1. Chapter Two Payroll Calculations
Payroll Accounting
Chapter Two
Payroll Calculations
Payroll Accounting

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. Determining the Amount to Withhold
Payroll Accounting

13. Tax Offsets
Payroll Accounting

14. 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

15. 2.12 Leave Paid in Advance
Paid annual leave in advance = Weekly PAYG Withholdings x the number of weeks leave being taken
Payroll Accounting

16. 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

17. 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

18. 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

19. 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

20. 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