As mentioned earlier, bonuses are typically additional payments given to employees at the discretion of the employer, acknowledging their performance over a period of time. Bonuses are an excellent way to show appreciation to staff and can assist with both providing motivation for the next year and retaining valuable staff. The remittance of bonuses can also often be a point of difference between yourself and competing businesses.
When deciding to provide a bonus however, employers must consider other factors such as PAYG Withholding, Superannuation Guarantee, and associated on-costs.
Similar to other payments to employees, PAYG Withholding is required for bonuses and can be calculated using two methods: Method 'A,' a more straightforward approach, and Method 'B,' a more complex but precise calculation. Accounting software can assist in this calculation, ensuring accurate withholding.
More information on these 2 methods (including calculation methodology) can be found on the ATO website here.
Bonuses, which are categorized as 'ordinary times earnings,' are subject to Superannuation Guarantee at the rate of 11.0% for the 2024 financial year. (Note: There is a special caveat where a bonus in respect of overtime only is not considered ordinary times earnings, and superannuation guarantee is not applicable to the payment.)
Considering on-costs like workers' compensation insurance and payroll tax, employers should note that bonus payments contribute to overall 'wage' figures for assessing annual premiums.
Leave loading refers to an additional payment employees may receive during the pay period that they take annual leave. Calculated at around 17.5% of an employee's base rate of pay, eligibility and rates are determined by awards, agreements, or contracts.
Similar to bonuses, leave loading is considered 'ordinary times earnings,' subject to Superannuation Guarantee. Further, leave loading contributes to the overall ‘wage’ figures for the purposes of assessing the annual premium/liability for workers compensation insurance and payroll tax. (Note: There is a special caveat where annual leave loading that is clearly linked to a lost opportunity to work overtime is not considered ordinary times earnings, and superannuation guarantee is not applicable to the payment.)
In most cases, Superannuation Guarantee applies to bonuses and leave loading. However, if an employer plans to make additional superannuation contributions beyond the required amount, it falls under 'reportable super.' This isn't treated as assessable income for the employee, and employers can claim a deduction.
It's important to note that superannuation payments, whether Superannuation Guarantee or reportable super, contribute to overall 'wage' figures for workers' compensation insurance and payroll tax assessments.
While bonuses are an excellent way to recognize and retain valuable staff, careful consideration is needed for associated factors like PAYG withholding, superannuation guarantee, and on-costs. Similarly, annual leave loading should not be overlooked, as it can constitute a significant cost based on the number of employees and their accrued annual leave.
If you aren’t sure about the employee payment requirements above a chat with our team at BLG Business Advisers will clear everything up. We’ll ensure you have all the necessary information specific to your circumstances to guide you in the right direction. Our team are Wollongong Accountants who service right across Australia and there are many opportunities beyond what’s above to explore, so take some time to talk with us today.
Happy holidays!