Understanding the jargon around wages and salaries and how the components work together is vital for the health of your business and happiness of your employees.
This can occasionally get confusing, for example where the "take-home" wage is the focus, or where there is a super-inclusive package quoted in a job offer. The key is to know which measure you are discussing, and whether or not it is the full and complete cost of the employee to your business.
Building up
In the past we've seen well-meaning employers agree on a handshake to a certain net amount in order to get valuable skills on their team. Come pay day, they are shocked at the additional costs of the tax, super, and overheads. The more employees and the higher their in-the-hand pay, the quicker the total costs to the business add up.
Example 1*:
Mitch brings on an offsider paid $850 per week "in the hand". This week they worked a Saturday for an extra $350. Mitch needs to consider the full cost to his business in this arrangement.
Net pay: Mon-Fri $850 + Sat $350 = $1,200 - paid to the worker
Tax thereon: Mon-Fri $168 + Sat $185 = $353 - paid to the ATO
Gross total: $1,553
Ordinary Time Earnings (Mon-Fri net + tax)= $1,018
Superannuation Guarantee= $1,018 x 10.5% = $106.89 - to their super fund
Gross + Super = $1,659.89 direct cost to Mitch
Don't let this stop you building the best team for your business! Just be aware of what you're really committing to.
Breaking Down
Often in more 'corporate' situations, the market salary information is expressed including super, and/or the employer has budgeted for the total remuneration when advertising for the job. This means the employer knows what they're in for, expense-wise, but the employee may need to 'convert' the package to the take-home before they can compare to their current job, another offer, or their living expenses.
Example 2*:
Nina secures a full time salaried position on $90k package; i.e. $90,000 including super, paid monthly. Nina wants to know the net amount she can expect, so she can budget accordingly.
Gross + Super = Gross + (10.5% of Gross) = 110.5% Gross = $90,000 / 12 = $7,500 per month
Gross = $7,500 / 110.5% = $6,787 & Super = $6,787 x10.5% = $713
Tax thereon = $1,550
Nina 'takes home' $7,500 - 713 - 1,550 = $5,237 each month
These examples have used the withholding tables to find the relevant tax amounts - the withholding may vary depending on your personal circumstances, and unfortunately there's not one rule to work it out that is accurate across all pay cycles and earnings levels.
Communication is key
As you can probably tell by now, quoting a wage figure doesn't tell the whole story unless you are clear on what is included -- which "box" is being measured. We hope this information may help avoid stress for our employer and employee clients.
* These examples were written before 1 July 2023 so refer to the 10.5% super guarantee rate - at the time of publishing the rate is 11% - see more info on super here.
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