Australian Accounting and Bookkeeping

Section 2 Record Payroll Data

Ensure payroll system includes complete and

accurate employee data
Organisations that employ staff use some form of payroll system to manage
paying wages and salaries and keeping records mandated by legislation. In
most cases, the payroll system will be computer based, although some
organisations, particularly small businesses that might only employ one or
two staff, might still use a manual system. Manual systems rely on journals,
related to the General Ledger, to record payroll transactions.

Irrespective of the system used, computer based or manual, there are

basic requirements for a payroll system. Payroll systems should be able
to manage employee data in regards to allowances, deductions, leave
entitlements, pay periods, rates of pay, and superannuation.

When setting up a payroll system the organisation must first decide the
pay periods is going to use. The common pay periods are:
• Weekly
• Fortnightly
• Monthly
• Annual

Weekly (52 pay periods per annum), or fortnightly (26 pay periods) are
the most common. Longer periods are preferred by organisations
because it reduces the time spent processing payroll, but employees
prefer weekly pay as it is easier for them to manage their finances.

When an employee commences with an organisation they will normally

complete a Tax File Number (TFN) Declaration using form NAT
3092, provided by the Australian Taxation Office (ATO). This form is
available from the ATO and selected newsagents.

Employees need to provide a tax file number or the organisation must

withhold at the top tax rate plus the Medicare levy. If the employee
indicates they do not have a tax file number but have applied, they
must provide the TFN within 28 days.

The information provided on the completed form can be used in the

payroll system. Details such as the employee’s name and address can
be copied directly from the form so the payroll data remains consistent
with government records.

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In most cases, the employee’s date of birth is included in the payroll

system-this is particularly important when underage staff are employed.
Underage employees usually receive a percentage of the adult wage for
the job role, based on their actual age. After each birthday their wage
increases until they receive the full adult wage upon reaching maturity.

Superannuation
In Australia, anyone aged between 18 and 69, who earns more than
$450.00 in a month (before tax) and works for a minimum of 30 hours
per week, is entitled to an employer contribution of 9.5% of their gross
earnings into a complying superannuation fund (see table below for
contribution rate). This is the superannuation guarantee, legislated by
the Superannuation Guarantee Act. It must be paid irrespective of
whether employment is full-time, part-time, or casual.

Employees under 18 who meet the above conditions and work for a
minimum of 30 hours per week must also receive the superannuation
guarantee.

Most payroll systems calculate an employer’s liability under the

superannuation guarantee.

Superannuation Guarantee Contribution

Year Percentage
1992-93 3 / 4*
1993-94 3 / 5* * For the period 1993-1996
1994-95 4 / 5* there was a higher
1995-96 5 / 6* contribution rate for
1996-97 6 employers whose annual
1997-98 6 national payroll for the base
year exceeds $1,000,000,
1998-99 7
with the employer's
1999-2000 7
minimum superannuation
2000-01 8
contribution percentage the
2001-02 8
subsequent year which is
2002-13 9 outlined in the table.
2013-14 9.25
2014-21 9.5
2021-22 10
2022-23 10.5
2023-24 11
2024-25 11.5
2025-26 and subsequent years 12

Employee data
The most important employee data is the rate of pay and the tax scale.
These two items can be used to calculate the amount to pay the
employee and the withholding amount for taxation purposes.

If the employee is salaried they will be paid a base amount each period
based on the salary. A salary is a fixed annual sum paid at regular
intervals. Most professionals are employed on a salary.

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Other staff are employed on an hourly rate. If the employee works a

greater number of hours, they might be entitled to overtime. Overtime
is paid at a higher rate, typically 150% (time and a half) for the first
three hours and then 200% (double time) thereafter.

A salary is often negotiated between the employee and organisation

while wages are based on an award. An award is a series of
employment conditions established by consultation between employer
and employee groups (typically unions).

If an employee is employed on wages, their base pay is normally taken

from the award, although there is provision for varying pay and
conditions. Establishing rates of pay is covered by Fair Work legislation.

In many cases, employees are covered by a workplace agreement rather

than an award. Australian Workplace Agreements (AWA) are
individual agreements made between employers and employees in the
federal jurisdiction. Like enterprise agreements, AWAs override award
conditions (with the same exceptions as certified agreements), but they
are the only types of agreements that can reduce pay and conditions.

Taxation rates are set by ATO. Most computerised payroll systems

import taxation data into a file that is used to calculate an employee’s
tax withholding for a pay period. If a manual payroll system is used the
withholding can be looked up in a table provided by the ATO.

For example, withholding for employees paid on a weekly basis can be

calculated using form NAT 1005, Weekly Tax Table. If the employee
has indicated they have extra tax liability, such as an accumulated
Higher Education Loan Program (HELP) debt on their TFN, they will need
to have tax withheld at a different rate, prescribed by the appropriate
taxation table.

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Tax table list:

Statement of formulas
Statement of formulas for calculating amounts to be withheld NAT 1004
Statement of formulas for calculating Higher Education Loan Program NAT 3539
(HELP), Trade Support Loan (TSL) and Student Financial Supplement
Scheme (SFSS) components

Regular payments
Weekly tax table NAT 1005
Fortnightly tax table NAT 1006
Monthly tax table NAT 1007
Tax table for daily and casual workers NAT 1024

Medicare levy
Weekly tax table with no and half Medicare levy NAT 1008
Fortnightly tax table with no and half Medicare levy NAT 74228
Medicare levy adjustment weekly tax table NAT 1010
Medicare levy adjustment fortnightly tax table NAT 1011
Medicare levy adjustment monthly tax table NAT 1012

Higher Education Loan Program (HELP)

HELP/TSL weekly tax table NAT 2173
HELP/TSL fortnightly tax table NAT 2185
HELP/TSL monthly tax table NAT 2186

Student Financial Supplement Scheme (SFSS)

SFSS weekly tax table NAT 3306
SFSS fortnightly tax table NAT 3307
SFSS monthly tax table NAT 3308

Superannuation payments
Tax table for superannuation lump sums NAT 70981
Tax table for superannuation income streams NAT 70982

Some computerised payroll systems can create automatic payments to

employees. These systems need a Bank-State-Branch (BSB) and
account number. A BSB is a 6-digit number that identifies banks/ financial
institutions and branches in Australia. If this payment method is used, a
file is created at the end of the payroll process that is submitted to the
employer’s bank. The file contains the wage and salaries for the pay
period, automatically paid to the employee’s bank accounts.

Employees might also receive allowances in their pay that needs to be

added. Allowances can include meal or car allowances, depending on
their conditions of employment.

When calculating deductions and allowances, it is important to identify if they

are paid or deducted before or after tax is calculated. Computerised systems
allow for before and after tax allowances and deductions to be identified.

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Employee records
The Workplace Relations Act stipulates employers must keep the
following payroll records:
• The name of the employer and employee
• The date the employee commenced work with the employer
• Whether the employee undertakes part-time or full-time work and whether
they are engaged as a permanent, temporary or casual employee
• The rate of remuneration, including the gross and net amounts paid and
any deductions
• Any allowances, penalties, loadings, bonuses, incentive-based payments paid
• Leave taken, leave accrued, and details of leave which the employee has
elected to forego, including the rate of pay for the leave foregone, the
date of payment and a copy of the written election
• If the employer is required to make superannuation contributions for the
benefit of the employee (excluding those made to defined benefits
superannuation funds), details of the contributions including the amount
of contributions, date of payment and period the payments relate to,
name of the superannuation fund, and details in relation to choice of fund
• If a penalty rate or loading must be paid for overtime hours actually
worked-the number of overtime hours worked or when the employee
started and ceased working overtime hours
• If the worker is a casual or irregular part-time worker who is guaranteed
a basic periodic rate of pay, the hours worked by that worker
• If the employee has agreed to an averaging of hours, a copy of the
written agreement
• If an employee’s employment has been terminated:
– The name of the person who terminated the employment
– How the termination took place (was the employment terminated by
consent, by notice, summarily or in some other manner)
– The date of termination

All employers are required to keep written records in English which must
be retained for seven years, and be made available for inspection by
workplace inspectors if required. Regulations also set out special
recordkeeping requirements in relation to employees who are affected
by a transmission of business.

Records should be in a condition that allows a workplace inspector to

determine whether an employee is receiving their correct entitlements.

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Review payroll data and clarify discrepancies

with designated persons
Payroll systems use data, such as tax scales and awards, to calculate
the amount paid to each employee.

The person responsible for maintaining the payroll system should make
sure the payroll data is up-to-date. The one thing is that is likely to
upset employees is making a mistake in the payroll.

Tax withholding
Tax rates are set by the Australian Government and reviewed regularly
as part of the national budget. The ATO is mandated with the collection
of taxes. Most computerised systems use data files, provided by the
software manufacturer or vendor that calculates the amount to withhold.

Variations to taxation rates are normally well publicised with sufficient

warning before tax rates are changed for employers to be well prepared.

If a computerised payroll system is used, the maintenance contract for

the system should be carefully considered. If the organisation enters
into a maintenance contract with the vendor, an updated taxation data
file should be provided whenever the taxation rate is varied. If the
organisation does not have a maintenance contract it will need to be
aware of changes to its responsibilities in withholding tax and make sure
the correct amount is withheld. This can mean the organisation will need
to obtain an updated taxation data file, usually incurring a cost.

If a manual payroll system is used the organisation will be responsible

for monitoring its obligations under the current taxation legislation. The
organisation will need to be aware of variances to taxation legislation
and make sure it uses the correct tables to calculate tax. It will need to
change to the newer table at the correct time. Industry groups help
organisations to monitor their obligations, providing updates as
legislation changes.

Pay rates
Pay rates, the base amount an employee receives, need to be carefully
monitored. Pay rates can be varied by the organisation or the award or
agreement used to employ the member of the staff.

Some computerised payroll systems include a data file for the awards
used by the organisation. As with tax data, the wage data can be
updated automatically by the vendor whenever change occurs if a
maintenance agreement has been signed.

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If the vendor does not provide a wage data file, or a manual system is
used, the organisation must ensure it is using the correct payroll data in
calculating employee wages.

Most organisations are members of an industry or employer group that

provides regular newsletters. The newsletters keep the employer up-to-
date on the latest legislative requirements, variance to awards, and
other payroll or employment matters.

Deductions and allowances

Deductions and allowances are generally set by the award that governs
an employee’s working conditions, although workplace variations can be
in effect.

If the deduction or allowance is claimed by a salaried employee, the amount

is usually similar to that claimed by employees who receive wages within the
organisation, or the amount granted under the award. This provides a
consistent and transparent approach to deductions and allowances.

In some cases, allowances can be negotiated with the employer,

especially if the variance forms part of the remuneration package. For
example, many organisations offer salary sacrifice as a means of
reducing an employee’s tax liability.

Monitoring payroll data

It is good practice for organisations to monitor their responsibility to
employees in regards to payroll. Relying on notification of changes to
payroll requirements by software vendors or industry groups is
acceptable, but an organisation should take an active role in monitoring
its responsibilities.

The ATO provides current information to all Australians through its

website at www.ato.gov.au. This site can be visited for the latest
developments in tax withholding (including downloading the latest tax
tables) and superannuation guarantee.

Fair Work Australia provides up-to-date information about the workplace

agreements including awards.

Trade unions can provide information about the awards that affect their
members. The Australian Council of Trade Unions (ACTU) can
provide information about trade unions and awards. The URL for the
ACTU website is www.actu.org.au.

Random checks of payroll data against an independent data source can

protect an organisation from difficulties. Checking the correct amount
has been paid and the right amount withheld will avoid having to make
adjustments, including back pay, later.

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Notifying discrepancies
If a discrepancy is found it should be reported to the appropriate person
according to the organisation’s procedures for handling payroll. The
appropriate person includes the immediate supervisor of the person who
uncovered the discrepancy or someone who has the authority to
approve payroll decisions. In most cases, the employees affected by the
discrepancy will also be notified, usually by the human resources (HR)
people within the organisation.

Enter employee pay period details, deductions

and allowances in payroll system in
accordance with source data
After the payroll data has been entered the information needed to
process the wages for a given period will also need entering. Things like
some deductions and allowances will be a constant across all pay
processing, but other details will be unique to the current pay period.
The pay period (dates where the employee has earned wages) will be
unique for every pay.

The most common pay periods are weekly and fortnightly. Other pay
periods less frequently encountered include monthly and annual periods.
Some organisations might use half monthly, the employee is paid on the
15th and last day of the month, instead of fortnightly. Longer pay
periods help reduce processing cost and help in cash flow management
but are less popular with employees.

Deductions and allowances

Deductions and allowances are usually constant and can be added
before or after tax withholding is calculated. Other claims can be similar
to petty cash and are usually one-off, such as parking or mileage claim
for an employee who does not receive a car allowance. Normal
deductions and allowances include:

Car allowance
If an employee uses their own vehicle in the course of their
employment, their organisation might pay a car allowance. A car
allowance is pre tax amount, usually based on the number of kilometres
travelled during the claim (pay) period.

Health insurance
Some organisations allow contributions to a health insurance fund to be
deducted from pay. Employees are able to claim a tax deduction for
contributions to a complying private health insurance fund but this claim
is made when submitting their annual income tax assessment rather
than through the payroll process.

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Variations to income tax

In some cases, employees might opt to pay more tax than that indicated
in the taxation tables.

Meal allowance
Under some awards, employers might have to pay employees a meal
allowance if they work longer hours than usual or are called to work at
short notice. Meal allowance rates are set as part of the award, as well
as the circumstances where meal allowances can be claimed.

Superannuation contributions
Some employees may opt to make their own contribution to their
superannuation as well as the employer contribution under the
superannuation guarantee, in some cases the contribution is a part of a
salary sacrifice, in which case the contribution is before tax (reducing
the employee’s taxable income and reducing the amount withheld).

Travel allowance
Travel allowance is paid for work-related travel that is not covered by a
car allowance. Travel allowance includes public transport, incidentals
such as tolls and parking, motorcycles and commercial vehicles with
more than one tonne carrying capacity, and expenses incurred for a
vehicle owned by someone other than the claimant.

Union dues
Some organisations have an arrangement with the trade union
representing their employees to deduct union dues directly from the
employee’s pay.

Life insurance
Some organisations allow contributions to be deducted for life insurance,
although many employees have life insurance through their
superannuation fund. The fund makes the deductions after the amount
has been received from the employee-meaning the employer has no
extra processing.

Child support
Employers play an important role in helping the Child Support Agency
(CSA) by making deductions for child support from employees or
subcontractors.

After an employer has been contacted by the CSA and the identity of the
employee confirmed, the CSA will send a letter explaining how much
child support should be deducted. The employee will also be sent a copy
of the letter by the CSA.

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The CSA must be notified of the following changes in circumstances:

• The employee leaves or the organisation becomes aware the employee

intends to leave
• The employee’s pay cycle changes
• The employee’s employment status changes (from full-time to part-time work)
• The business changes name or address, or the organisation mergers
with another

The organisation has several legal responsibilities under child support legislation:

• It must advise the employee in writing how much child support has been
deducted each pay period (e.g. on their pay slip)
• It is required to keep appropriate records of the child support it has
deducted and remitted
• It is required to respect their employee’s privacy
• It cannot make a deduction of child support that leaves an employee
with a net pay (after tax instalment deductions and deductions of child
support) of less than the protected earnings amount (PEA) (unless
deductions are made under a Section 72A Notice)
• It must make sure it deducts the right amount; CSA will tell the
organisation the right amount to deduct from the employee’s pay-the
organisation cannot change this even if the employee, their solicitor or
anyone else asks

Protected earnings

The weekly PEA is equal to 75% of the maximum fortnightly basic rate
of Newstart Allowance for a person who is over 21, partnered and has
no dependent children.

Year Amount
2017 $358.05 per week
2016 $354.45 per week
2015 $349.13 per week
2014 $339.23 per week
2013 $333.53 per week
2012 $329.55 per week
2011 $318.00 per week
2010 $308.63 per week
2009 $304.05 per week

The amount of salary and wages is the amount payable after the
deduction of income tax deductions.

Example: In March 2014 F earns $400 a week and pays tax of $16.00 a
week. F's employer is required to deduct child support of $50 a week. F
is paid after-tax wages of $384 a week. The protected earnings rate at 1
January 2014 is $339.23. To deduct $50 in child support would leave F
with less than the protected earnings rate. For that week F's employer
can only deduct $44.77 ($384 less $339.23).

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How to calculate the PEA

The weekly PEA for 2018 is $364.88. This is the amount that must be
set aside for your employee or contractor after tax and Child Support is
deducted.

Pay cycles Calculation

Daily $364.88 ÷ 7 days = $52.125714
Weekly $52.125714 x 7 days = $364.88
Fortnightly $52.125714 x 14 days = $729.76
Four weekly $52.125714 x 28 days = $1,459.52
Monthly $52.125714 x 30.4375 = $1,586.58

A year is equal to 365.25 days (allowing for the leap year), 30.4375
days in a month is equal to 365.25 divided by 12. Figures are rounded
where applicable.

The following amounts apply to pay dates from 1 January 2018 to 31

December 2018.

Child support is calculated after tax deductions and before voluntary deductions
such as voluntary superannuation, health fund, or loan repayments.

The process of deducting child support is:

• Make tax-withheld deductions from the employee’s wages.

• Set aside the protected earnings amount.

• Make the deduction of child support, or as much of the specified amount

as can be deducted after the PEA has been set aside.

• The remaining pay and the PEA can be paid to the employee or used to
make other deductions from the employee’s pay

For example:
The employer is asked to deduct $75 in child support each week.
Gross weekly pay $500.00
Tax withheld $46.00
Weekly PEA $349.13
Pay remaining $104.87
Deducted child support (this amount to be remitted to CSA) $75.00
Pay remaining $29.87
Plus PEA $349.13
Net pay to employee $379.00

Other deductions such as an employee’s self-contribution to superannuation

and loan repayments can now be made from this amount.

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Other pay period details

Apart from wages and salaries there can be other pay details that need
to be entered. These details can include:

Bonuses
Some organisations can pay employees a bonus. Bonuses can be paid for
productivity or other reasons at the discretion of the employer. Some
bonuses, such as Christmas bonus, can be paid based on an event.

Commission
Some organisations, particularly those with a heavy sales focus, can pay
certain employees a retainer (similar to a salary) and a commission
based on the number or value of sales made during the pay period.

Contract
Some organisations employ staff on a contract basis whereby they are
contracted to provide a given service for a set amount each period. This is
similar to a salary, except contracts are generally for a set period.

Piecework
Piecework is similar to commission except it is productivity based. In
some manufacturing environments employees are paid a set amount for
each item they produce.

Calculate payment due to individual

employees to reflect standard pay and
variations in accordance with employee
source data
The main part of processing payroll is establishing the amount to be
paid to each employee.

The payroll (total paid to employees) is established by working out the

wage or salary for the period, adding pre tax allowances, deducting pre tax
deductions, calculating tax withholding, adding after tax allowances and
deducting after tax deductions to establish a net pay for each employee.

If the employee is paid by wages they will usually complete a time sheet
or other time recording tool, showing the hours worked during the pay
period. Time sheets can be as simple as recording the total hours
worked for the day, or can include start and finish times as well as any
breaks taken during the day.

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Any time worked outside the usual work hours might be considered
overtime and attract penalty rates. Usually, the first three hours outside
the usual working day are paid at time and a half and double time after
that. Where weekend work is outside normal working hours, it is usual
to use the same formula for Saturday, while Sunday is double time for
all hours worked. This arrangement varies under different awards,
employees expected to work on weekends (such as retail or hospitality)
do not receive such attractive rates.

Employees who work shift work can also have penalty rates. For
example, in some industries afternoon shift (1600 to midnight) attracts
a 15% loading (before tax) while night shift gets 30% extra. Penalty
loadings are specified under the award for the industry the staff member
is employed in.

Employees who receive commission might expect to put in a claim

calculated on a standardised worksheet or if an integrated accounting
package (computer software) is used the commission can be calculated
by the system.

Piecework employees can use a tool similar to a time sheet (except it

records units produced rather than hours worked) as claim method.

Computerised systems
Processing payroll using a computerised system is largely a data entry task.

The hours worked for each penalty rate is entered and the system calculates
the amount to be paid based on the hours worked and payroll data regarding
pay rates, taxation rates, and deductions and allowances. In some cases,
overtime is identified based on the number of hours worked.

At the end of payroll processing, reports can be prepared showing the

amount to pay each employee. Many systems will prepare a file to send
to the bank that automatically transfers the amount owing to each
employee directly to their nominated bank account.

Amounts withheld (tax) and liability under the superannuation guarantee can
be reported so the liability is known. Integrated accounting and payroll
systems will automatically create an outstanding amount in the Accounts
Payable Subsidiary Ledger for tax and superannuation guarantee liabilities.

Manual systems
Processing payroll with manual systems entails calculating the gross pay
from the employee’s time sheet and payroll data, processing pre tax
allowances and deductions, calculating tax, and processing after tax
allowances and deductions to establish the net pay for each employee.

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For example:
Employee Bob Smith Date 19/05/15
Hours Rate Total
Wages
Normal time 38 18.30 695.40
Time +1/2 15 27.45 411.75
Double time 5 36.60 183.00
Other
Total wages 1290.15 1290.15
Pre tax allowances
Car allowance
Travel allowance 38.50
Other
Total pre tax allowances 38.50 38.50
Pre tax deductions
Other
Total pre tax deductions 0.00 (0.00)
Pre tax earnings 1328.65
Tax (297.00)
1031.65
After tax allowances
Other
Total after tax allowances 0.00
After tax deductions
Union fees 17.50
Other
Total after tax deductions 17.50 (17.50)
Net pay 1014.15

Taxation
As part of the payroll calculation an amount of tax needs to be withheld.
The amount varies depending on the employee. When the employee
lodges a tax file number declaration they provide information relating to
the amount of tax that should be withheld on their behalf.

Information from the declaration used in ascertaining the rate tax

withheld includes:

Residency
If an employee has indicated they are not an Australian resident for tax
purposes and have not supplied a valid tax file number, tax should be
withheld at the top rate of tax. If a non-resident has provided a valid
TFN they should have tax withheld at foreign resident tax rates.

Foreign residents cannot claim tax offsets under normal circumstances.

Tax free threshold

An employee can only claim the tax free threshold from one employer,
usually the organisation where they earn the most.

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Senior Australians tax offset

If an employee wishes to claim the Senior Australians tax offset they
must lodge a Withholding Declaration (NAT 3093) with the employer
they are claiming the tax free threshold from.

To calculate the tax payable if the Senior Australians tax offset is

claimed use the ready reckoner provided with the tax table being used
to calculate withholding.

Other offsets
Employees may be eligible for other tax offsets including:

• Zone
• Overseas forces
• Dependant spouse
• Special tax offset

The employee will need to submit a Withholding Declaration (NAT 3093)

before claiming. The tax offset can be calculated using the offset
reckoner provided with tax table instructions.

HELP debt
The Australian Government has operated several higher education
assistance programs (loans). The current system is the Higher
Education Loan Program (HELP).

If an employee indicates they have a HELP or financial supplement debt

on the completed TFN declaration, extra tax will need to be withheld.
Extra amounts can be calculated using the HELP or Student Financial
Supplement Scheme (SFSS) tax tables.

Medicare levy
All Australian taxpayers pay a Medicare levy based on their income. The
Medicare levy is included in the tax withholding amount from the tax
tables. Some low earners with dependants are exempt from paying the
levy. These employees should lodge a Medicare levy variation
declaration (NAT 0929) when they submit their TFN declaration.

Deducting tax
To work out the amount to be withheld using tax tables:
• Add any allowances or irregular payments to the weekly earnings,
ignoring any cents.

• Find the total weekly earnings in column one of the tax tables relating to
the employee’s pay cycle (weekly, fortnightly, monthly, etc).

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• Use the appropriate column to find the withholding amount:

− If the employee is claiming the tax free threshold and is entitled to

annual leave loading, use column 2.
− If the employee is claiming the tax free threshold and is not entitled
to annual leave loading, use column 3.
− If the employee is not claiming the tax free threshold, whether or not
entitled to annual leave loading, use column 4.
• If the employee is entitled to an end of year tax offset use the ready
reckoner for tax offsets to convert the estimated full year entitlement to a
weekly (or other period) value and subtract it from the withholding amount.

• If the employee is entitled to make an adjustment to their Medicare levy

subtract the variance from the calculated withholding amount.

• If the employee has a HELP or SFSS debt, add the amount determined
by the supplementary tax table to the calculated withholding amount.

Computerised payroll systems generally have the tax tables installed

and updated whenever a change occurs. The formula used for
calculating withholding amounts is available from the tax office and can
be used in a spreadsheet.

General ledger
If the organisation is using an integrated payroll and accounting system
the amounts calculated in the payroll function are automatically posted
to the General Ledger and Subsidiary Journals. In a manual system, the
bookkeeper will have to manually post transaction amounts to the
financial (accounting) system.

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