Chapter Two Payroll Calculations Payroll Accounting Chapter Two Payroll Calculations Payroll Accounting

2.1 Gross Pay Calculations Gross Pay is the total amount to which the employee is entitled. Determining gross pay: Award or employment agreement conditions for minimum / maximum hours, ordinary and overtime rates and leave entitlements; Rate per hour for part-time, casual or irregular employment; Rate per unit produced; or piece work method; Commission earned; where a percentage of sales achieved is paid to an employee; Annual salary without any entitlement to overtime. Payroll Accounting

2.2 Net Pay Net pay is the Gross Pay less PAYG Withholding Tax and less any other deductions. It is the amount actually paid to the employee on pay day Payroll Accounting

2.3 Ordinary Pay Ordinary time is the normal hours worked each week, e.g. a 35 hour week. Ordinary Pay = Ordinary Hours Worked x Rate per Hour Payroll Accounting

Overtime pay = Overtime hours worked x Overtime rate per hour Overtime is paid for hours worked in excess of normal hours Overtime is paid at one and a half times the normal rate for the first 3 hours per week and thereafter at double the normal rate. Overtime pay = Overtime hours worked x Overtime rate per hour Payroll Accounting

2.5 Piece Rates Employees under piece rate arrangements are paid per unit of output. EXAMPLE Eric works in a clothing factory and is paid $4 for each shirt stitched. This week Eric stitched 100 shirts. How much is his gross pay? Payroll Accounting

2.6 Commission Commission is commonly paid to salespeople to motivate employees to make sales. Gross pay of salespeople usually consists of a retainer (a base pay) plus commission. Payroll Accounting

2.7 Annual Salary A salary is remuneration usually quoted as a yearly figure, but paid weekly, monthly or fortnightly. There is usually no payment of overtime. Payroll Accounting

2.8 Allowances Allowances fall into two broad categories: 1 - By way of a reimbursement or compensation ( eg ) Car , Meal 2 – By way of Unconditional extra payment. ( eg ) Shift , First aid, Travel Payroll Accounting

2.9 Annual Leave Pay and Personal Leave Pay Awards and employment agreements are required to provide a minimum entitlement of 4 weeks annual leave per year and 10 days personal leave p.a. for full-time employees. Some employees are also entitled to a leave loading of 17.5% (on their annual leave payment) Payroll Accounting

2.10 PAYG Withholding PAYG Withholding (personal income tax) is deducted from an employee’s pay and remitted by the employer to the ATO Factors affecting the amount withheld: Gross Pay Residency Tax – Free threshold TFN Notification HELP debt Tax offsets Payroll Accounting

Determining the Amount to Withhold Payroll Accounting

Tax Offsets Payroll Accounting

2.11 PAYG Withholding and HELP Repayments HELP Tax Table is used to calculate the additional amount of tax that must be withheld when the employee has a HELP debt See the Appendix for the HELP tax tables Payroll Accounting

2.12 Leave Paid in Advance Paid annual leave in advance = Weekly PAYG Withholdings x the number of weeks leave being taken Payroll Accounting

2.13 Holiday Leave Loading and PAYG Withheld Some employees are entitled to annual leave loading (Holiday Leave Loading or HLL), which is normally 17.5% of the gross Holiday Pay If using weekly tax tables, calculate the weekly wages plus weekly leave loading, then use this amount to determine the weekly PAYG Withheld Payroll Accounting

2.14 Bonuses PAYG Withheld on bonuses is calculated on a periodic (weekly, fortnightly) basis as if an additional amount to normal weekly pay. Payroll Accounting

2.15 Salary Sacrifice Salary sacrifice is an arrangement where an employee agrees to forego part of his/her future salary or wages in return for the employer providing benefits of a similar value Requirements for legitimate arrangement: Not allowed for salary or wages already earned No access to sacrificed salary Contributions made to complying fund Payroll Accounting

2.16 Deductions Employers and employees may agree that other amounts be deducted from the employee’s pay. These are personal expenses of the employee Examples include : Personal Superannuation contributions Private health insurance Union Fees Payroll Accounting

2.17 Tax Calculator As an alternative to using the tax tables the ATO provides an electronic tax calculator that can be used to determine withholding amounts. Payroll Accounting