Oracle Payroll enables you to meet the statutory requirement to deduct Income Tax and Insurance contributions from employee earnings. The following topics explain how tax and insurance deductions are implemented in Oracle Payroll for Australia:
Oracle Payroll allows you to process tax and insurance deductions for employers and employees, and helps you comply with the legislative requirements applying to your organization.
Yes. Oracle Payroll supports many country specific models of taxation, including the local, federal and state tax requirements of organizations operating in the US.
Yes. You can calculate taxes for different types of employer to represent the diversity of your organization. You can also make retrospective adjustments to allow for overpayments and underpayments.
Yes. The details of taxation policy and social security entitlements are constantly changing, but Oracle Payroll is always promptly updated so that your processing includes the most recent updates.
Yes. EDI allows two-way electronic transmission of documents between the Inland Revenue and employers. Oracle UK Payroll has developed a specified formatted file that, if used in conjunction with third party software, can be transmitted electronically to the Inland Revenue.
You can use Oracle HR to update your records throughout the year to show all the Class 1A National Insurance contributions for which your organization is liable. You can make this information available to employees so that they can preview their NI liabilities. You can then generate a report to view the final details and you can submit the complete and validated records to the Inland Revenue to comply with all reporting requirements.
Pay As You Go (PAYG) is the system of deducting income tax installments from employees' personal earnings, and remitting the money to the Australian Tax Office (ATO).
The amount of tax payable is determined by the information provided on the Employment Declaration form, and whether or not the employee is entitled to be paid Leave Loading.
In various instances, the tax for some earning types may be calculated separately as per the ATO recommendation. These include:
bonuses
commissions
backpay
advance pay
What tax scales are available for PAYG?
The following table defines the seven tax scales in ATO's statement of formulas:
| Scale | Description |
|---|---|
| 1 | where tax-free threshold not claimed in TFN Declaration |
| 2 | where payee is eligible to receive leave loading and has claimed tax-free threshold |
| 3 | foreign residents |
| 4 | where tax file number not provided by payee |
| 5 | where payee claimed full exemption from Medicare levy in Medicare levy variation Declaration |
| 6 | where payee claimed half exemption from Medicare levy in Medicare levy variation Declaration |
| 7 | where payee not eligible to receive leave loading and has claimed tax-free threshold |
Additionally, an employee may have applied for a tax variation which means that their tax deduction would be one of:
fixed tax percentage
fixed dollar amount
tax exempt
The tax year starts on 1 July one year and ends on 30 June the following year. Each tax year may be referred to as a combination of the two partial calendar years, for example 97/98.
Oracle Payroll provides as startup data all the elements, balances and other components you need to correctly administer PAYG. It also provides legislative upgrades to keep your payroll processing up to date with current legislation.
If you include employees in more than one payroll run each processing period, Oracle Payroll's calculations for tax deductions take into account the sums already deducted in that period.
A Higher Education Loan Programme (HELP) deduction is payable by employees who have an accumulated HELP debt. HELP is payable in addition to PAYG tax.
Employees who are entitled to a Medicare Levy Variation or Exemption are exempt from making HELP repayments for that year.
The Commonwealth Government provides some tertiary students with financial assistance in the form of an SFSS loan. Repayment of this SFSS loan is payable in addition to PAYG and HELP.
Rebate amounts being claimed are entered on the Employment Declaration window. Rebate amounts claimed are calculated according to the standards set out by the ATO and are deducted from the PAYG tax installments depending on the type of pay received - for example, weekly, fortnightly or monthly income.
The Medicare Levy is payable on the taxable income of all residents of Australia. Generally, the levy is automatically paid as part of tax installments deducted from salary or wages by a person's employer.
Are there any Medicare Levy exemptions?
There are two types of Medicare Levy exemptions:
FULL - tax installment deductions are calculated using the ATO's Scale 5.
HALF - tax installment deductions are calculated using the ATO's Scale 6.
Who is entitled to Medicare Levy adjustments?
If a person has applied for a levy adjustment then they will have specified whether they have a spouse and the number of children they have. A person only on tax scales 2, 6 or 7 may have a levy adjustment - that is, they have claimed the tax-free threshold.
Employees earning an income greater than the thresholds defined by the ATO and not covered by private health insurance must pay Medicare Levy Surcharge (MLS).
The MLS is calculated at 1% of the employee's income.
A bonus is a payment typically made to an employee as a means of recognition or performance or services. You can spread the tax for a bonus payment across the pay periods in which it is earned.
You must set up earnings types taxed in this way in the Spread secondary classification.
Commission payments are considered to be part of salary or wages.
Where a commission is paid for regular single pay periods of one week to one month, add the amount to any other salary or wages for that period. Tax instalment deductions are calculated according to the appropriate tax scale.
How does Oracle Payroll deal with commission payments?
Where commission payments relate to a period in excess of one pay period, or are paid on an irregular basis, the PAYG deduction may be calculated using either of the following methods:
spread
progressive
You must set up earnings types taxed in this way in the Spread or Progressive secondary classification.
Elements within the Spread classification will produce indirect feeds to the Spread Deduction element.
Elements within the Progressive classification will produce indirect feeds to the Progressive Deduction element.
A portion of leave loading is not taxable. Only the amount exceeding this portion is to be taxed. This amount is taxed at the same rate as the employee's other salary or wages. PAYG on leave loading elements is calculated within the main PAYG formula.
For information on the tax-free portion of leave loading you should refer to the standards defined by the Australian Tax Office.
Leave loading elements must be set up in the Leave Loading secondary classification.
There may be some circumstances where earnings are subject to a different tax rate than the standard PAYG rates.
Any earnings type that is required to be taxed at a fixed rate must be set up as elements within the Fixed secondary classification.
There are four supported pay frequencies in Australia:
weekly (52 pay periods)
fortnightly (26 pay periods)
semi-monthly (24 pay periods)
monthly (12 pay periods)
The Employment Declaration form records whether a person is totally tax exempt or whether they can apply to have their tax calculated at a standard percentage rate or a fixed amount deducted.
If an employee has a variation, then all earnings and allowances will be taxed as per the variation, regardless of whether they are bonus or commission payments and so on.
Note: If an employee has a tax variation of either a fixed amount, percentage or exempt on termination, their tax reverts back to the scale calculated by the Declaration Form.
If you include employees in more than one payroll run each processing period, Oracle Payroll's calculations for tax deductions take into account the sums already deducted in that period.
Taxing of retrospective payments is based on the period in which they fall into, and the length of time that has elapsed since the payment was due.
Deductions on retrospective amounts can be made in the following manner:
if the retrospective payments are for periods greater than 12 months ago, they are to be taxed at a flat rate of 21.5%
if the retrospective payments are for periods less than or equal to 12 months ago, they are to be taxed at the employee's current tax rate.
Fringe Benefits are benefits that an employee receives from their employer in place of salary or wages.
Fringe Benefits Tax (FBT) is tax that is payable by the employer for non-salary benefits provided to the employee.
The FBT reporting requirements apply to all employers who provide fringe benefits to an employee with a total grossed up value of more than $2000 for a FBT year. The grossed up taxable value of the benefits must be included on the employee's payment summary for the financial year.
The fringe benefits value to be reported on each payment summary will factor in the income tax that would have been paid in cash salary rather than in fringe benefits - this is the 'grossed up' value.
The FBT year start on 1 April and ends on 31 March the following year.
With the grossed up value of the FBT allowance now appearing on payment summaries, the FBT balance needs to be held after the collection of the following year's FBT figures.
You set up your Fringe Benefits elements in the Elements window. You must assign the Fringe Benefits elements you create to the Primary Classification of Fringe Benefits.
See: Making Manual Element Entries, Oracle HRMS Compensation and Benefits Management Guide.
The Fringe Benefits elements you create are then picked up for inclusion on the Payment Summary.
See: Setting Up Fringe Benefits Tax, Oracle HRMS Compensation and Benefits Management Guide (Australia)
Note: Payment of the Fringe Benefits can be made via Oracle Payroll or through Oracle Payables.
Employees considered Australian residents for tax purposes, but working overseas, are considered Foreign Workers. The monies earned while being employed overseas is considered foreign income. Foreign income is taxable and the ATO requires the reporting of foreign employment payments on a separate Payment Summary - Foreign Employment Payment Summary.
Oracle HRMS for Australia enables you to:
Record foreign worker information and calculate taxes for foreign workers
Report the foreign income in the end of year reports and Printed Payment Summary for Foreign Workers
Report the foreign income in the End of Year Data file and Reconciliation Reports
Oracle HRMS for Australia enables users to record and process foreign income information of employees working overseas to ensure correct tax calculation and reporting.
Assignment Status
Oracle provides predefined assignment statuses that users can use to record if an employee works overseas or in Australia:
Foreign Worker J – use this status for periods of foreign work that is part of Joint Petroleum Development Area (JPDA)
Foreign Worker F – use this status for periods of foreign work that is not part of JPDA
The End of Year archive process uses this assignment status to determine which earnings will appear on which Payment Summary. If an employee works partially overseas and partially in Australia, the employee will receive payments for both foreign and normal assignment statuses and therefore receive two Payment Summaries.
Predefined Elements and Balances
Oracle provides the following predefined elements to use while processing foreign income for taxation purposes.
Foreign Tax Paid - Oracle provides a predefined element Foreign Tax Paid and corresponding balance Foreign Tax Payments. You can calculate the overseas tax deducted in AUD and feed to this element. Based on the amounts fed to this element, the application calculates the total tax as (PAYG Tax – Foreign Tax Paid).
Use this element to reduce the tax paid by the employee in Australia as employees would have already paid tax for the amount in a foreign country. This element is optional.
Retro Foreign Tax Paid - Use this element to input any overseas tax paid against retro earnings.
Foreign Tax Adjustment - If the Foreign Tax Paid is greater than the PAYG liability, the application uses this element and will adjust the tax to be paid to zero.
Foreign Leave Payments on Terminations - Use this element to calculate the ratio of foreign employment to Australian employment for the purposes of termination payment calculations.
Foreign Worker Days - Use this element to override the number of days used in the proration calculation for a pay period, which has partial foreign work and partial Australian work.
Employers are required to report YTD figures on a pay by pay basis rather than as one report at the end of the year. Employers submit the file to the ATO using a sending service provider (SSP) as the XML file requires further processing to meet the file submission requirements from the ATO.
Oracle HRMS provides the Single Touch Payroll process to archive the employees and their information to produce the STP Report. You can report the changes to TFN for the assignment if required. You can run the archive process multiple times for the same period or parameters for the same or different group of employees. Each archive includes all employees even if the information has been archived previously. Even if there are multiple archives for the same employee, the most recent assignment record is reported in the STP Report.
When you rerun an archive for the same period or parameters, you must either delete or roll back the previous archives. You can combine the multiple archives to produce one XML file. The submission date must be the same for all archives to produce a combined XML file. You can reconcile or view what has been archived.
The STP process produces an exception report and a validation report from the data in the archive and not the live system.
You can run the exception report separately from the Submit Requests window by enabling or disabling the report sections based on the parameter values.