Back Pays and Recoveries

The method of processing back pays while using STP differs from what companies were previously able to do. The ATO has, as part of introducing STP, advised how back pays should be handled in different scenarios going forward. This will likey differ from your current process, however it is important to follow these guidelines where possible to avoid issues in the future.

Salary & Wages, bonuses, back pay, commission etc.

The below table is for components which when originally paid were included in Gross Payments (i.e. not an itemised allowance)

Current Financial Year

Prior Financial Year
(but less than 12 months old)

Prior Financial Year
(but more than 12 months old)

Amount to Recover
(Over payment)

This process has not changed from pre-STP.

A reversal and adjustment can be created, and changes made to calculate the amount of the over payment. The adjustment Pay Packet will correct the PAYG values etc. The reversal and adjustment Pay Packets should remain in the Pay Run when finalised so the data can be sent to the ATO.

The Amount to Recover can then be deducted from the next positive Pay Packet (either in the current run or the next Main) via a Deduction.

A Manual Pay Run with a DC Date set in the previous financial year should be created to record and calculate the amount owed. This Pay Run should be set to not DC. The system will automatically reduced the PAYG based on the new value in the adjustment Pay Packet. Manually override the PAYG value and set it to be what it was in the reversal Pay Packet.

Finalise the Pay Run - this will send the updated information to the ATO*

The 'Amount to Recover' can then be deducted using a Non Taxable Deduction in a current period Pay Run.

*Note: You can only update via STP for periods that were originally filed with STP. If the original period was pre STP then you will need to issue an Amended Payment Summary and EMPDUPE file.

Additional Direct Credit
(Under payment)

Preferred Method:
If it was a simple underpayment (e.g. a payment was paid for $400 which should have been $500) then this should be simply added in as a $100 payment for the current period.

This amount should be captured in Gross Payments.

Alternate Method:
For the above scenario the previous technique of Reversing and Adjusting can still be used, however it is not preferable.
If however the calculations are a more complicated, or it involves the taking of leave etc, then the Reversal and Adjustment process may need to be used.

A Reversal & Adjustment cannot be used to pay any money owed to the employee as it is from a previous financial year.

A Manual Pay Run with a DC Date set in the previous financial year can be created to record and calculate the amount owed if necessary (e.g. leave or more complicated amounts).

The additional payment amount should then be entered into the current Pay Run using a component which is recorded under Gross Payments

< $1,200

The amount should be included in Gross Payments

>= $1,200

The amount should be Lump Sum E

Itemised Allowances

The ATO has currently not provided any generalised guide on processing back pays for itemised allowances. Please contact the ATO to confirm the correct process for your situation.

Workers' Compensation Payments

Current Financial Year

Prior Financial Year
(but less than 12 months old)

Prior Financial Year
(but more than 12 months old)

Workers' Compensation Payments

Gross Payments

< $1,200

The amount should be included in Gross Payments

< $1,200

The amount should be included in Gross Payments

>= $1,200

The amount should be Lump Sum E

>= $1,200

The amount should be Lump Sum E