Table of content
- What are award allowances?
- What is a meal allowance?
- Is meal allowance taxable?
- What is a travel allowance?
- Is travel allowance taxable?
- What is a uniform allowance?
- Is a uniform allowance taxable?
- Allowance vs reimbursement: what’s the difference?
- How do allowances vary by industry?
- How should payroll teams manage award allowances?
- How Workstem helps manage award allowances
- Frequently asked questions
- Read more
What are award allowances?
Award allowances are additional payments or reimbursements that employees may receive for specific work-related expenses, skills, tasks, working conditions or locations.
Common examples include meal, travel, uniform, laundry, vehicle, tool and industry allowances. The exact entitlement depends on the applicable modern award, enterprise agreement or employment arrangement.
An allowance is not automatically the same thing as a reimbursement. Employers need to understand what the payment is intended to cover and how the applicable award and tax rules treat it.
What is a meal allowance?
A meal allowance is an additional payment intended to compensate an employee for meal expenses in circumstances specified by an award or agreement.
Meal allowances can apply when an employee works overtime, travels for work or meets other conditions specified by their employment instrument.
For example, the Hospitality Industry Award contains an overtime meal allowance, while other awards establish different amounts and eligibility conditions.
Because allowance amounts can change when awards are updated, employers should use the current award to check for the most updated amount.
Is meal allowance taxable?
A meal allowance can be taxable. The tax treatment depends on the type of allowance, why it is paid and whether an applicable tax exception applies.
The ATO recognises specific rules for reasonable overtime meal allowances and travel-related meal expenses. Employees may have different reporting and substantiation obligations depending on the circumstances.
For payroll purposes, employers should distinguish between:
- an allowance paid as part of employment income
- a reimbursement of an actual expense
- a reasonable overtime meal allowance
- a travel allowance covering meals and incidental expenses.
These categories can have different tax and reporting consequences.
What is a travel allowance?
A travel allowance is generally an amount paid to an employee to cover certain expenses incurred while travelling for work.
The ATO states that the purpose of the payment matters when determining whether an amount is a travel allowance. The label used by an employer does not, by itself, determine its tax treatment.
At the workplace-relations level, travel entitlements also depend on the applicable award. Some awards require reimbursement of reasonable travel expenses, while others prescribe specific travel or vehicle allowances.
Is travel allowance taxable?
Generally, a travel allowance is assessable income, although specific tax concessions and withholding exceptions can apply when the relevant conditions are met.
The ATO explains that a travel allowance is generally included in an employee’s assessable income, but certain reasonable travel allowance amounts may qualify for an exception from withholding and reporting requirements when the relevant conditions are satisfied.
This means employers should not simply mark every travel allowance as “tax-free”.
The payroll treatment should consider:
- Why is the allowance being paid
- Where the employee is travelling
- Whether the travel involves an overnight absence
- The amount being paid
- The applicable ATO reasonable amount
- Whether the employee is required to substantiate expenses
- How the payment needs to be reported through payroll
What is a uniform allowance?
A uniform allowance is a payment or entitlement associated with clothing or uniform requirements at work.
The exact entitlement is determined by the relevant award. Some awards require employers to provide or reimburse required uniforms, while others provide separate laundering or clothing allowances.
For example, the Amusement, Events and Recreation Award includes provisions requiring reimbursement for required uniforms and provides a laundry allowance where employees are responsible for laundering specified garments.
Is a uniform allowance taxable?
A uniform or clothing allowance can be assessable income to the employee.
The ATO states that allowances received for clothing, uniforms and related expenditure are generally assessable. Whether the employee can claim a deduction for related expenses is a separate question and depends on the nature of the clothing and the applicable tax rules.
For example, the ATO distinguishes between conventional clothing and compulsory, distinctive or protective work clothing when determining deductibility.
Employers should therefore avoid treating a uniform allowance as automatically tax-free simply because the payment relates to work clothing.
Allowance vs reimbursement: what’s the difference?
The distinction is important for payroll.
| Payment Type | General purpose |
| Allowance | Additional payment made to cover a specified expense, condition or work requirement |
| Reimbursement | Employer repays an employee for an actual expense incurred |
| Wage-related allowance | Additional payment connected to a skill, task or working condition |
| Expense-related allowance | Payment intended to cover a work-related expense |
| Industry allowance | Payment prescribed because of the employee’s industry or working conditions |
Fair Work notes that allowances can compensate employees for tasks, skills, locations, expenses and other workplace circumstances.
How do allowances vary by industry?
Allowance rules can be highly industry-specific.
Hospitality
Hospitality employees may receive meal-related allowances when working qualifying overtime. The Hospitality Industry Award also contains detailed penalty, overtime and rostering provisions.
Fast food
The Fast Food Industry Award contains meal and special clothing provisions, including an overtime meal allowance and clothing/laundry requirements.
Construction
Construction awards can contain industry allowances as well as travel, tool, clothing and other expense-related provisions. The Building and Construction General On-site Award, for example, contains separate industry and expense-related allowances.
Healthcare and professional services
Healthcare and professional awards can include travel, clothing, laundry and other expense-related entitlements. The specific allowance depends on the employee’s classification and working circumstances.
How should payroll teams manage award allowances?
A practical allowance process should include:
- Identify the applicable award
Do not use one allowance table for every employee. - Define each pay code
Record what the allowance represents and when it should apply. - Configure eligibility rules
Some allowances only apply after specific hours, locations or work conditions are met. - Separate allowances from reimbursements
The payroll and tax treatment may differ. - Review tax treatment
An allowance can be assessable even when the underlying expense may be deductible. - Update award rates
Award monetary amounts can change, so payroll configurations need regular review. - Reconcile allowances every pay cycle
Check that the correct employees received the correct allowance for the correct circumstances.
How Workstem helps manage award allowances
Award allowances can become difficult to manage when payroll, attendance and employee records sit in separate systems. Workstem connects attendance, payroll and award-based calculations to help automate overtime, allowances and other pay items.
Explore Workstem’s award interpretation to simplify your team’s allowances.
Frequently asked questions
Q1: What types of allowances can payroll software handle?
A1: Businesses can create different pay items for allowances such as meal, travel or uniform allowances. Workstem allows payroll teams to customise the pay-item name, pay type, salary element and calculation formula.
Q2: How are allowance tax and super settings configured?
A2: Tax and Super treatment can be configured at the pay-item level. Workstem allows businesses to specify whether an individual allowance is included in Tax and Super calculations.
Q3: When should an allowance be treated differently from an expense reimbursement?
A3: An allowance is generally set up as a payroll payment, while an expense reimbursement is used when an employee is claiming back an eligible business expense. Workstem supports both customised payroll pay items and digital expense claims.
Q4: How can employees submit expense claims without using paper forms?
A4: Employees can submit expense claims digitally with the relevant claim details and supporting attachments. Workstem provides a workflow for HR or managers to review and approve reimbursement requests.
Q5: Where can payroll teams check whether an allowance counts toward Super?
A5: The relevant pay item’s configuration determines whether it is included in Super. Payroll teams can review this setting directly within Workstem when setting up or reviewing an allowance.
Q6: Can allowance calculations be tested before they are used in payroll?
A6: Yes. Workstem allows formulas to be added and validated during pay-item setup. Payroll teams can review the configured calculation before saving the pay item and using it in payroll.
