If your business has had a successful year and you are thinking about rewarding your employees with a bonus for their contribution there are a number of things to consider, particularly from a tax perspective.
From a tax law perspective, bonuses are considered ordinary income to your employees, just like their regular salary or wages.
This means the bonus is taxable and you will be required to withhold tax on the bonus you choose to pay them.
For example, if you want your employees to receive $1,000 in their bank account, you may need to look at paying them a slightly higher bonus, to allow for the tax that you need to withhold.
From your employees’ perspective, the bonus may move them into a higher tax bracket, or it may affect their eligibility for things like government benefits.
The other thing you need consider before paying a bonus is superannuation guarantee.
Superannuation guarantee is to be paid on your employees’ ordinary time earnings. Generally speaking, ordinary time earnings are the amounts paid to employees for their ordinary hours of work, excluding any irregular overtime.
If the bonus you are looking to pay is for the good work that your employees have performed throughout the year, it’s most likely that the bonus will be ordinary time earnings.
Therefore, superannuation guarantee will need to be paid on the gross bonus you pay your employees.
This means that you may have to alter the total bonus you pay to your employees, to ensure that they receive a net amount for their bonus.
As you can see the payment of bonuses is more complex then it appears on the surface. It is important to consult with your Crowe Horwath accountant or tax advisor to ensure the best outcome for both your business and your employees.