Gross

Overtime

Bonuses and Commissions

Directors’ fees

Lump-sum payments

Termination payments

Allowances

Child Support Garnishee and Child support deductions

Salary Sacrifice

Paid Leave

In order to ensure pay categories are classified correctly, they need to be mapped to a specific payment classification. Each payment classification is defined by the ATO and described below in detail:

A reference list to assist with selecting payment classifications for various payment types can be found in this article.

A list of the pre-defined payment classification options is as follows:

Ordinary: Ordinary time earnings means the salary, wage or other remuneration regularly received by the employee in respect of the time worked in ordinary hours.

Overtime: This represents a payment made to an employee that works extra time. It can include work done beyond their ordinary hours of work, outside the agreed number of hours or outside the spread of ordinary hours (the times of the day ordinary hours can be worked). This is a new payment classification introduced for Phase 2 reporting.

Bonuses and commissions: Bonuses and commissions are typically paid as lump-sum payments rather than at each regular pay period. Bonuses are usually paid to an employee in recognition of performance or services and may not be related to a particular period of work performed. Commissions are usually paid to an employee in recognition of performance or services and may be calculated as a portion of the proceeds or volume of sales. This is a new payment classification introduced for Phase 2 reporting.

Directors’ fees: These are payments to the director of a company or to a person who performs the duties of a director of the company. Directors’ fees may include payment to cover travelling costs, costs associated with attending meetings and other expenses incurred in the position of a company director. This is a new payment classification introduced for Phase 2 reporting.

In order to ensure payment categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to assign the pre-defined payments classifications to the earnings?

A list of the pre-defined lump-sum payment classification options are as follows:

Lump-Sum A (Type R): All unused annual leave or annual leave loading, and that component of long service leave that accrued from 16/08/1978, that is paid out on termination only for genuine redundancy, invalidity or early retirement scheme reasons.

Lump-Sum A (Type T): Unused annual leave or annual leave loading that accrued before 17/08/1993, and long service leave accrued between 16/08/1978 and 17/08/1993, that is paid out on termination for normal termination (that is, other than for a genuine redundancy, invalidity or early retirement scheme reason).

Lump-Sum B: Long service leave that accrued prior to 16/08/1978 that is paid out on termination, regardless of the reason for such termination.

Lump-Sum D: This represents the tax-free amount of a genuine redundancy payment or early retirement scheme payment, up to the limit, based on the employee's years of service.

Lump-Sum E: This represents the amount for back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment and is greater than the lump sum E threshold amount, being $1,200.

Lump-Sum W (Return to work payment): This represents an amount paid to induce an employee to resume work, such as to end industrial action or to leave another employer. It does not matter how the payments are described or paid, or by whom they are paid. This is a new payment classification introduced for Phase 2 reporting.

In order to ensure payment categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to create lump-sum payments?

A list of the pre-defined Employee Termination payment classification options is as follows:

ETP (Life benefit) - Code O: This is a lifetime benefit payment as a consequence of employment, paid for reasons other than those provided in "ETP (Life benefit) - Code R". Examples include an ex-gratia payment, gratuity or golden handshake, non-genuine redundancy payments, payments in lieu of notice and some types of unused leave, under specific circumstances.

ETP (Life benefit) - Code R: This is a lifetime benefit payment as a consequence of employment, paid only for reasons of genuine redundancy (ie, where the employer decides the job no longer exists), invalidity (the employee sustained a permanent disability), early retirement scheme (an ATO-approved plan that offers employees incentives to retire early or resign when the employer is rationalising or reorganising their business operations) or compensation for personal injury, unfair dismissal, harassment or discrimination.

In order to ensure payment categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to create the final termination pay for the employee?

A list of the pre-defined allowance classification options is as follows:

Award transport payments: This is a deductible expense allowance for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel or cents per kilometre reported as other separately itemised allowances) for business purposes, as defined in section 900-220 of the Income Tax Assessment Act 1997.

Cents per Kilometer: This is a deductible expense allowance that defines a set rate for each kilometre travelled for business purposes that represent the vehicle running costs, including registration, fuel, servicing, insurance and depreciation account. This should not include any cents per kilometre allowances that are paid for travel between an employee's home and place of work unless it is a home-based business and the trip was for business purposes.

Laundry Allowance: This is a deductible expense allowance for washing, drying and/or ironing uniforms required for business purposes. This allowance is typically paid as a regular rate for each week of work or services performed and cannot include dry cleaning expenses or reimbursements. Uniforms refer to the approved categories of clothing defined by the ATO.

Other Allowance: This is an expense allowance not specifically addressed in any other allowance category (such as a car allowance - other than cents per kilometre - and uniform allowance) and/or for those expenses relating to private use (such as cents per kilometre for travel between home and work and laundry allowance for conventional clothing). When creating a pay category for "Allowance (Other)", you are also required to enter an allowance description.

Pay categories pertaining to JobKeeper and JobMaker should also remain classified as other allowance types.

Overtime meal: This is a deductible expense allowance defined in an industrial instrument that is in excess of the ATO reasonable amount, paid to compensate the employee for meals consumed during meal breaks connected with overtime worked.

Qualifications: This is a deductible expense allowance that is paid for maintaining a qualification that is evidenced by a certificate, license or similar. For example, allowances to cover registration fees, insurance, license fees, etc. are expected to be expended to maintain a requirement of the job. This is a new payment classification introduced for Phase 2 reporting.

Tasks: This is a service allowance that is paid to an employee to compensate for specific tasks or activities performed that involve additional responsibilities, inconvenience or efforts above the base rate of pay. For example, higher duties allowance, confined spaces allowance, dirty work, height money, first aid, etc. This is a new payment classification introduced for Phase 2 reporting.

Tool: This is a deductible expense allowance to compensate an employee who is required to provide their own tools or equipment to perform work or services for the employer. For example, chef’s knives, divers’ tanks, trade tools, and phone allowances. This is a new payment classification introduced for Phase 2 reporting.

Travel & Accommodation: This is a deductible expense allowance that is in excess of the ATO reasonable allowances amount (for domestic or overseas travel), undertaken for business purposes, which are intended to compensate employees who are required to sleep away from home. It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses.

Exclude from STP: Enable this option for any payments made to an employee that are not to reported to the ATO and therefore not displayed on an employee's income statement. Examples include award overtime meal allowances and domestic or overseas travel allowances up to the amount of the reasonable allowance.

In order to ensure payment categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to map the right ATO categories for allowances?

A list of the pre-defined deduction classification options is as follows:

Child support deduction: This is a deduction made under notice as per section 45 of the Child Support (Registration and Collection) Act 1988. Select this deduction type only if you are reporting via STP and want an employee's child support deduction amount to be reported via STP every pay run, in lieu of providing a separate declaration to the Child Support Registrar. To be clear, if you are reporting via STP but prefer to manually send monthly reports to the Child Support Registrar then do not assign this deduction type. Additionally, take note that these deduction amounts will only begin being reported through STP upon the commencement of STP Phase 2 reporting.

Child support garnishee: This is a deduction made under notice as per section 72A of the Child Support (Registration and Collection) Act 1988. Select this deduction type only if you are reporting via STP and want an employee's child support garnishee amount to be reported via STP every pay run, in lieu of providing a separate declaration to the Child Support Registrar. To be clear, if you are reporting via STP but prefer to manually send monthly reports to the Child Support Registrar then do not assign this deduction type. Additionally, take note that these deduction amounts will only begin being reported through STP upon the commencement of STP Phase 2 reporting.

Salary sacrifice (others): This refers to an effective salary sacrifice arrangement, entered into before the work is performed, for benefits other than for superannuation, where the sacrificed salary is permanently foregone. Examples include a novated lease, gym membership, workplace giving donations, car, property (goods, land, buildings, shares and bonds), expense payments (loans, school fees, childcare costs and home phone costs) and work-related items such as portable electronic devices and equipment.

Fees: Any amounts paid as union fees, subscriptions to trade, business or professional associations, bargaining agent's fees to a union for negotiations in relation to a new enterprise agreement/award on behalf of your employees.

Workplace giving: Any workplace giving program donation amounts paid to charities or organisations that are entitled to receive tax-deductible donations. This classification only pertains to post-tax deductions. Refer to the ATO website for further information on how workplace giving donations should be deducted from an employee's pay.

In order to ensure deduction categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to assign the ATO categories for deductions?

A list of the pre-defined paid leave classification options is as follows:

Cash-out of leave-in service: Leave entitlement earnings that have been paid out in LIEU of the employee taking the absence from work. This option represents Fair Work entitlements as defined in an award, enterprise agreement, or contract of employment (for the award and agreement-free employees). When leave is cashed out, it reduces the balance of the entitlement, as occurs if the absence was taken.

Ancillary and defence leave: Paid leave for absences such as for Australian Defence Force, emergency leave, eligible community service, and jury service.

Other paid leave: All other paid absences not otherwise covered in the other leave payment classifications and regardless of the rate of pay (full, half, reduced rate) must be reported under this payment classification. Examples include, but are not limited to annual leave, leave loading, long service leave, personal leave, and RDOs.

Paid parental leave: Some employers offer paid parental leave and the Government Paid Parental Leave (GPPL) Scheme offers eligible employees, who are the primary career of a newborn or adopted child, up to 18 weeks’ leave, paid at the national minimum wage. Generally, GPPL is paid by Services Australia to the employer to pay the employee, but both types of paid parental leave may be paid at the same time.

Unused leave on termination: Any leave balances paid out on termination that is otherwise not deemed an ETP or lump sum payment.

Worker's compensation: Any workers’ compensation payments received by an injured employee for the hours not worked, or not attending work as required, or if the employee has been terminated.

In order to ensure paid leave categories are classified and reported correctly, they need to be mapped to a specific classification.

To assign a classification refer to the article - How to create new leave items and assign them to ATO reported categories?

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