Extra Pay Week
In rare circumstance there can be either 53 Weekly Pays in a Financial Year or 27 Fortnightly Pays in a Financial Year.
The 2015/2016 is potentially one of these years. You should check the pay day for your organisation and then review the financial year to check how many pay periods there are for your employees. If there is an additional pay period the PAYG tax withheld from the employee will not cover the tax due on their wages/salary. This is because the ATO has averaged the marginal thresholds over a normal pay period year which means that when the additional pay is made in that financial year all the lower threshold rebates have already been taken up. Therefore an adjustment has to be made to spread the thresholds over the additional period. The simplest way to do this is to increase the withholding on each pay to cover the situation.
This is not an extra tax. A simple example is that an employee on $52,000 per annum can potentially receive $53,000 in 2015/16 on a weekly pay period ($54,000 on a fortnightly pay period) therefore the weekly/fortnightly PAYG withholding needs to be increased.
Attached below are ATO links for normal PAYG withholding tables and further down the page of the link are the ATO suggested increases if there is an additional pay period in 2015/16 for various levels of pay.
If you have not started to increase the PAYG Withholding the suggested ATO additional deduction will need to be adjusted as their suggestion is spread over the 53 or 27 pay periods.
Eg. additional Withholding suggested is $13 per fortnight. If this not going to increase until the first period in September when there is only 22 pay periods left. Additional suggested tax to be deducted from that pay period would be:
$13 X 27 pays = 351 divided by remaining 22 pay periods from September = $16.
It is iterated that this is not an additional tax as instead of an employee receiving $52,000 per annum in 2015/16 they will receive either $53,000, if weekly, or $54,000 if fortnightly.
It is not your choice to increase the PAYG withholding from an employees pay but we recommend that you discuss the situation with all of your employees as it will save confusion and queries at year end if an employee discovers they have to pay tax due to under withheld PAYG.
It is further recommended that you get each employee to sign off to either increase PAYG Withholding or to leave as is and keep in each employees file.
Example of an employee on $40,000 per annum or $769 per week
52 Pay Periods 53 Pay Periods
Gross Pay 40,000 40,769
Tax Payable 5,280 5,544
Tax Withheld ($102 per week with no increase) 5,304 5,406
refund $24 payable $138
Difference is $162 which is further increased if Low Income Rebates are included. The ATO suggests in this case as per the link below that an additional $3 per pay be withheld adjusted from the actual commencement time as discussed above. The problem is further compounded if the employee is on a fortnightly pay schedule and of course if the employee is on higher pay rate. Please refer to the applicable table below.
Following is an example of what you should have your employees complete and kept on their file to document their preference.
Employee Name: ______________________________
Please circle your preference below in relation to the additional pay period for the 2015/16 financial year:
1) I request that my PAYG Withholding not be adjusted
2) I request that my PAYG Withholding be adjusted per the ATO guidelines (pro rata for the pays remaining in the financial year)
3) I request that my PAYG Withholding be increased by an amount of $ ____________ per pay period