Payroll Australia - Frequently Asked Questions

According to the requirements of the Australian Taxation Office (ATO), the following types of withholding provisions exists for payees who are required to have tax withheld from their earnings:

• Individual Non-business

• Labour Hire.

The Individual Non-business withholding provision applies to payees who are not sole traders or company (incorporated) contractors. The Labour Hire provision applies to payees who are sole traders with their own personal Australian Business Number (ABN).

When creating a new payee it is important that the payee is classified under the correct withholding provision based on the terms and conditions of their employment contract. Therefore, it is recommended that you refer to a payee's employment contract to determine the correct withholding provision that applies to a payee.

Payees who are classified under Individual Non-Business will see an Individual Non-business income statement in MyGov. If you choose to issue payment summaries, such payees will be issued an Individual Non-business payment summary.

Payees who are classified under Labour Hire will see a Business and Personal Services income statement in MyGov and their earnings will be classified as sole trader earnings. If you choose to issue payment summaries, such payees will be issued a Business and Personal Service Income payment summary.

An Allow Negative Contribution Amounts field is available on Superannuation Fund records to determine if a superannuation fund accepts remittance of superannuation contributions where payees’ net contribution amounts for a contribution period are a negative value.

Unless the Allow Negative Contribution Amounts field is enabled for a Superannuation Fund, any payees who have a negative net contribution amount for a contribution period will be omitted from the SuperStream contribution file that is generated as a result of the SuperStream batch process.

However, even if the Allow Negative Contribution Amounts field is not enabled, a payee will be included in the SuperStream contribution file even if the payee has a partially negative contribution amount. That is, the payee may have a negative accrual for one or more contribution types while their total accrued contribution amount for the contribution period may still be a positive value.

For example, if a payee has a -$50.00 adjustment to their salary sacrifice superannuation contributions but the payee also has a +$250.00 superannuation guarantee accrual for the same contribution period, the payee will have a positive contribution total of +$200.00 for the contribution period. In this case, the payee would be included in the contribution file because there is a positive net contribution value that can be remitted and paid. This facilitates the requirements of superannuation funds that accept remittance and payment of partially negative contributions under the SuperStream standard.

However, if a SuperStream service provider or superannuation fund does not support any negative values in the SuperStream contribution files, regardless of whether payees’ net contribution amounts sum to a positive value, the following work around is required to exclude payees with partially negative contribution amounts from the SuperStream contribution file that is sent to the service provider or fund:

1. At the Payment Information stage of the SuperStream batch process, download the batch summary report and use the report to identify any payees in the batch who have partially negative contribution amounts.

2. If payment is being made directly to a fund, at the Payment Information stage of the SuperStream batch process, adjust the total payment amount for the relevant fund or funds such that payment amount excludes the contributions of the payees who have partially negative contribution amounts. This should be done before you make the payments via the banking system so that you do not overpay the contributions.

3. Once you close the SuperStream batch and the SuperStream contribution file is available to be downloaded, download the file and delete the affected payees from the file. That is, remove each row in the file that corresponds to a payee with a partially negative contribution amount from the file prior to sending the file to the SuperStream service provider or fund.

The ATO requires that payments made to payees are taxed according to the tax rates that are valid on the date of payment. This applies even if the payment is an adjustment to a prior period. Therefore, the tax rates that are applied when processing a pay batch, regardless of whether the pay batch is a normal or adjustment pay batch, are the rates that are valid on the payment date of the pay batch.

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.

More information about back payments and Method B (ii) can be found on the ATO website at: Schedule 5 – Tax table for back payments, commissions, bonuses and similar payments | Australian Taxation Office (ato.gov.au)