are paying cashed out leave, or unused leave on termination: These payments are treated differently to regular wage payments in terms of PAYG, super and social security systems. You would then use a reporting category relevant to the type of payment you are making, such as Allowances paid on Cashed Out Leave to paid leave type C, or allowances paid on unused leave on termination to paid leave type U
What this means for employers
When disaggregating your employee’s payments, you may find that the allowances that were previously included in a flat rate may now be subject to different superannuation calculations (e.g. if a tool allowance was previously included, it may now be non-superable as it is treated as a tool reimbursement).
There may now be new PAYG withholding implications you may need to take into account, such as if the amount is over the ATO reasonable amount. Where there are different treatments now with disaggregating the gross wages, a great tool that can be used is the Withholding for Allowances table from the ATO.
At times, Modern Awards and Industrial Agreements may provide allowance names but not a clear description of the purpose of the allowance. In this case, the ATO suggests you consider the following questions:
- Is the purpose of the allowance to compensate for an expense? If so, what is the expense and why will the employee incur it?
- Is the purpose of the allowance to compensate for the employee’s work conditions or for doing specific activities? If so, which ones?
If you are unsure of how to set up your allowances to report separately within your current payroll system, we suggest getting in touch with your payroll system provider to seek further information on how this can be actioned.
For further information if you are currently paying flat rates of pay inclusive of allowances, we recommend reviewing the Single Touch Payroll Phase 2 Employer Reporting Guidelines.
About Employment Innovations
Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.