Bonuses and commissions are typically paid as lump sum payments rather than at each regular pay period, as is the case for salary and wages:
- Bonuses – usually made to an employee in recognition of performance or services and may not be related to a particular period of work performed
- Commissions – usually made to an employee in recognition of performance or services and may be calculated as a portion of the proceeds or volume of sales
If the bonuses or commissions are paid in respect of overtime, they are to be reported as Overtime (Use Overtime Bonus earnings type for the bonuses and Overtime Commission earnings type in CloudPayroll for the commissions paid in respect of overtime). However, if the bonuses or commissions are paid in respect of ordinary time earnings, they are to be reported as Bonuses and Commissions (BON - Bonus and COMM - Commission in CloudPayroll). In exceptional circumstances where the bonus is not deemed assessable income, it is still to be reported as this payment type.
Some employees receive lump sum payments in addition to their salary or wages to reward performance, retain or attract employment relationships or in acknowledgement or conditional upon services provided. Some employers may offer bonuses as an incentive for primary carers to return to work after parental leave.
Bonuses may be salary sacrificed in an approved arrangement if the agreement to sacrifice the bonus is undertaken before the entitlement to be paid the bonus exists.
The pre-sacrificed amount of the bonus must be reported as Bonuses and Commissions. In CloudPayroll use BON - Bonus.
Some employees can be paid commission payments instead of getting an hourly or weekly pay rate. A commission payment can be paid as an extra incentive on top of an employee’s pay or make up an employee’s whole wage (commission only payments).
Commissions may be salary sacrificed in an approved arrangement if the agreement to sacrifice the bonus is undertaken before the entitlement to be paid the commission exists.
The pre-sacrificed amount of the commission must be reported as Bonuses and Commissions. In CloudPayroll use COMM - Commission.
Salary Sacrifice of Bonuses and Commissions
Whilst salary sacrifice typically includes sacrificing the total package value of remuneration for contracted hours of employment (ordinary hours of employment), there may be other components of an approved salary sacrifice arrangement. A common benefit included in an effective salary sacrifice arrangement is a bonus or commission, when the agreement is established prior to the work that is considered for the period of assessment for the bonus or commission.
If the bonus or commission is sacrificed, the pre-sacrificed value of the bonus or commission must be reported as Bonuses and Commissions and the sacrificed amount reported as the relevant Salary Sacrifice Type (superannuation or other employee benefits).
The following table outlines a scenario where the:
- Employee has entered into a salary sacrifice arrangement for their annual performance bonus, where the amount to be received is unknown.
- 75% of the bonus is to be sacrificed to superannuation
- Employee is paid pre-sacrifice salary or wages of 1,000.00 per pay
- Employee already has a salary sacrifice to superannuation for 200.00 per pay
- Employee is paid fortnightly and is delighted when they receive the maximum bonus of 10,000.00 in the first pay in February
|Payroll||PP 14 of 26||PP 15 of 26||PP 16 of 26|
|Income Type: SAW (Salary and Wages)|
|Payee Gross (Pre-sacrificed salary or wages)||14,000.00||15,000.00||16,000.00|
|Salary Sacrifice type-S (Superannuation)||2,800.00||3,000.00||10,700.00|
|Bonuses and commissions (Pre-sacrificed)||-||-||10,000.00|
|Entitlement type-L (Liability)||1,330.00||1,425.00||2,470.00|
|Entitlement type-R (RESC)||2,800.00||3,000.00||10,700.00|
- Taxable gross per fortnight (1,000.00 − 200.00 = 800.00) with withholding of 18.00
- Bonus of 10,000.00 is split between salary sacrifice to superannuation (7,500.00) and the cash-component (2,500.00) is paid and reported as Bonuses and Commissions and marginally taxed in accordance with NAT 3348 using Method B (ii) as:
- Bonus of 2,500.00 marginalised as (2,500.00 ÷ 26 fortnights = 96.15) added to normal taxable pay (800.00 + 96.15 = 896.15) results in new fortnightly tax of 40.00
- Difference in tax (40.00 − 18.00 = 22.00) over 26 fortnights in the financial year results in additional tax on the bonus (22.00 × 26 fortnights = 572.00), resulting in total YTD tax of (3,000.00 YTD + 18.00 PTD + 572.00 bonus = 3,590.00)
- Super liability period amount of (1,000.00 × 9.5% = 95.00) with bonus period liability amount of ([1,000.00 + 10,000.00 = 11,000] × 9.5% = 1,045.00)
These payment types are taxed as per NAT 3348 Tax table for back payments, commissions, bonuses and similar payments, unless the employee has a tax treatment arrangement that overrides this payment-specific tax table, such as for Working Holiday Makers.