This article is for Australian payroll users only
The link to ATO's rules around this is here:
Simply enter the amount as an allowance using the appropriately classified code (the Category used by the allowance is critical to getting the correct calculation: e.g. Bonus, Backpay or Commission (and there's two Backpay options))
The way it works is:
- take the employee's current pay (or ordinary pay if no current pay entries), ignoring the BBC, annualise it to make annual earnings, calculate the tax
- do the same calculation, but add the BBC to the annualised total, calculate the tax
- the difference is the amount of tax to be deducted for the BBC
So, you can use Method B (ii) as provided by SmoothPay (it's the easiest for humans to desk-check and uses a 12-month annualised income), or you can override the tax to be deducted with your own calculation.
Neither method actually produces the correct amount of tax and the employee will typically either pay too much, or too little.
You should use your discretion and if you're not sure of anything we can analyse a specific case for you (always happy to review things).