Hero Points and Fringe Benefits Tax FAQ via the HR Platform

Fostering a recognition culture in the workplace can elevate morale, enhance productivity, and boost employee engagement and satisfaction. Hero Points, integrated into the Employment Hero platform, is a transformative tool for your company's recognition system.

Having recently obtained an ATO private ruling, we think Hero Points can become one of the most valuable and tax-effective ways to provide discretionary recognition and rewards to your employees in Australia.

Glossary

 

Questions

  What are Hero Points?  

Hero Points are a non-cash benefit that utilises a points system, akin to a currency, that can be purchased by organisations and awarded to employees as a form of recognition. Hero Points can be redeemed on everyday purchases using a Swag Visa Debit card, or on a wide range of items in the Swag Store. The Hero Points program is a tool to motivate and engage employees, fostering a culture of adhoc recognition.

  How can I award Hero Points to my employees?  

Organisations can purchase Hero Points through the Employment Hero platform and distribute them to their employees. You can award Hero Points to employees on their birthday or work anniversary via the Reward Settings feature. You can also award each time an employee receives ‌recognition using the platform’s Recognition feature. Alternatively, you can distribute Hero Points on an adhoc basis

Giving out Hero Points for various achievements and milestones creates a positive work environment where employees feel valued and appreciated. It not only boosts morale but also increases productivity and engagement. A robust rewards and recognition feature that includes Hero Points can make your company more attractive to prospective employees and help you keep your top performers.

We envisage Hero Points providing the mechanism to recognise employees outside of any formal incentive program. It allows an organisation to award employees in the moment, and throughout the year, for a significant contribution whether it be operating in a manner that role models your organisations values or going above and beyond in their role.

  How can my employees redeem Hero Points?  

Employees can use their Hero Points in the Swag Store, online, and in the Swag app. Employees can use their Hero Points in the Swag Store online and in the Swag app, or redeem them with their Swag Visa Debit card for purchases wherever they like.

It is important to note that Hero Points are not redeemable for cash and are not refundable once purchased unless required by law. For a step-by-step guide on how to redeem Hero Points, see this article. 

  What was the ATO ruling on Hero Points?  

Employment Hero has received a private ruling from the Australian Taxation Office (ATO) that confirms Hero Points are a non-cash benefit provided to an employee at the time the Hero Points are given to an employee. It further provided that, where certain conditions were met, there was potential for the Hero Points to be exempt from employer fringe benefits tax (FBT). This makes Hero Points not just a great tool for recognition, but also a cost-effective one.

Employers should seek their own tax advice in this respect.

  How can my organisation take advantage of this ATO ruling?  

The example below shows the advantage of utilising a FBT exemption, such as the Minor Benefits Exemption (MBE) when providing benefits to your employees.

Organisation 1: 

An employee is provided with 1 x $300 gift voucher, thereby not meeting the requirements of the MBE and FBT is payable (assuming no other exemptions are applicable).  

Organisation 2:  

An employee is provided with 2 x $150 gift vouchers throughout the FBT year. Each benefit falls within the ATO guidance as being an infrequent and irregular benefit, are not connected benefits and are less than $300 each, thereby, eligible for the MBE. 

The cost to the employer is calculated as follows: 

Description  Option 1  Option 2 
Cost of Gift vouchers  $300  $300 
Taxable value for FBT purposes  $300   $0 
Grossed up taxable value - Type 2 Gross-up factor (1.8868)  $566.04  $0 
FBT payable (47%)  $266.04  $0 
     
Total cost to employer  $566.04  $300 

Organisation 2 would save $266.04 compared to Organisation 1.

Employment Hero has enhanced the Hero Point Management module to make it easier for organisations to track their compliance with FBT requirements, such as tracking of amounts and number of instances. This allows an analysis to occur throughout the year or at the end of the FBT year as to whether the minor benefits exemption could apply. For more information, read the technical summary.

  What happens if we don't use our Hero Points within a certain period?  

Hero Points are valid for 24 months from their date of allocation. If they are not used within this period, Employment Hero may cancel them at their discretion.

  How may Hero Points be exempt from Fringe Benefits Tax?  

Hero Points may be exempt from Fringe Benefits Tax (FBT) under the minor benefits exemption. The exemption applies when Hero Points are provided to employees under specific conditions. To qualify for this exemption, the benefit must be provided to an employee infrequently and irregularly, must not be a reward for services, and its value must be less than $300 (including GST).

In the context of Hero Points, this could potentially apply if the benefits provided are less than a certain value each time, in total across the year, and meet other specific conditions. For accurate and detailed information, it is recommended to consult the ATO website directly here or seek professional advice as each organisation's situation may be different.

  How do I know which employees are eligible for the minor benefits exemption?  

All employees may potentially be eligible for the minor benefits exemption as long as the benefits provided meet the specific conditions set by the ATO and the Hero Points product terms.

Employment Hero has developed the Employee Activity feature in the Hero Point Management module that allows employers to easily track the distribution of Hero Points for employers to assess against the Fringe Benefits Tax (FBT) criteria. This feature provides an overview of each employee's Hero Points activity, allowing employers to anticipate whether they may be exempt from paying FBT on Hero Points in the current FBT year. However, organisations should seek independent tax advice to confirm their eligibility.

  How can I account for Hero Points in my end-of-year tax submission?  

FBT years run from 1 April to 31 March, and returns and payments are due by 21 May each year (unless lodging through a registered tax agent).

When accounting for Hero Points in your FBT return, it's important to track how Hero Points have been distributed throughout the year. The Hero Point Management module allows you to see an overview of each employee's Hero Points activity, helping you to track and anticipate whether you may be exempt from paying FBT on Hero Points for the current FBT year.

Remember that the exemption can apply when Hero Points are used in accordance with the ATO's guidelines and Employment Hero's T&Cs. For instance, each award of Hero Points should not exceed $299 (including GST), and the Hero Points should be given on an ad hoc basis.

Please note that while this information is designed to help you understand how Hero Points and the FBT exemption work, it's important to consult with a tax professional or accountant for advice tailored to your organisation's specific circumstances. This will ensure that you comply with all tax obligations and take full advantage of any available tax benefits.

  What is an example of a potentially FBT exempt Hero Dollar allocation?  

If you are a manager or administrator, you can get access to further detailed examples and FBT information here.

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