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- Allowances are extra payments made to employees, including travel, meals, tools or particular skills
- To include an allowance on an employee's pay, set up a new pay item (instructions below)
- To check which allowances your employees might be entitled to, in Australia the Fair Work website is a good place to start. In New Zealand, learn more about allowances on the Ministry of Business website
OK, let's step you through how to set up an allowance.
Set up an allowance pay item
Pay items are used to add extra payments to employees' pays. Here's how to set up a pay item for a $20 meal allowance, but the same approach can be used for any allowance. If the allowance amount varies between employees, you can change the amount when you process your pays, or you can set up additional pay items.
- Go to the Payroll menu and choose Pay items.
- Click Create earning.
- Set up the earning:
- For the Type, select Allowance.
- Enter a Name for the earning.
If you'd like a different, more personalised, name to show on payslips for this earning, enter a Name for payslip, such as "Meal Allowance - Steven". Otherwise, this can be the same as the Name field.
For the Rate, choose whether the allowance will be paid as a Fixed amount, on a Per hour basis, or (New Zealand only) Per km or Per unit.
(Australia only) Need to pay a per KM travel allowance? A Per hour rate can also be used for other units, such as per KM, per day, per job, etc. See the FAQ below for more details.
- Enter the Amount for the allowance. If needed, you can change this amount during the pay run.
- Choose whether the overtime is Taxable or Non-Taxable. If unsure, check with your accounting advisor or the ATO/IRD.
Select your country-specific options.
If you're in... this option... means this... Australia Pay super on this earning Select this option if superannuation should be paid on the allowance. See the ATO guidelines for details about what should be included in super calculations. Accrue annual and sick leave on this earning (Per hour allowances only) Select this option if annual leave and sick leave should accrue on the allowance. If unsure, check with the Fair Work Ombudsman or your accounting advisor. ATO reporting category If you report to the ATO via Single Touch Payroll, select the applicable ATO reporting category for this allowance. If unsure, check with your accounting advisor or the ATO. Learn more about Assign ATO reporting categories for Single Touch Payroll. New Zealand Exclude CEC Select this option if compulsory employer contributions should be excluded from allowance payments. If unsure, check with your accounting advisor or check the IRD website. Exclude from gross earnings for leave calculations Select this option to exclude the pay item from gross earnings for leave calculations. If you're not sure whether to exclude this pay item, check the IRD website . Learn more about Leave calculations . Don't accrue annual leave on this pay item Select this option if you don't want employees to accrue pro-rata annual leave on this pay item. Note that employees with a fixed annual leave entitlement will never accrue leave on pay items.
Here's our example meal allowance setup. This example shows no super or leave is accruing on the allowance, and an ATO reporting category has been chosen. Your allowance setup may differ, and we recommend consulting the ATO or Fair Work about your specific requirements.
- Click Save.
- Repeat these steps if you need to create additional allowance pay items.
- When you're done, assign the pay items to your employees as described in the next task.
Assign the pay item to an employee
To include an allowance pay item in an employee's pay, you need to assign it to them. Here's how:
- From the Payroll menu, choose Employees.
- Click the employee's name.
- Click the Pay items - earnings & deductions tab.
- In the Earnings section, click the dropdown arrow next to the Add earning... field.
- Choose the allowance pay item to be assigned to the employee. The pay item is assigned to the employee.
- Repeat step 5 if you need to assign any additional pay items to the employee.
- Click Save.
- Repeat from step 2 to assign pay items to another employee.
OK, you're now ready to pay the allowance when you do a pay run. See the next task for details.
Pay the allowance
When you process the employee's next pay, the allowance will be listed.
- Go to the Payroll menu and choose Enter Pay.
- Select the employee to be paid then click Start Pay Run.
- Next to the allowance pay item, enter or confirm the amount (or Hours) being paid. Here's our example meal allowance:
- Continue processing the pay as normal.
How do I set up a per KM travel allowance?
(New Zealand only) When setting up an allowance pay item (task 1 above), choose the Per km rate.
When you apply this new earning to an employee and process a pay run, the earning will work the same as an hourly earning. If you want, you'll be able to adjust the per kilometre rate for the employee in the pay run.
(Australia only) When setting up an allowance pay item (task 1 above), the Per hour rate can also be used for any cumulative unit, such as per KM travelled. You can then enter the value per KM in the Amount field.
Here's an example travel allowance to pay $0.50 per KM. We've also included "PER KM" in the allowance name as a reminder.
When you pay the employee (task 3 above), enter the number of KM travelled in the Hours column. In this example, a travel allowance for 200KM is being paid: