I run a business in Albury and was planning on giving my staff a cash bonus over the holiday period. Will my employees have to pay tax on the bonus they receive?
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Employee bonuses are typically subject to tax.
There are also many other considerations, such as payroll tax, superannuation contributions, workers’ compensation that can affect either how much of the bonus your employees actually receive, or how much it will actually cost you.
Generally, any cash bonus you pay to your staff, including a Christmas or holiday bonus, will be taxable to them in the same way as their normal salary/wage.
This means you will need to withhold tax on these payments and include it on their payment summary at the end of the year.
Therefore, if you were hoping to pay each of your employees a certain cash amount, then what they will actually receive will be less because of this tax.
Importantly, this is not the only issue you need to consider when paying bonuses.
It’s likely the bonus will also impact your super guarantee, payroll tax and workers’ compensation obligations.
The Australian Taxation Office suggests that in most cases, additional earnings received as a reward for good performance or other bonus-type payments should be included in earnings for the purposes of calculating your super guarantee obligation. This has been taken to include Christmas and holiday bonuses, as they are considered a reward for the employees’ work during the year.
Therefore, you will need to pay an extra 9.5 per cent of the bonus into superannuation for each employee.
Bonus payments are also considered “taxable wages” for the purposes of determining the amount of payroll tax and workers’ compensation insurance you must pay each year.
Therefore, a relatively small holiday bonus may cost more than 10-20 per cent extra!
It is important to be aware of the tax implications of awarding an employee bonus.
If you require more information, consult with your accountant or tax advisor to ensure the best outcome for both your business and your employees.
If you would like more information on this topic or have another tax-related question email me at tax.albury@crowehorwath.com.au.
Any information in this article has been prepared without taking into account your personal circumstances.
You should seek professional advice before acting on any material. While reasonable care is taken in the preparation of this information to the extent allowed by legislation, Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351, accepts no liability whatsoever for reliance on it.
