Who should use this table?

You should use this table if you make a commission payment to a payee. Commissions are typically payments made as recognition of performance or service, and may be calculated as a percentage of the proceeds of a particular transaction.

How to determine the amount to withhold?

Payment applies to a single pay period

Where a commission is paid for a single pay period (one week, one fortnight or one month), the amount is added to any other payment for that period. An amount should be withheld from the total payment in accordance with the applicable PAYG withholding tax table.

The gross payment amount and the withheld amount should be reported on the payee’s payment summary with other normal salary or wage payments.

Payment applies to a period in excess of one pay period, or is paid on an irregular basis

Where a commission payment relates to a period in excess of one pay period, or is paid on an irregular basis, the amount to withhold may be calculated in either of the following ways:

Option A

The commission amount is considered to relate to a period since the last similar payment, or since 1 July, whichever is later, and the amount to withhold is calculated as follows

1. Use the tax tables to work out the amount to withhold on the normal gross earnings for a single pay period.

2. Divide the commission amount by the number of pay periods to which it relates

3. Disregard any cents – $1.75 becomes $1. (If the resulting amount is nil, there is no amount to withhold from the commission payment. Use the tax tables to work out the correct amount to withhold from any other payment for that period. There is no need to continue with the remaining steps).

4. Add the amount from step 3 to the normal gross earnings for a single pay period.

5. Use the tax tables to determine the amount to withhold on the combined gross earnings and commission.

6. Subtract the amount determined in step 1 from the amount determined in step 5.

7. Multiply the result by the number of regular pay periods to which the commission payment relates.

An example calculation using this method is shown overleaf.

Option B – Progressive method

The progressive method of calculating the withholding amount from payments of commissions provides a more accurate withholding amount when considered in respect of the payee’s overall annual liability. However, it requires more payee information and a more involved calculation

1. Add all payments for the year to date, including commission payments, to determine the payee’s total earnings.

2. Divide the total amount from step 1 by the number of regular pay periods for the year to date.

3. Use the tax tables to determine the amount to withhold from the amount in step 2.

4. Multiply the amount withheld in step 3 by the number of pay periods in the year to date.

5. Subtract the amount already withheld in the year to date (as per the payee’s wages records) from the amount calculated in step 4. (If the resulting amount is less than zero, there is no amount to withhold from the commission payment).

The result is the amount that should be withheld from the commission payment.

Please Note: Payers should repeat this process for any subsequent payments.

An example calculation using the progressive method is shown overleaf

Normal gross earnings

Normal gross earnings are all payments, except those relating to termination payments received in the last full pay period of employment (this includes allowances, overtime). Therefore, a payee's gross earnings should be taken to be the earnings relating to the last full pay period worked.

Where a payee's earnings fluctuate significantly over a number of pay periods, the Tax Office will accept an average of gross taxable earnings for the financial year to date over the number of pays received.

For more information

Further information, including all PAYG withholding tax tables, can be accessed quickly and easily on our website www.ato.gov.au

Copies of weekly and fortnightly tax tables are available from most newsagents.

Newsagents also hold copies of the Tax file number declaration and the Withholding declaration

Examples

Note: The following examples use the tax table Weekly rates incorporating Medicare levy – without leave loading (NAT 1005) effective 1 July 2003.

Option A

An employee whose gross weekly wage is $500 receives a $300.30 commission payment on 15 October 2003, which is six weeks since receiving their last commission payment.

Option B - Progressive method

Marjorie receives a gross weekly wage of $300 (from which $34 is withheld) working as a salesperson in a discount store. As part of her salary agreement, Marjorie can earn commission payments, paid at irregular intervals, for achieving pre-agreed sales targets. Just prior to Christmas, Marjorie is being paid a commission amount of $1,000 due to her excellent sales. Earlier in this financial year, Marjorie was also paid a commission amount of $900 gross (with $215.00 withheld) 10 weeks earlier (pay week 15).