It is no secret that modern workplaces and working arrangements are becoming more and more flexible in terms of how they operate.
Examples include: Employers providing parents with flexible working arrangements amenable to their family responsibilities, and students negotiating for study leave in exchange for longer shifts. Salary packaging options including non-monetary benefits are commonly used tools available to the modern Employer to enable you to run a workplace specifically tailored to your Business.
However, it is important for Employers to remember to exercise caution when implementing flexible working solutions or salary packages, to take steps to remain informed and ensure your Business is not being short changed. For instance, the idea of paying your Employees pursuant to a salary packaging arrangement may on face value seem quite beneficial from a business perspective.
After all, who wouldn’t want to replace paying an Employee all of their income in cash by contributing or providing other non-monetary or ‘fringe benefit’? These benefits can include providing the use of a company car to certain Employees or by contributing payments for items such as laptops or tablets.
The Employee certainly would be better off, as these items do not attract the normal income tax, but this is not necessarily always so for the Employer. Often this is due to the fact that Employees do not pay tax on such fringe benefits as they may receive as part of a salary package, their Employer does! In the form of Fringe Benefits Tax (FBT) levied on most standard benefits provided by Employers to Employees, this tax will be payable even where benefits are provided to an Employee in addition to, not included in, their regular salary rate.
Often, we have found that Employers are quick to agree to salary package arrangements without first seeking professional advice and regularly they will fail to take into account the extra cost of paying FBT on such benefits, or worst still they fail to adjust an Employees monetary salary to reflect the cost of providing the benefit provided plus the added expense of paying the FBT.
Employers caught in this scenario often find it difficult to back out of such an arrangement if they already signed on the dotted line, often this results in their respective Employees being grossly overpaid in addition to the Employer having to foot the additional FBT expenses.
Calculating how FBT should affect your Employees gross annual salary package is a costly and complicated process where incorrect calculations could result in liability for Underpayment of Wages or liability for a significantly increased tax debt. This was the case in the decision of Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCA 631 where Virgin Airlines mistakenly believed and failed to establish, that some of the benefits they provided to their Employees were exempt from FBT, resulting in significant increases in their FBT debt pursuant to the Commissioner of Taxation’s power under section 66 of the Fringe Benefits Tax Assessment Act 1986 (Cth).
When entering into a salary package arrangement it is crucial that Employers seek independent legal advice from Professionals with the skills and experience to review the arrangement, determine what FBT will be payable for which benefits and whether this cost has been appropriately absorbed by adjustments to the Employee’s cash income payments.
For a limited time, NB Lawyers are offering a legal consultation to all Employers. For further information please contact Jonathan Mamaril, Principal & Director on 07 3876 5111 or email [email protected].
Written by
Jonathan Mamaril
Principal & Director, NB Lawyers – the Lawyers for Employers
07 3876 5111
[email protected]