This article outlines the procedures for managing salary sacrifice refunds, detailing the reporting requirements as per Australian Tax Office (ATO) guidelines and providing step-by-step instructions for processing these refunds within the Employment Hero (EH) platform.
It addresses scenarios where the refund occurs in a different financial year than the original sacrifice, as well as situations where it happens within the same financial year, ensuring compliance with Single Touch Payroll (STP) Phase 2 obligations.
This guide also includes specific instructions for handling terminated employees and clarifies how various reporting figures, such as gross earnings, are impacted by these adjustments.
As per the ATO guidelines: see this ATO link.
As the refund of salary sacrifice is occurring in the current financial year:
- you have an obligation as an employer to report through STP that you have paid it
- your employee has an obligation to include it in their tax return.
Taking this step ensures the refunded salary sacrifice amount is included in your reporting and your employee's tax return for the correct financial year.
Withhold from the salary sacrifice refund and include the additional PAYG withholding in your STP report for the current financial year.If the amount had originally been paid to the employee as salary or wages, you would have withheld from it and reported the PAYG withholding in your STP report. However, you did not because the amount was sacrificed instead.
As you are now paying this amount to the employee, you still need to withhold and report the PAYG withholding in your STP report.
Check whether you have paid super on the refunded amount in a previous quarter and, if you haven’t, pay the additional super and include the additional super amount in your STP reporting for the current financial year.As an employer, you need to make sure that you have met your super obligations relating to the salary sacrifice refund amount.
Depending on the circumstances you may already have paid super on it (such as where the sacrifice was to super), or you may need to pay additional super. It is important to confirm this (and if you need to, pay the additional super) so that your employee receives the super they are entitled to.
For the previous financial year, reduce the YTD amount you have reported as:
- Gross by the total amount of the refund
- Salary sacrifice type S by the amount of the refund relating to sacrifice to super, and
- Salary sacrifice type O by the amount of the refund relating to sacrifice to other benefits.
As both you and your employee have obligations to include the refunded salary sacrifice amount in the STP reporting and tax return for the current financial year, you need to correct your reporting for the previous financial year so that it isn't double-counted in both years.
Reducing both Gross and the reported salary sacrifice amounts ensures that when we use the pre-sacrifice income amounts you reported together with the salary sacrifice amounts to work out the post-sacrifice income that needs to be included in your employee's tax return, we can still determine the correct amount.
For the previous financial year, check the RESC and RFBA you have reported to ensure you have not overstated them due to the refund of salary sacrifice.If you have reported RESC or RFBA relating to the same amount which is now being refunded, you need to make sure you correct that reporting so the same amount is not double counted as RESC or RFBA in one financial year and as income in another.
RESC and RFBA are included in your employee’s income for calculating some things like study and training support loan repayments and certain benefits, so double counting the salary sacrifice refund amounts can disadvantage your employee.
Example: refund of salary sacrifice outside of the financial year
Lisa's employee sacrifices part of their salary towards a novated lease. By 30 June 2022, the YTD amounts Lisa had reported through STP for this employee were:
- Gross = $100,000
- Salary sacrifice type O = $10,000
- Super liability = $9,000.
In July 2022, an end-of lease reconciliation has identified that Lisa's employee sacrificed $500 more than they needed to during the financial year, and a refund of the salary sacrifice is being provided to them in their first monthly pay on the 15th of July.
For the financial year, which has just ended, Lisa:
- decreases Gross to $99,500
- decreases Salary sacrifice type O to $9,500
- reviews the RFBA amount to identify and correct any impact.
For the current financial year, Lisa:
- increases Gross to $8,833.33 (the pay period 1 YTD amount plus the amount of the salary sacrifice refund)
- includes the additional PAYG withholding on the salary sacrifice refund as PAYG withholding
- increases Super Liability to $927.50 (the pay period 1 YTD super liability amount of $875 plus the super liability relating to the salary sacrifice refund of $52.50).
Warning
If the employee was terminated in the previous year. You will need to reactivate the employee file before you can do this.
You can terminate them in the pay run again with the same termination date and termination reason as previously.
You will first need to configure a few things.
- A Fixed Pay Category - Salary Sacrifice Refund
When an employee is terminated, you will need to first go to their employee profile and re-activate the employee.
Once you have done this.
Create a pay run for the first pay period of the current financial year
Add the employee to the pay run
Once the employee is added to the pay run, click actions> Add Earnings.
Select the refund pay category you set up:
Add your refund amount:
Take note of the PAYG within this pay run:
After this, terminate the employee in the pay run by clicking Actions> Terminate the employee.
Select the original termination date and reason.
From here, you can submit STP for the current financial year as per normal.
Fixing the Figures for the Last Financial Year
Create a pay run for the same pay period and PAID DATE as the last pay period of the last financial year.
From here, add the employee to the pay run:
Click Actions> Make a deduction
From here, put in a negative amount of the salary sacrifice refund amount:
You will then need to click Action> Add Earnings
Once you do that, you will need to reduce the employee's Gross amount by the same amount.
From here, finalise the pay run and create an amended finalisation for the employee.
You will then need to notify the employee that they will need to lodge an amended Tax Return lodgement for the previous financial year.
Refunds of salary sacrifice
Some circumstances may result in a refund of salary sacrifice amounts to an employee. The way to report this correctly depends on whether the refund of salary sacrifice occurs in the same, or in a different, financial year from when the amount was initially sacrificed.
The steps you need to take in your product to make these changes correctly will differ between payroll solutions. It is important to make sure you understand your DSPs instructions.
The following table shows the actions you need to take when reporting a refund of salary sacrifice if it occurs within the same financial year as the initial sacrifice.
| Action | Reason |
|
Reduce the YTD amounts you have reported as:
|
We use the pre-sacrifice income amounts you report together with the salary sacrifice amounts to determine the post-sacrifice income that needs to be included in an employee's tax return. Refunding a salary sacrifice amount means that your employee has actually sacrificed less of their salary than what you have reported. Reducing the salary sacrifice amount ensures the post-sacrifice income can still be correctly determined. |
| Withhold from the salary sacrifice refund and include the additional PAYG withholding in your STP report |
If the amount had originally been paid to the employee as salary or wages, you would have withheld from it and reported the withholding in your STP report. However, you didn't because the amount was sacrificed. As you are now paying this amount to the employee, you still need to withhold and report the withholding in your STP report. |
| Check whether you have paid super on the refunded amount in a previous quarter. If you haven't, pay the additional super and include the amount in your STP reporting. | As an employer, you need to make sure that you have met your super obligations relating to the salary sacrifice refund amount. Depending on the circumstances you may already have paid super on it (such as where the sacrifice was to super), or you may need to pay additional super. It is important to confirm this (and if you need to, pay the additional super) so that your employee receives the super they are entitled to. |
| Check the RESC and RFBA you have reported to ensure you have not overstated them due to the refund of salary sacrifice. |
If you have already reported RESC or RFBA relating to the same amount which is now being refunded, you need to make sure you correct that reporting so the amount is not double counted as income and as RESC or RFBA. RESC and RFBA are included in your employee’s income for calculating some things like study and training support loan repayments and certain benefits, so double counting the salary sacrifice refund amounts can disadvantage your employee. |
Example: refund of salary sacrifice within the same financial year
Oscar's employee sacrifices part of their salary towards a novated lease. So far in this financial year, they have sacrificed $20,000 and Oscar has reported $20,000 as Salary sacrifice type O through STP.
A reconciliation has identified that Oscar's employees have sacrificed $500 more than they needed to, and they are receiving a refund of the salary sacrifice.
As the refund of salary sacrifice is occurring in the same financial year as the sacrifice, Oscar corrects his STP reporting to show $19,500 as the YTD amount for Salary sacrifice type O, and to include the additional PAYG withholding and super liability which applies to the refund.
Oscar also reviews his reported RFBA to ensure he has taken the salary sacrifice refund into account.
For a salary sacrifice refund for this FY.
Create ad hoc pay run with the same Paid Date and Pay period as a pay run for the employee.
Add Employee to Pay Run
Go Actions> Make a Deduction:
Lightbox to screenshots Custom Gem
Put in the negative amount:
Finalise Pay Run as per normal.
Note:
Salary sacrifice refund will not increase the employees gross earnings in STP as the Gross earnings in STP.
As part of the STP2 reporting requirements, submitted STP pay events must include the total, pre-sacrificed gross payments made to employees and separately report the Salary Sacrifice/Pre-tax deduction amounts. The ATO then use these figures to calculate the "employer (payer) totals" which are then populated into your ATO portal and used for W1/W2 prefilling of your activity statements. So the calculations for these two "gross" amounts are slightly different.
Below are some additional links and screenshots from the ATO website detailing what amounts from the STP pay events are included in the employer (payer) totals:
- The below screenshot details the change in reporting requirements as part of STP2. This is currently reporting correctly through your pay events as we can see that the Total Reportable Gross figures include the SS amounts.
-
As you are not reporting any additional Gross amount for an employee, employers will need to check their Pre-filled W1 data on the ATO Portal as the ATO systems that generate these employer-level totals are unable to factor in subtracting a negative Salary Sacrifice amount.
Based on the above, it is suggested adjusting the prefilled amount to reflect the payroll platform records would be required here in order to proceed. I have also located advice from the ATO advising the same in cases where there is a discrepancy between prefill and software data in cases such as this: