How to do report back pays
Sometimes there may have been an oversight or delay and you need to make a back payment to an employee. As back payments are not a single type of payment, there is no single way to report them through STP. Instead, you need to consider the circumstances of the back payment.
In some cases, the back payment you are making may be a lump sum E payment. Lump sum E is a separately reported payment type for STP.
If you are making a back payment to an employee and it is not lump sum E, then report it in STP as the relevant payment type (such as gross, allowances or overtime).
Lump sum E
Lump sum E is an amount of back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment and is greater than or equal to the Lump sum E threshold amount ($1,200).
Your payroll solution may report Lump sum E:
- in each STP report, or
- only when you finalise your reporting at the end of the financial year.
Both ways are acceptable.
You must report Lump sum E YTD amounts by specifying each prior financial year to which the amount relates.
When you report lump sum E payments, you will no longer need to issue employees with a lump sum E letter at the end of the financial year. This information will now be available on their income statement.
The following table outlines some examples of what should and shouldn't be included in Lump sum E.
Include | Don't include |
|---|---|
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Example: lump sum E reporting
Ross' employer identified on 15 February 2022 that Ross has not been paid his higher duties allowance for the past 22 months totalling $3,300 due to an administration error. Using the normal ATO backpay rules, the pay office has split the payment into the following categories:
- The past 12 months of backpay (15 February 2021 to 15 February 2022) totals $1,800. This is taxed and reported in the current financial year. As the backpay is for an allowance, it will be reported in the appropriate allowance field.
- The amount that is greater than 12 months old (14 February 2021 and earlier) totals $1,500 which means it must be reported as Lump sum E because it is greater than the lump sum E threshold of $1,200. The Lump sum E component must be allocated to the appropriate financial year. $600 relates to the 2020–21 financial year and $900 relates to the 2019–20 financial year.
This is reported in STP Phase 2 as follows:
- KN tasks $1,800
- Lump sum E 2021 $600
- Lump sum E 2020 $900.
Ross’ employer does not need to provide him with a letter as the lump sum E amounts have been allocated to the appropriate financial years in the STP report.
End of example