Payroll - Allowances

An allowance might be paid to an employee as par of an award, agreement, contract or other employment condition.
There are two types of allowance as below:

• Reimbursements: a precise amount that reimburses an expense, verifiable by receipts. It is not a reward for services by the employer and is incurred by the employee on behalf of the employer. The payee is not taxed on the reimbursement as it is not assessable income and is excluded salary or wages for superannuation guarantee purposes. It is not reported to the ATO as assessable income – via payment summaries or single touch payroll.
• Allowances: separately itemised for the reporting purpose, the following is a list of allowance categories:
• CD (Cents per Kilometre)
• AD (Award Transport Payments)
• LD (Laundry)
• MD (Overtime Meal Allowances)
• RD (Domestic or Overseas Travel Allowances and Overseas Accommodation)
• TD (Tool Allowances)
• KN (Tasks)
• QN (Qualifications/Certificates)
• OD (Other Allowances) - defined as below:
• GENERAL
• HOME OFFICE
• NON-DEDUCTIBLE
• PRIVATE VEHICLE
• TRANSPORT/FARES
• UNIFORM

Refer to the following ATO link to determine if the allowance is taxable (pre-tax) and/or if Superannuation Guarantee applies
Withholding for allowances

Setting up Allowance

An allowance might be paid on every pay run for an employee, to ensure the required allowance is included on every pay, you need to setup the required allowance item under the employee's payroll details.
This guide will show you how to setup allowances for an employee:

1. Access the employee's details
2. Click Payroll Details tab
3. Click the Add button to add new allowance row
4. Select the allowance type

When selecting a reimbursements allowance type, the Pre-Tax and Super options are automatically locked.

5. Enter the allowance description (optional) if required

The optional description is used when printing an employee's pay slip, if the allowance type is "Other Allowances", the entered description will be used when reporting to the ATO. If no description is added, the default allowance will be used when printing a pay slip and reporting to the ATO.

6. For Fixed amounts, make sure to check the Fixed checkbox and enter the allowance fixed amounts
7. For non-fixed amounts enter the Hours/Kms and Rate
8. Pre-Tax select Yes if the allowance is taxable "added to gross before tax" and a PAYG tax must be withheld
9. Super select Yes if the superannuation guarantee applies to this allowance

Paying the Allowance

Allowance can be set at the time of processing the employee's pay, each allowance can be added as (hours, kilometres, or fixed amounts).
This guide will show you how to process an allowance when generating a pay run:

1. Access the employee's pay run
2. Click the Add button to add new allowance row
3. Select the allowance type

When selecting a reimbursements allowance type, the Pre-Tax and Super options are automatically locked.

4. Enter the allowance description (optional) if required

The optional description are used when printing an employee's pay slip, if the allowance type is "Other Allowances", the entered description will be used when reporting to the ATO. If no description is added, the default allowance will be used when printing a pay slip and reporting to the ATO.

5. For Fixed amounts, make sure to check the Fixed checkbox and enter the allowance fixed amounts
6. For non-fixed amounts enter the Hours/Kms and Rate
7. Pre-Tax select Yes if this allowance is taxable "added to gross before tax" and a PAYG tax must be withheld
8. Super select Yes if the superannuation guarantee applies to this allowance

Reporting the Allowance

Any allowance added in the allowance section are automatically configured when reporting to the ATO or generating a payment summary. Reimbursements are excluded and will not be reported to the ATO or when printing a payment summary, Reimbursements will only appear when printing a payment slip.

Allowances are deducted from the Gross Total and will be reported separately as per the ATO allowance categorisation.

Example

An employee receives an allowance for each kilometre of authorised travel(1200km), the company pays a rate in excess of the ATO reasonable amount and up to the limit of 5000 business KM, ATO approved rate for the 2021 financial year is 0.72 per km, the company pays the employee at 0.82 per km.
As the employee gets paid in excess of the approved rate, the excess amount must be set as pre-tax allowance while the amount up to the approved rate is set as post-tax allowance as below:

• Access the employee's pay run
• In the allowance section, select Cents per Kilometre
• Uncheck the Fixed column checkbox
• Enter 1200 for the Hrs/Km and 0.72 for the rate column
• Make sure to clear the Pre-Tax checkbox, as this allowance is up to the ATO limit
• Now it is time to record the second part (pre-tax) amount of this allowance
• In the allowance section, select Cents per Kilometre
• Enter a description for this allowance if needed to appear on the employee's pay slip
• Make sure to check the Fixed column checkbox
• Enter 120 under the Amount column, (0.82 - 0.72 = 0.1 * 1200 = 120)
• Make sure to check the Pre-Tax checkbox, as this allowance is an excess of the ATO limit