A Guide to Allowance

A Guide to Allowance

Table of content

  1. What is an allowance?
  2. Types of allowances
  3. Which allowances do employers need to pay their employees?
  4. How much do employers have to pay in allowances?
  5. When to include an allowance as income?
  6. How are allowances taxed in Australia?
  7. How can Workstem assist you with allowance calculation?

What is an allowance?

An allowance is a specific amount of money regularly given to someone, typically on a scheduled basis, to cover specific expenses or needs. Allowances are often provided to employees who do certain tasks, have a particular skill they use at work, use their own tools at work, work in unpleasant or hazardous conditions, or incur an expense for doing their job.

Types of allowances

There are various types of allowances, commonly including:

  • meal
  • uniforms and special clothing
  • tools and equipment
  • travel and fares
  • car and phone
  • first-aid
  • leading hand or supervisor
  • industry of employment (for example building and construction)

Which allowances do employers need to pay their employees?

In Australia, employers are required to provide various allowances to their employees based on the applicable industrial awards, agreements or other industrial instrument that applies.

The specific allowances may vary depending on the industry, occupation, and employment conditions. Here are some common allowances that employers may need to pay their employees:

  • Meal Allowances

Employers in Australia can grant their employees an overtime meal allowance. The ATO determines reasonable amounts for these allowances which are reviewed at the start of each income year.

  • Tool Allowance

Some trades and industries provide tool allowances to employees who need to supply and maintain their tools and equipment.

  • First Aid Allowance

Employees with first aid qualifications who are designated as first aid officers may receive an allowance for taking on this role.

  • Uniform or Clothing Allowance

In some industries, employees may receive an allowance to purchase and maintain uniforms or specialized clothing required for their job.

  • Relocation Allowance

Employers may offer relocation allowances to employees who need to move to a different location for work-related reasons.

There’re also some industry-specific allowances related to the industry’s unique working conditions, such as dirty work allowances, height allowances for construction workers, or diving allowances for underwater workers.

How much do employers have to pay in allowances?

The specific amount that employers have to pay in allowances can vary widely depending on the industry, occupation, location, and the terms of employment agreements, including modern awards or enterprise agreements.

There is no fixed or standard amount for allowances, as they are often negotiated and regulated on a case-by-case basis. Allowances are intended to compensate employees for specific expenses or conditions related to their work.

To determine the specific allowances payable to employees, employers should refer to the relevant modern award, enterprise agreement, or industrial instrument that applies to their workforce. Employers must also ensure compliance with the Fair Work and other relevant employment laws and regulations.

When to include an allowance as income?

If an employer reports allowance on employees’ annual income statement, it should be included as income in employees’ tax return.

The employer may also pay allowances that they only report on employees’ payslip (not annual income statement). Special rules apply to these allowances, see Allowance on payslip not on annual income statement.

How are allowances taxed in Australia?

Most allowances are considered taxable income and must be included in an employee’s assessable income for tax purposes. While some allowances may be exempt from taxation if they meet specific criteria outlined by the ATO. Non-taxable allowances are typically provided to reimburse employees for work-related expenses such as travel allowances, uniform or clothing allowances, etc.

Where the allowance is reported on your annual income statement, you

  • must include the allowance as income in your tax return
  • can claim a deduction for the amount you spent on deductible work-related expenses covered by the allowance
  • must keep records of your expenses (unless a record-keeping exception applies)

How can Workstem assist you with allowance calculation?

Workstem, a world-class HR & payroll platform, simplifies allowance calculation by automating it according to the latest labour laws and industry-specific requirements.

With integration features of rostering, attendance, leave, payroll, as well as the employee self-service App, Workstem streamlines the entire process. Employees can simply apply for expenses and supervisors get real-time updates and approval. Besides, we offer customisation and automation to reduce manual effort in managing allowances.

With Workstem, no matter it’s award interpretation, EA, allowance and payroll management, we can save your time and minimise errors. Click to get a 14-day free trial.

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