August 17, 2015

Are you ready for this financial year’s extra pay period?

Toni Brunsgard, Accounts & Data Manager

Do you make weekly or fortnightly payments to your salaried employees?

This financial year you may be affected by an additional pay period in your annual salary payments. This happens when the first pay day in the year falls within the first few days of July and affects fortnightly payroll approximately every 11 years and more frequently for weekly payroll.

What does this mean for you?

The extra pay period will have two important consequences for your business. Firstly, if unaltered, your salaried staff will receive an additional salary payment resulting in a 2-3% pay increase for this financial year (and additional superannuation payable) which will impact on your salary expense and overall running cost.

Secondly, there will be a shortfall in the amount of PAYG withheld from the individual’s salary as the tax is calculated based on a normal 52 or 26 pay cycle for the given salary.

So what do you need to do?

To keep things simple, we recommend choosing one of the two options:

Option 1

Recalculate the annual salary over the 27 fortnightly or 53 weekly payments, slightly reducing each gross amount to take up the additional payment required to bring you to the agreed annual salary.

Option 2

Pay the additional payment resulting in an increased wages expense. It will be necessary to adjust the PAYG withheld on each of the payments to ensure there is no shortfall in PAYG. The ATO has recommended the following guidelines on how to withhold the correct amount of tax for each pay period:

When there are 53 pays in a financial year – additional withholding is:

Weekly earnings
Additional withholding
725 to 1,524 3
1,525 to 3,449 4
3,450 and over 10

Where there are 27 fortnightly pays in a financial year – additional withholding is:

Fortnightly earnings
Additional withholding
1,400 to 3,049 12
3,050 to 6,799 17
6,800 and over 42

Your employee must request this increase in PAYG withholding in writing.

Regardless of which action you choose to take, please ensure that you communicate with your employees so they understand the situation and the consequences to their Salary and or the amount of PAYG that is withheld

Do you need support? Please do not hesitate to contact Toni Brunsgard of our office on 9387 5637 to discuss your situation further and receive professional advice on how to implement your chosen strategy.

Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

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