Treating the Wage Restitution Tax Headache

YOUtax Director and Senior Accountant Emma Baxter shares her insights into employee tax planning services for remediation payments.

As the underpayments crisis deepens and we see tens of millions of dollars being re-paid to Australian workers each year (with at least a few hundred million to come from Woolies alone), a major issue is brewing around the tax ramifications of lump sum repayments – how do workers and their employers ensure they gain the full benefit of both the lump sum and the opportunity to rebuild trust?

While receiving a back-payment might seem like an unmitigated boon to employees, there may be unexpected complications for their reportable income, government payments and superannuation. It’s possible for an employee to negotiate a tax offset from the ATO if they’re at a disadvantage, but this can be a complicated and difficult process to navigate if unassisted.

Underpayments by the numbers:

  • Industry Super Australia estimates workers are underpaid around $5.9 billion in superannuation each year.
  • PwC estimates as much as $1.35 billion in wages are underpaid each year in Australia.
  • The Fair Work Ombudsman recovered over $40 million in stolen or lost wages in FY19, in individual amounts from $18 to over $35,000.

    Tax planning for employees In an era where companies are more accountable, and unions are absent from many workplaces, employee advocates have become the HR department and external professionals. If employers want to improve staff relations and well-being, they implement employee assistance programs (EAP). Employees are ultimately responsible for their own tax affairs, but it’s better for employer-employee relationship to have support available for tax and financial well-being.

    Have you considered a tax planning provider? The underpayments crisis has been brewing for some time, and in a business as big as payroll, there are always innovators looking to solve the problems before they have fully emerged.

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    Dialogue builds trust YOUtax Director and Senior Accountant Emma Baxter shared her insights into employee tax planning services for remediation payments, and how valuable they can be: “Providing access to Australian tax professionals who can give advice based on each individual’s own unique circumstance is critical.”

    “Tax planning provides the opportunity for individuals to be prepared for how a remediation payment will affect them at the end of the financial year,” said Baxter. “Done early enough, it gives those impacted time to act and allows affected employees time to contact organisations like Centrelink, Child Support and even their Superannuation fund to adjust estimated income levels or contributions.

    “Not only can tax planning provide a transparent view of how remediation payments affect their individual tax, it can also instil confidence in the employee that an external professional is working on their behalf.”

    Baxter continued, “There’s so much complexity with underpayments that occurred over a number of years, because it must be assessed in the same year it was identified. The difficulty is compounded by ensuring ATO calculations or assessments reflect if they were paid correctly from the outset. We do not want to leave any employee tax disadvantaged. And we also want to ensure the 40,000-plus registered tax agents understand the tax treatment of back payments.”

    As underpayment spot fires burst info life across Australia’s economic landscape, tax planning is an opportunity for employers to regain the front foot with employees and show commitment to their financial well-being.

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    About the Author

    Nick Ransley - Content CreatorNick Ransley Content Creator

    Nick researches and writes quality content that educates our community about current and emerging Payroll & HR trends. This requires building solid relationships with internal and external stakeholders to understand issues, products, and the wider Payroll & HR landscape.