How does salary work in Australia? What should be included in a pay slip? In this article, we will explain everything you need to know about salary for your employees.
How is payroll calculated in Australia?
Employees are required to receive payment at a minimum on a monthly basis, and the compensation can be delivered through various methods, including:
- Cash
- Cheques, money orders, or postal orders made out to the employee
- Electronic funds transfer (such as EFT or bank transfer).
The specific frequency of payment, whether weekly, fortnightly, or monthly, is typically outlined in awards, enterprise agreements, or registered agreements. In cases where the payment frequency is not explicitly stated, employees are still entitled to receive payments at least on a monthly basis.
You must pay employees money for their work; paying them in non-monetary forms, like goods (e.g., food), is not allowed.
Payroll options for companies
Employers in Australia have several payroll processing options. These are some of the options:
- Engage an Australian payroll processing company, where the employer retains the status of the employer of record, bearing the responsibility for compliance and taxation matters.
- Large companies may choose to handle payroll in-house, necessitating the setup of a subsidiary, business registration, and the hiring of a dedicated payroll team. This approach demands a comprehensive understanding of tax regulations, withholding, and other payroll-related requirements.
Gross and net salary
We often discuss salary in terms of gross and net. Let’s say you have an annual salary of 70 000 Australian dollars. This salary is gross, meaning it’s the income before taxes. Net refers to the actual amount someone receives.
Gross signifies a value before any deductions, and gross salary is the amount someone earns before taxes and other deductions are subtracted. Annual and hourly wages specified in the employment contract are gross.
Net is the value after deductions. Net salary is what the employee receives in their account after the employer has deducted tax and any other deductions.
Income tax
When you pay your employees, some contractors, or other businesses, you have to set aside a portion of the payment and send it to the Australian Taxation Office (ATO). This is known as PAYG withholding, and It’s done to make sure that workers don’t end up owing a lot of tax at the end of the financial year.
If you have to withhold out money from payments to your employees, contractors, or other businesses, you should:
- Enroll for PAYG withholding before it becomes mandatory to deduct from a payment.
- Submit the amounts deducted from wages and other payments to the ATO.
- Record the deducted amounts on your activity statements.
- Furnish PAYG withholding payment summaries to all employees and other payees.
- File a PAYG withholding annual report.
What should be included in a payslip?
Pay slips play a crucial role in ensuring that employees receive accurate compensation and entitlements, while also aiding employers in maintaining precise and complete records.
A payslip should include:
- Names of the employer and employee
- Employer’s Australian Business Number (if applicable)
- Pay period and date of payment
- Gross and net pay
- For hourly rates:
- Ordinary hourly rate
- Hours worked at that rate
- Total pay at that rate
- Additional details like loadings, allowances, bonuses, or penalties
- Last day pay rate
- Deductions with amount and details
- Superannuation contributions with amount and fund details.
Collecting Tax File Number
A Tax File Number (TFN) is a special number made by the Australian Taxation Office (ATO) for individuals. It’s a personal code for taxes and superannuation. This number is really important and employees will use it throughout their lives.
Only certain organizations, agencies and individuals that can get the Tax File Number. If you are unsure if you can collect Tax File Numbers, you can confirm it with the Australian Taxation Office.
When you request a Tax File Number, you are obligated to provide the following information:
- State why you are collecting it, and specify the relevant laws that make you gather the Tax File Information.
- Clearly stating that it’s not offensive if the employee doesn’t want to provide you with their Tax File Information.
- Say something about what will happen if they do not want to provide the Tax File Numbers.
This information must be included in any form soliciting your company’s Tax File Number. The justification for the collection of the TFN can be general, as long as it communicates the legal permissions governing its use.
Annual leave
Annual leave, often referred to as holiday pay, enables an employee to receive compensation while taking time away from work. You must pay at least the base rate of pay while employees are on annual leave. This includes extra salary such as allowances, penalties and overtime. A full-time employee is entitled to accumulate 4 weeks of paid annual leave annually, while part-time employees will accrue leave on a pro rata basis. There is no limit on the amount of leave an employee can accumulate each year. Unutilized leave from one year will carry forward to the next. All employees, excluding casual employees, accrue annual leave.
Annual leave can be accessed at any time by agreement between you as an employer and the employee. If an employee chooses to take annual leave during a pay period, the payslip should indicate both the taken leave and any applicable loading.
Age pension
Superannuation, commonly known as super, constitutes Australia’s retirement savings framework. When an individual is employed in Australia, you as an employer are obligated to contribute a percentage of the employee’s salary to their superannuation fund. Typically, this contribution amounts to 11% of the worker’s salary and is in addition to their regular wages.
If you’re mandated to contribute to your employees’ super, you are obligated to make super contributions to their designated super fund by the specified deadlines:
- 1 july to 30th september, due date 28 october
- 1 october to 31 december, due date 28 january
- 1 january to 31 march, due date 27 april
- 1 april to 30 june, due date 28 july
Important dates
Sole traders:
- 31 october: Declare your business income for individual tax return
Partnership:
- 31 october: Report your portion of the partnership income in personal tax return. Additionally, the partnership as a whole must file a separate partnership return.
Companies:
Report all earnings, including salaries, wages, director’s fees, and dividends, on individual tax return. Companies are obligated to file a separate company tax return.
- 31 october: Individual tax return due
- 28 february: Company tax return due
Trust:
31th october: Include any trust distribution you receive when filing your individual tax return. Furthermore, the trust itself is required to submit a separate trust return.
