Table of Contents

Handling All-purpose allowances with Overtime from Reckon Accounts 2023 and above

What is an 'All Purpose Allowance'?

An all-purpose allowance is an allowance that is added to an employees hourly rate and is paid for all purposes, such as when calculating payments for leave or overtime.

Some employers may have historically set up their payroll using a single rate that includes the employees hourly rate and all-purpose allowances. However, it is important in STP phase 2 that those allowances can be identified because they are treated differently in different situations by different regulators such as the ATO and Services Australia. Not being able to identify them may disadvantage your employee.

See Allowances at Reporting the amounts you have paid | Australian Taxation Office (ato.gov.au) for more information.


Disaggregation of an all-purpose allowance

Exceptions

The following is an excerpt from ATO.

There is no need to disaggregate the all-purpose allowance if:

  1. The allowance is part of an amount reported as Overtime:
    1. As overtime is treated differently for super guarantee purposes, you should include the amount as overtime in your STP report.
  2. Payments for cash out of leave (paid leave type C) or unused leave on termination (paid leave type U)
    1. Cashing out of leave entitlements is treated differently in the tax, super and social security systems compared to allowances paid when work is performed or would have been performed.
    2. Use the applicable leave type to report allowances that form part of cashed out leave entitlements.
See Allowances at Reporting the amounts you have paid | Australian Taxation Office (ato.gov.au) for more information.

Example

The following example is for general information only. Your individual business circumstances may differ, please consult your BAS or Tax agent for further clarification.

Given that:

  • Hours per week = 38 hours
  • Base rate of pay = $840.10 per week ($22.10789 per hour)
  • All-purpose allowance:
    • Industry allowance (Tasks) = $33.28 per week
    • Tool allowance = $20.02 per week
  • Overtime of 2 hours is performed on a weekday, paid at 150% rate.


Therefore:

  • Weekly pay = $893.40 ($840.10 + $33.28 + 20.02)
  • Overtime pay = $70.53 ((($893.40 ÷ 38 hours) x 150%) x 2 hours)


STP PHASE 1

Tax Tracking Type

STP PHASE 2

Tax Tracking Type

  1. Gross Payments: $893.40

  1. Gross payments = $840.10
  2. Allowance – tasks = $33.28
  3. Allowance – tools = $20.02
  4. Overtime = $70.53


Handling all-purpose allowances in Reckon Accounts

Reckon Accounts uses a multiplier for Overtime payroll items that automatically calculate the rate based on the Hourly pay.

With the requirement to disaggregate the all-purpose allowance, adjusting the hourly rate would calculate the incorrect Overtime rate.

Therefore, simply manually overwrite the overtime rate on the employee record after adjusting the hourly pay to be reflected at each pay.


Step 1: Create a new allowance payroll Item for the all-purpose allowance

  1. Go to List > Payroll Item List
  2. Create a new Addition payroll item
  3. Set the correct Tax Tracking Type for the allowance. See STP Phase 2 – Allowances for reference.
  4. Add the new Allowance to the employee record with the rates


Step 2: Update the tax tracking type for the overtime

  1. Create or Edit the Overtime payroll item
  2. Set the Tax Tracking Type to Overtime


Step 3: Update the hourly rate and overtime rate

Using the example above, if the allowance is included in the employee's rate, the rate has to be adjusted to reflect the base rate less any all-purpose allowance amounts.

  1. In this example, reduce the Hourly Pay from $23.51053 to $22.10789.
  2. Then, update the Overtime rate from $33.16 to $35.26579


When processing the pays, the new rates for both hourly pay and overtime will be obtained from the record. Entering the hours will calculate the correct weekly pay.


If the Overtime item line is removed and re-placed this will automatically calculate the rate as per the current hourly pay rate.




Need more help?

Ask the Reckon Community at: https://community.reckon.com/

Or Log a Support Ticket: https://www.reckon.com/au/support/

How did we do?

Account Numbers are disabled after launching the Migration Assistant in Reckon Accounts 2023

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