Bonuses and commissions¶

A bonus is an extra payment for good performance or for reaching a goal — for example, a payment for meeting a sales target or for a strong year. A commission is a payment based on results, most often a share of the sales an employee makes.

Both are ways of paying someone more when they achieve something. And both are still earnings — they are part of what the employee is paid for their work, so they are taxed like other pay.

In one line

Bonuses and commissions are still earnings — they are taxed, and they generally count towards super when they relate to ordinary hours of work.

Why this matters¶

Business owners often treat a bonus or commission as a "one-off" and forget to handle the tax and super on it. That can leave the employee short at tax time or leave the business with a super shortfall. Knowing that these payments are ordinary earnings — not a gift outside the payroll — helps you pay them correctly.

What you will learn¶

The difference between a bonus and a commission
That bonuses and commissions are earnings and are taxed
When bonuses and commissions generally count towards super

Understanding the concept¶

A bonus is usually a lump-sum reward — for hitting a target, for good work, or as an end-of-year payment. A commission is usually a percentage or amount tied to results, such as the value of sales an employee brings in.

Both count as earnings. Because they are earnings, the ATO requires that PAYG withholding (the tax an employer takes out and sends to the ATO) applies to them. The ATO has a specific method for working out the tax on bonuses and commissions, because they often relate to work done over a longer period than a single pay. If a bonus or commission relates to just one pay period, it is generally added to the other earnings for that period and taxed in the normal way.

For super, the key idea is ordinary time earnings (OTE) — the amounts an employee earns for their ordinary hours of work. Super is generally worked out on OTE. The ATO explains that OTE includes commissions, and that a bonus is part of OTE when it is a payment for ordinary hours of work. So bonuses and commissions generally count towards super when they relate to ordinary hours. Because the rules have detail and are changing, always confirm the treatment of a bonus or commission with the ATO.

For accountants & bookkeepers

The ATO's OTE guidance treats commissions as OTE, and a performance bonus as OTE where it relates to ordinary hours; a bonus for work performed entirely outside ordinary hours has historically fallen outside OTE. Under the Payday Super qualifying-earnings rules, all commissions are qualifying earnings — including commissions for work performed entirely outside ordinary hours — so check the current qualifying-earnings position, not just the older OTE list, for the period you are paying. For withholding, the ATO's schedule for back payments, commissions and bonuses sets out Method A and Method B for amounts spanning more than one pay period; amounts for a single period are added to that period's earnings.

Example¶

A salesperson earns an ordinary wage each fortnight, plus a commission based on the sales they make. At the end of the year the employer also pays a bonus for beating the annual sales target. The employer treats the commission and the bonus as earnings: PAYG withholding is worked out on them using the ATO's method, and because they relate to the salesperson's ordinary work, they are generally included when super is calculated. Both the commission and the bonus appear as their own lines on the payslip.

Common mistakes¶

Treating a bonus or commission as a tax-free gift — it is earnings and is taxed.
Paying a bonus "in cash on the side" and leaving it off the payslip and reporting.
Forgetting super — bonuses and commissions generally count towards super when they relate to ordinary hours.
Using the normal weekly tax table for a large bonus that covers a long period, instead of the ATO's method for bonuses and commissions.

How this works in myaccountant¶

In the app — you add a bonus or commission as its own pay item on an employee's pay. When you run a pay run, it appears as a separate line and is included in the gross pay, and PAYG withholding is worked out for you. Super is calculated on ordinary time earnings, so a bonus or commission adds to super depending on how that pay item is set up. Each payment shows on the payslip you can email to the employee.

Key points¶

A bonus rewards performance; a commission pays for results such as sales.
Both are earnings, so PAYG withholding applies.
The ATO has a specific method for taxing bonuses and commissions over a period.
Bonuses and commissions generally count towards super when tied to ordinary hours.
Never pay them "off the books" — they must be on the payslip and reported.
Confirm the exact tax and super treatment with the ATO.

Learn next¶

General information only — not tax, super or financial advice.

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