Pay Batches (Payroll AU)

Pay batches group together the earnings of payees, who belong to a pay group, and allow the earnings to be processed and paid.

A separate pay batch must be processed to pay each pay group to which payees belong for each pay period. Multiple pay batches can be processed for any given pay group for any given pay period. This may be necessary where there are late timesheets or timesheets have been adjusted after being processed in a prior pay batch.  

Creating and processing a pay batch is a multi-stage process as summarised in the diagram below.

To create a pay batch you must do the following:

• select the pay group to be paid

• select the type of batch to be created

• specify the payment date.

The pay group determines which group of payees are to be paid as a result of processing the pay batch.

The batch type determines if the pay batch will be created to process payees’ pay for the current period or to process adjustments to payees’ pay for prior, closed periods. For more information, see Normal Pay Batches and Adjustment Pay Batches below.

The payment date specifies the date that payees are expected to receive the earnings paid within the pay batch and this date appears as the payment date on payee's payslips. The payment date also determines which of the following are applied in the pay batch based on a comparison with the validity periods of the respective records:

• PAYG tax rates

• superannuation guarantee eligibility rule

• superannuation guarantee accrual rate

• payroll tax rate

• WorkCover rates.

By default, payees who belong to the selected pay group will be included in a pay batch regardless of whether they have any timesheets for the pay period of the pay batch. This allows you, for example, to pay those payees by adding manual pay items in the batch for those payees, adjust the balance of their leave accruals, pay out their leave entitlements or terminate their employment. However, you can set an option when creating a new pay batch to specify that the pay batch is to include only those payees who have timesheets for the corresponding pay period. This will exclude payees from the pay batch if they do not have at least one timesheet that belongs to the pay period of the pay batch.

Normal Pay Batches

A normal pay batch allows payees’ pay to be processed based on timesheets, manual pay items and leave items that belong to the current (open) pay period. For example, a timesheet is included in a normal pay batch if the end date of the timesheet falls within the date range of the open pay period for the pay group. Similarly, a manual pay item or leave item will be included in a normal pay batch if the item date falls within the date range of the open pay period for the pay group.

Earnings paid to a payee as a result of processing a normal pay batch contribute to the payee’s total earnings for the current pay period.

Adjustment Pay Batches

An adjustment pay batch allows payees’ pay for a prior pay period to be adjusted in the event that their timesheets for the pay period have been adjusted since that pay period was closed. The closed pay period to which adjusted timesheets belong is known as the adjustment period. An adjustment pay batch will also include any late timesheets that belong to the adjustment period (i.e. where the timesheet end date falls within the date range of the closed pay period).

Any positive or negative adjustment to the earnings of a payee as a result of processing an adjustment batch are factored into that payee's earnings in the current (open) pay period.

Adjustment Pay Batches & Lump Sum E Payments

Back payments can be made by adding manual pay items to payee's pay details in adjustment batches. If the adjustment period of the adjustment batch is more than 12 months prior to the payment date of the batch the back payment may be classed as a Lump Sum E payment. A back payment will be treated as a Lump Sum E payment if all of the following conditions apply:

• the pay item date of the back payment is more than 12 months prior to the payment date of the adjustment batch and therefore the adjustment period falls into a prior tax year

• the back payment is not for a reimbursement

• the payment amount is over the applicable Lump Sum E threshold for the current tax year.

A payment will also be classed as a Lump Sum E payment if it is a workers’ compensation payment (paid against a pay code that has the Workers Comp/Other Payments flag turned on) and the pay item date falls into a prior tax period, regardless of whether the item date is more than 12 months prior to the payment date. 

Any such payments made to a payee with a payee type of Individual Non Business will be reported in the Lump Sum E field on a payee's payment summary. If the back payment is an allowance, the back payment will be included in the amount shown in the Lump Sum E field and not in the allowances section of the payment summary, as is the requirement as specified by the ATO.

If a payee has a payee type of Labour Hire, any Lump Sum E payments received by the payee will be reported in the Gross Payments or Gross Attributed Income field on their payment summary.

Taxing of Earnings in Adjustment Pay Batches for Periods in a Prior Financial Year

Adjustments to prior, closed pay periods are considered by the ATO to be back payments. The ATO requires back payments for a prior financial year to be taxed in accordance with Method B (ii).

Due to the nature of the Method B (ii) calculation, which relies on averaging the payee's earnings for the current financial year, if the payee's year-to-date (YTD) earnings are very low the amount withheld from the back payment might be very small, even if the back payment amount is considerable.

The Method B (ii) tax calculation method is designed to apply ‘tax smoothing’ so that a large amount of tax is not withheld from a payee's earnings in a single pay period due to receiving a back payment.

However, because a back payment will contribute to a payee’s gross earnings for the financial year in which it is paid, if there is little tax withheld from the back payment due to the payee having no or very little YTD earnings at the time of the payment, the payee could be required to pay additional tax once they submit their tax return after the end of the financial year. This is unavoidable due to the way that the ATO requires tax to be calculated on back payments.

Balancing Payments

Adjustment pay batches can also be used to process balancing payments. Balancing payments are processed to balance out payroll-related data in the system without effecting the payment of payees.

For example, if a payee has been overpaid their pay in the next pay batch can be negatively adjusted to account for the overpayment. However, if the payee repays the overpaid amount prior to receiving their next pay, the system needs to balance out the overpayment without adjusting the payee’s next pay. In such circumstances, a balancing payment can be processed to adjust the payee’s pay data and related accruals and deductions, without actually paying the payee.

To process balancing payments, the following needs to be done:

• the relevant timesheets must be adjusted to correct any overpayment or underpayment

• an adjustment pay batch must be created with the Balancing Payments option enabled

• the relevant payees/timesheets must be included in the adjustment pay batch and the pay batch must be processed.

The following applies to any payee who is included in a balancing payments adjustment batch:

• for reporting purposes, the payee’s payment method for the pay batch is recorded as Balancing Payment

• if the payee’s default payment method is EFT, the payee’s pay data for the pay batch will not be written to an EFT file and therefore no funds will be transferred into the payee’s bank account.

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