In addition to their base wage for ordinary hours worked (OHW) or hourly base rate, many employees receive extra payments in the form of sales commission, overtime, penalty rates, allowances, shift work, and quarterly, half-yearly or yearly performance bonuses. These payments are sometimes collectively referred to in the U.S as "supplemental wages".
Supplemental wages are often considered part of an employee’s regular earnings and subject to standard income tax.
Here we provide an overview of the most common types of supplemental wages.
Sales commission
One of the most common forms of supplemental pay is sales commission. This is typically calculated as a percentage of a sale or revenue generated from a sale. There’s also tiered commission where the percentage paid increases as the salesperson achieves higher sales targets or volume milestones. Some employees may receive residual or ongoing commission. In this instance an employee receives a payment if one of their customers renews a service or subscription.
Bonuses
Bonuses are often based on specific criteria. They can be either discretionary (at the employer’s choice) or non-discretionary (based on predetermined criteria). Performance based bonuses, referral bonuses, sign-on bonuses, and retention bonuses are popular types of supplemental pay.
Overtime pay
When an employee works hours that qualify as overtime under their applicable modern award, enterprise agreement or employment contract, they may be entitled to overtime pay. Overtime is generally paid at a higher rate than an employee's ordinary rate of pay. The overtime rates and the hours that trigger overtime vary depending on the relevant industrial instrument.
Allowances
Allowances are extra payments that help employees cover costs or compensate them for particular work conditions or responsibilities. Entitlements to allowances are usually set out in an employee's applicable modern award, enterprise agreement or other industrial instrument.
For example, an employee might receive a meal allowance when working overtime, a travel allowance to help cover fuel and other travel expenses, or a living-away-from-home allowance when working away from their usual residence. Some employees also receive a tool allowance to help pay for the equipment they need for their job. For instance, a carpenter might put it towards a new mitre saw, while a hairdresser could use it to replace a pair of professional scissors.
Easy and common mistakes
Incorrect calculation of overtime
Calculating pay can be tricky. If the wrong base rate is used or incorrect multipliers are applied, a business can inadvertently underpay its employees, creating significant back-pay liabilities, compliance risks and potential penalties. Deliberately underpaying employees is a serious matter and may amount to wage theft, which can expose employers to substantial legal consequences.
Overpayments can also be problematic, as recovering excess amounts paid to employees can be difficult, time-consuming and costly. Beyond payroll accuracy, ongoing overpayments can unnecessarily increase labour costs, impacting a business's profitability and competitiveness.
Modern awards, enterprise agreements and employment contracts set out how overtime, shiftwork and allowances should be calculated, including which payments must be included when determining an employee's rate of pay.
Penalty rates apply when employees work certain days or times, such as weekends, public holidays, night shifts or early morning shifts. These rates are mandatory under many industrial instruments and, in some cases, may require employers to pay a minimum number of hours, even where fewer hours are actually worked. Ensuring these entitlements are calculated correctly is critical, as errors can result in underpayments, overpayments and potential compliance risks.
Payslip details
Failing to itemise additional payments on a payslip can make it difficult for employees to confirm they have been paid correctly. It may also create compliance risks, as payslips are required to clearly show the different components of an employee's pay.
Payslips are legal documents under the Fair Work Act 2009 (Cth) and play an important role in demonstrating that employees have received their correct pay and entitlements. Employers must provide a payslip within one working day of payday. Payslips must include key information such as gross and net pay, tax withheld, superannuation contributions, deductions, pay rates, and any separately identifiable payments, including overtime, allowances, bonuses, and penalty rates.
Employers also have record-keeping obligations under this legislation, meaning accurate wage and time records must be maintained and retained for at least seven years. These records help demonstrate compliance with workplace laws and can serve as critical evidence in the event of an audit, employee query, workplace investigation, or underpayment claim.
BrightHR's software integration with Xero Payroll enables employee information to flow seamlessly between systems, helping you streamline onboarding, simplify payroll administration, eliminate duplicate data entry, and accurately track hours worked, overtime, and other forms of additional pay.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.