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MYOB – How do taxes calculate when pays were split, and using Pay Leave in Advance MYOB
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Published on Thursday, 24 August 2017 11:13
Client emailed - My staff only worked some days on the holiday break period, so our fortnightly pays were split into two payments, but I wondered how does the tax calculate?
To do the pays, I paid 40% of a normal fortnight pay plus entitlements, as there were only 4 days worked for that fortnight, and paid that on the last work day. Then on our return, when the next pay was due, I paid the 60% balance plus entitlements, as most employees worked only 6 days of that fortnight.
I used the 'Pay Leave in Advance' function in payroll, ie Fortnight of standard pay: ( 0.04 and 0.60). How does the system calculate the tax component when pays are split, as it looks like the tax deducted from the second payroll is too high?
Answer – It depends on the settings.
MYOB takes the gross figure and takes that as the figure earned for the period, then works out the tax accordingly. Then in each pay it applies the ATO formula which subtracts the tax free threshold then calculates the PAYG payable on the remainder. This could mean that some of your lower paid staff may not have had tax deducted on their first pay.
It is best to check - set up an excel to look at gross pay and gross PAYG for the period and compare it to Fortnightly Tax Witholding table from here - ATO Australian Tax Office – Tax Tables – PDF’s
Any significant adjustments can be made in future pays. The payroll will tax the individual pay period that you are entering.
Examples - If the gross of that pay was $500, it would tax the employee for a gross of $500 according to the tax table the employee is on and the pay frequency.
If you use Pay Leave in Advance, it will process two pay frequencies at once and count it as separate weeks for tax. For example if you get paid $500 gross each week and let’s say the tax amount is $100 per week. If you used the Pay leave in advance and paid it for 1 standard week and 1 week leave in advance, you are actually getting the same amount of gross per normal week i.e. 500. The total gross would be $1000 but the tax would be $200 instead of say $350 (which it may have been if you paid $1000 in a normal week). This is due to the fact that the tax amount is $100 for $500 gross and you are getting $1000 so 2 x normal gross therefore $200 or 2 x normal tax.
Be also mindful of entitlements - For those set to Hourly there should be no problems, but for salary people you would have needed to alter the accrual for each of the pays.
TIP – With Salary staff – Start by setting as Salary enter the gross annual Salary amount, THEN change to Hourly – it is SO much easier and the Entitlements will always be in % proportion if hours change!
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