An Addition before tax will increase the employee's Gross (Taxable) Pay, Tax, and Net pay.
Before setting up your Allowance before tax, please give some thought to Superannuation and Frequencies.
Superannuation
Should the allowance be included in the super calculation?
Is the allowance considered part of the employee's normal earnings? (OTE)
Frequency
Each Pay – Often used for back pay, one off payments.
Weekly – Used for an employee with a weekly allowance, who gets paid fortnightly or monthly.
Each Shift – Used for uniforms, tools, and first aid.
Hourly – Often used when employees get an allowance for working in different departments or higher duties.
Percentage - Used for adding a percentage instead of a flat dollar amount.
Note: Once an allowance has been processed in a transaction, the Taxed box is greyed out and cannot be changed. This is to prevent serious tax issues.
Please follow the below steps to set up your Allowance before tax.
Go to the Setup, Allowances, Add, Next.
Select your Allowance Type by selecting the correct radio button.
Standard Allowance (the most common type) is for entering a $ value or a % to be paid each pay, per hour, per week, etc.
The Unit Based Allowance is used for piecework or where an employee gets a set amount per unit – e.g., 0.68 cents per kilometer. With Unit based allowances, in the case of cents per kilometer you must enter in how many kilometers the employee has travelled, which will be multiplied by 68cents.
Next.
On the Allowance Details screen,
In Description, type a suitable description.
In Type, select Addition.
In Frequency, select an item from the drop-down menu, i.e., Each Pay, Hourly, Weekly, etc.
The Amount field may be left blank; leaving the amount field blank will enable you to enter different values for each employee on the Employee Details, Payments, Allowances screen. You can also enter the value in the Allowance Details screen if it is the same amount for all employees.
Tick the Taxed box for an addition before tax Allowance.
The Include in SG Gross box should be ticked if this allowance is included in the SG Gross threshold, (OTE).
If this allowance attracts super, tick the Include in Super Calculation box.
If you have ticked the Include in Super Calculation box, then also tick the Include in SG Gross box.
Next
STP2 Reporting screen
Before selecting STP Phase 2 Reporting Groups, review the STP Phase 2 reporting – Quick reference guide, as you must follow the ATO's withholding and reporting requirements.
Click Next.