Some employees have study or training support loans (STSL) that need to be repaid when the employee's earnings or repayment income exceeds the minimum repayment threshold. The minimum repayment threshold is normally reviewed every financial year. You can access current data on the threshold amount here.
You can find Information on the different types of loans that fall into the STSL category in the following link. From the 1st of July 2019, the Australina Tax Office (ATO) combined all study and training loans into one set of thresholds and rates. Also, they changed the hierarchy in which compulsory repayments are applied to study and training loans to the following:
- Higher Education Loan Program (HELP).
- VET Student Loans (VSL).
- Student Financial Supplement Scheme (SFSS).
- Student Start-up Loan (SSL).
- ABSTUDY Student Start-up Loan (ABSTUDY SSL).
- Trade Support Loan (TSL).
Employees can choose to have their STSL amount calculated using one of 2 options:
- Calculated on taxable earnings; or
- Calculated on repayment income.
What are taxable earnings?
Taxable earnings are all gross earnings paid to an employee, minus the following:
- Salary sacrifice arrangements; and
- Earnings that are tax-exempt.
In the pay run, you will note that there are two columns called gross earnings and taxable earnings. If there is some form of salary sacrifice arrangement between an employer and employee, this will appear in the Pre-Tax Deductions column and will reduce the employee's taxable earnings.
Alternatively, an employee's taxable earnings may vary from their gross earnings because of a tax-free payment added to their earnings. We will include this amount in their gross earnings but not form part of their taxable earnings.
Effective from the 9th of August 2021, all new employees with an STSL debt will default to using the taxable earnings calculation method. You can change the repayment income calculation method directly from the Employee's Tax File Declaration screen.
What is the repayment income?
The repayment income is the employee's pay run earnings that determines the amount of STSL payable/deducted for that employee. The components that make up an employee's repayment income are:
- Taxable earnings (this is different to gross earnings).
- Reportable fringe benefits (regardless of the exempt status of your employer).
- Total net investment loss (which includes net rental losses).
- Reportable super contributions, including salary sacrifice super and employer contributions over the legislated 10% that the individual employee has influenced.
- Exempt foreign employment income amounts.
Reportable fringe benefits and total net investment loss are managed outside your payroll platform. Employees should be aware of their obligations around these components and consider withholding extra tax from their pay to cover any potential STSL debt incurred. Salary packaging providers often have a calculator that will show an employee how much extra tax they will owe at the end of the year if they have STSL. You can set up recurring additional tax deductions for an employee using our Pay Run Inclusions feature.
What is the relationship between PAYG and STSL?
In layperson terms, STSL is an additional tax debt to PAYG. Regardless of whether the employee has an STSL debt or not, the employee's PAYG amount will be the same. Some payroll systems incorporate PAYG and STSL into one amount and so there is no clear separation between the two amounts. Our payroll system separates the two amounts in the pay run, pay slips and most payroll reports to provide greater transparency to the employer and employee.
When reporting these amounts to the ATO, however, through Single Touch Payroll (STP) or payment summaries, they are combined into one amount, as per ATO guidelines. At the end of the financial year, the ATO will determine the actual PAYG and STSL owed based on the employee's payroll and non-payroll income.
If an insufficient amount of tax has been deducted through the payroll for the employee, the employee will be required to pay an extra amount directly to the ATO. If, however, the amount of tax deducted is more than required, the ATO will refund the 'overpaid' amount back to the employee. If an employee chooses to have additional/voluntary tax deducted, the additional amount will appear in the PAYG column.
Situations of STSL pay run calculations
The amount used when calculating the STSL amount in a pay run depends on the pay run's frequency. You can access the ATO-STSL tax tables here based on the applicable pay frequency:
You can also refer to the ATO's component look-up feature provided here to determine STSL calculations. If you require confirmation of the STSL calculation method used in the pay run for an employee with an STSL, click on the tooltip next to the amount displayed in the STSL column for that employee.
The situations below are based on positive' earnings. However, take note that if earnings or any other components affecting STSL calculations apply in the pay run as a negative, the negative earnings will also be considered when calculating STSL, i.e. they will reduce the STSL debt.
As per existing practise with PAYG calculations, we do not calculate negative STSL in the pay run. If your employee's earnings are negative due to a reversal, for example, you will then need to manually adjust the employee's PAYG and apply a negative PAYG/STSL amount.
Situation 1: Pre-tax deductions that are not salary sacrifice super
We do not include any pre-tax deduction amounts not paid to a super fund as part of the employee's repayment income. The pre-tax deduction does, however, affect the employee's taxable income.
Situation 2: Salary sacrifice super deduction
Where an employee sacrifices a component of their earnings to a super fund, i.e. a reportable super contribution, this will reduce their taxable earnings. However, you must still include the deduction amount in their repayment income. When calculating the employee's STSL debt using the repayment income method, we use their taxable earnings and reportable super contributions.
If you have not paid a super salary sacrifice deduction to the employee's super fund, it will not be considered a reportable super contribution and therefore no STSL will be applied to the amount. As such, be careful when processing super salary sacrifice deductions and make sure you set them up correctly so the pay goes into a super fund.
Situation 3: Multiple pre-tax deductions
Where an employee's pay includes several pre-tax deductions, the system will only look at deductions paid to a super fund when determining the employee's repayment income amount.
Situation 4: Exempt foreign employment income
We will include any tax-free foreign employment income you process in an employee's pay as part of the employee's repayment income. The platform recognises earnings as foreign employment income if you configured the pay category's payment classification to exempt foreign employment income.
Situation 5: Employer contributions
Reportable employer super contributions include super contributions paid by the employer that are above the legislated super guarantee and are a result of the employee's influence. They do not include amounts over the legislated super guarantee where the requirements exist in line with a registered agreement, or if it is company policy to pay additional super, as the individual employee has not influenced this.
Any reportable employer contributions must be processed in the pay run using the Employer Contribution category within the Super Adjustments section. You can also set this up as a recurring pay-run inclusion.
Situation 6: lump sum payments
We treat Lump sum payments as annual payments regardless of why/how they are in the pay run:
- You can add a lump sum payment via the Actions button within the pay run record. or
- You add it via annual leave paid out on termination.
The pay frequency will also divide the lump sum amount for STSL threshold calculations, i.e.
- Divided by 12 if the pay schedule frequency is monthly.
- Divided by 26 if the pay schedule frequency is fortnightly.
- Divided by 52 if the pay schedule frequency is weekly.
Then, the actual calculation to estimate annual repayment income is as follows:
- Monthly pay schedule: Ordinary Hours* + (Lump Sum / 12) = $$$$ per month x 12
- Fortnightly pay schedule: Ordinary Hours* + (Lump Sum / 26) = $$$$ per fortnight x 26
- Weekly pay schedule: Ordinary Hours* + (Lump Sum / 52) = $$$$ per week x 52
We do not pro-rata ordinary earnings figures if an employee is terminated mid way through the pay period of a termination pay run. If you want to make this adjustment then you will need to do your own calculations to see if the affected employee's estimated annual income will breach the threshold for STSL and if it does, use the appropriate tax rate % as per the table on the ATO website, to work out the tax on the earnings and then add a PAYG adjustment.
Remember, it does not matter that a PAYG adjustment will not show up as STSL in the pay run because all of the tax goes to the ATO in one hit. They will sort out how much tax should have been paid on the earnings and allocate anything leftover to the STSL debt when the employee finalises their tax arrangements at EOFY.
Why are the withheld amounts different in the pay run?
The ATO prescribes that payroll software use specific formulas to derive the PAYG and STSL amounts. The specific details of these formulas can be accessed, as follows:
As a result, there may be some minimal instances where the withheld amounts in the pay run vary to what is displayed in the tax tables published by the ATO. For e.g., the ATO tax tables may show that an employee's PAYG amount is $532 and STSL amount is $108, totalling an amount of $640 to be withheld for the employee. The pay run amounts however, are displaying as $534 PAYG and $106 STSL. This also totals $640. Do not forget that the amounts withheld are sent to the ATO as a consolidated figure, so if there is a small variance, there is no need to be concerned if the consolidated amounts are the same.
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