Create a wage category

1. Go to the Payroll command centre and click Payroll Categories.
2. Click the Wages tab and then click New.
3. Name the new category, for example Travel Allowance.
4. Set the Type of Wages option to Hourly.
5. For the Pay Rate select the Fixed Hourly Rate of option and enter the appropriate rate in the field.
   If the rate isn’t time based, for example, its paid by kilometre, then enter the relevant rate (eg amount paid for each kilometre). Or if it’s a fixed amount per pay period, enter that amount.
   
    
6. If you want to track the allowance using a different expense account to the employee’s base hourly or salary account, select the Override Employees’ Wage Expense Account option and select the account you want to use. 
   For example, you might have a Travel Allowances expense account in your Accounts List that you want to use to track the amounts paid. In this case you would like the wage category to that Travel Allowances expense account.
7. Click Employee, select the employees who are eligible for the allowance, and then click OK.
8. If the allowance is exempt from tax, click Exempt and select the PAYG Withholdings category. If you’re not sure whether the allowance is tax exempt, check with your accountant or the ATO.
9. Click OK.

Exempt the allowance from super calculations

If the allowance isn't included in Superannuation Guarantee calculations, (check with the relevant workplace authority if you're not sure) do this:

1. Click the Superannuation tab of the Payroll Categories List.
2. Open the Superannuation Guarantee category.
3. Click Exempt, select the allowance that shouldn’t be included in the super calculation and then click OK.
4. Click OK.

Exempt the allowance from leave calculations

If you have entitlement categories based on a percentage of gross hours worked, you need to exempt the allowance from this calculation:

1. Click the Entitlement tab of the Payroll Categories List.
2. Open a category you need to edit, for example, Annual Leave Accrual.
3. Click Exempt, select the allowance that shouldn’t be included in the leave accrual calculation and then click OK.
4. Click OK and then repeat for any other entitlements that need to be edited.

When the time comes to process the employee's paycheque, enter the number of units (hours, kilometers, fixed amounts) in the Hours column for the relevant wage category.

For example, you would the following in the Hours column:

• 8, if the rate is per hour, and you need to pay 8 hours worth of allowance

• 1000, if the rate is per kilometre, and the employee travelled 1000km

• 1, if the rate is a fixed amount of $200 per week, and the employee is paid weekly.

Allowances are usually shown separately to Gross Payments on your payment summaries. So, when setting up the fields in step 4 of the Payment Summary Assistant, select Allowance 1, enter a description, such as Travel, and then select the allowance wage categories that you want to show in that field on the payment summary. Repeat with Allowance 2, 3 and 4 for your other allowances.

If you need an employee's allowance taxed at a flat rate but have the balance of their pay taxed at the normal PAYG rate, here's how to set it up:

1. Set up the allowance wage category as described above. 
2. Set up a deduction payroll category for the flat rate of tax (Payroll > Payroll Categories > Deductions tab > New).
• For the Calculation Basis, specify the flat tax rate and select the allowance wage category created earlier.
• Click Employee and select the employees associated with this allowance.
  Here's an example of a travel allowance deduction category with a 5% flat tax rate:
  
3. Pay the employee as described above.