This document will assist in understanding the way COINS calculates Bonus payments including lump sum payments in arrears.
The guide is written for a user who is already familiar with COINS and its menus and has at least basic computer skills.
Withholding Limit
There is a withholding limit of 47% on tax withheld from any additional payments calculated using an annualised method.
The ATO “Schedule 5 Tax Table for Back Payments, commissions, bonuses and similar payments” outlines 2 methods of calculations. COINS has been configured to use Method A.
By using Method A the amount of tax to be withheld from an additional payment is limited to a maximum of 47% of the additional payment. This method calculates withholding by apportioning additional payments made in the current pay period over the number of pay periods in a financial year and applying that average amount to the gross earnings in the current pay period
Schedule 5 should be used if making a payment of salary or wages which is:
A back payment (including lump sum E payments in arrears)
A commission
A bonus or similar payment
If back paying a working holiday maker you must us the tax table relevant to WHM for all payments made to them, including back payments, commissions and bonuses or similar payment.
Reporting Back Payments
Back payments less then 12months are reported under STP as the relevant payment type for the financial year. (that is Gross, allowances or overtime).
From 1st July 2025 all back payments that accrued more than 12 months before the date of payment should be treated as Lump Sum E regardless of the amount.
There is no longer a threshold for Lump Sum E payments.
STP reporting obligations
If there are several different payment types to be paid in arrears, they cannot be bundled into one single “back pay” code and processed through payroll. There are several legislative obligations that prevent this convenient but inappropriate treatment, such as:
Fair work regulations about the detail required to be specified on a payslip
Tax treatment may differ between the components of the items to be back paid
Superannuation guarantee may differ for the components within the back payment
Accounting for the payroll item in the general ledger usually requires explicit classification of different payment items
State-based payroll tax and workcover premium considerations for the components within the back payments may differ, particularly given the diversity of treatment between jurisdictions
Finally, reporting obligations under STP Phase 2 require the components of the back payment to be separately itemised. For employees to be able to correctly review and assess the income data presented by Services Australia, they must be able to distinguish the different income categories.
Corrections and adjustments should be performed by specifying the earning categories of the original payment and should not be achieved by making a total adjustment without reference to the discrete payment type.
NOTE: Back Payments are not a single type of payment, there is no single way to report them via STP
Configuration
Payroll > Global Setup
Parameters
For COINS to know what specific tax limit to apply for the back pay, a parameter has been built to had specific tax rates.
PR-FLATTAX Stores the tax flat rate %. This is a comma separated entry and should consist of 3 amounts.
Resident – no TFN
Foreigner – no TFN
Back Pay max rate
Current rates as of 1st July 2024 are as follows:
For Lump Sum E parameter must hold the earning category.
2. Pay Items
Pay Items are records that contain information about how an entry on an employee payslip is calculated. Pay items can hold hours and dollars, be used in the calculation of other values, determine what appears on a payslip and where it appears, and can be used to determine what GL accounts are used during the payroll process.
For each bonus, commission and back payment lump sum E need to be configured as a separate item.
NOTE: Not required to have a Back Pay specific pay item or earning category as back payments under STP2 should be reported by relevant earning category or lump sum E
3. Item Sequence
While Pay Items can be created in any order, their appearance in a sequence must follow payroll logic. COINS groups pay items into blocks for the ease of adding new pay items to a sequence.
Pay Items are added to the relevant block which forms part of an ‘Actual’ Australian Processing Sequence.
NOTE: Do not add Pay Item directly to the ‘Actual’ block type.
4. Earning Categories
Earning Categories define the method of paying an employee an individual pay component.
Each timesheet back pay item will require a unique earning category code.
For Earning Categories to use the ‘Method A’ calculation the back pay box must be selected.
Ensure all other fields are updated as per the required information. i.e. Payroll tax, workers comp and STP reporting.
Process
Timesheet for Bonus
A Bonus pay payment must be part of the employee cheque 1. That is must include employee standard payment of wages for the period.
This allows COINS to be able to establish what the employee’s normal gross earnings and PAYG is before the payment is applied.
2. Calculation using Tax Method A
The employee timecard should contain ordinary gross earnings for the period + the bonus payment amount.
NOTE: Bonus cannot be a separate cheque must be including along with gross earnings
COINS calculations will be as per Schedule 5 form the ATO for Method A.
Total tax calculated for the employee can be seen on the Period Maintenance.
3. Timesheet for Lump Sum E
COINS will allow you to enter a timecard for a date prior to the period start and end dates. A warning will appear on saving the record.
When entering the timecard for a Lump Sum E payment the date must be entered for the year end for the relevant year. Eg 30 June 2024 etc
In the above example the employee received a Back Pay for prior period and is to be reported as Lump Sum E payments. This will be recorded in employee ‘Maintain Payment Summary’ as follows
2024 $5,000.00
2023 $10,000.00
NOTE: Lump Sum E financial year cannot report the current financial year. This is determined by the Pay date.
Total of Lump Sum E per ABN/Br/BMS id/Payroll ID must be greater than or equal to the threshold value
Lump Sum E payments can report 10 historical financial years per income stream
Once the payment has been processed the employee YTD record will be updated with Lump Sum E amounts and financial year it relates to and is reported to ATO.