Recognising the hard work of employees is important to ensure morale remains high in the workplace and that quality workers are retained in your business. One of the easiest ways to reward employee excellence is through the payment of employee bonuses.
Perhaps an employee has brought in extra customers and income, maybe they have gone above and beyond in performing their duties, or maybe it’s just Christmas time and you want to send them off on their holiday break with a full pocket. In any case, it’s important to know what your obligations are if you choose to make any kind of bonus payment.
If your payment falls under $300, you may be able to recognise it as a gift to your employee. As a minor benefit, it may be exempt from fringe benefits tax, provided the gift is infrequent and meets other exemption conditions. For eligible gifts, there is no need to recognise the payment on the employee’s annual PAYG payment summary, or to withhold tax and pay superannuation to the employee’s fund.
For more substantial payments recognised as bona fide bonus payments, it is vital to ensure you are meeting your employer obligations. With the sole exception of amounts paid in respect of overtime work, a payment of a bonus is recognised as ordinary times earnings - whether for Christmas or as a reward for performance - meaning PAYG and superannuation responsibilities arise.
Employers should ensure the bonus payment is recognised as salary and wages on the employee’s PAYG payment summary. PAYG withholding tax will need to be remitted to the ATO at the employee’s marginal income tax rate, taking into account the tax-free threshold, outstanding HEC-HELP debt, child support and other PAYG factors. And don’t get caught out on super! The superannuation guarantee still applies to these payments and will need to be paid to the employee’s fund at the end of the quarter at a rate of 9.5% (to be reviewed 1 July 2021). Ensure you clearly communicate with your employee whether their reward will be inclusive of super or if the guarantee will be paid in addition to the bonus to avoid any confusion.
This applies whether an employee is full or part-time, or a casual. Even contractors employed for their personal labour may be subject to the same bonus rules.
FOR MORE INFORMATION ON EMPLOYEE BONUSES
For more information and advice tailored to your circumstances, contact our Tradies team at RSM at [email protected].