Workplace giving and salary sacrifice arrangements
Employers can collect money for a Deductible Gift Recipient (DGR) by setting up a workplace giving or salary sacrifice arrangement for their employees. It is important that the employer understands the difference between the two types of arrangements.
Workplace giving programs
Employers can set up workplace giving programs where:
- part of their employee’s after tax pay is paid as a gift to a DGR
- they pay the gift at the direction of their employee
- the gift is made under either
- a regular, planned giving arrangement
- an irregular non-periodic arrangement (while unusual, if the employer is willing to set up one-off workplace giving, this is an acceptable arrangement).
Workplace giving programs allow DGRs to receive donations as a lump sum from each employer, reducing the DGR’s costs.
If a portion of the employee’s pay is donated to a DGR through regular payroll deductions, the employer:
- may reduce the pay as you go (PAYG) amount they withhold from their employee’s pay
- doesn’t reduce the total pay on the employee’s payment summary by the amount of the gift
- may ask the DGR for a receipt.
For the employees, this means they:
- may get the benefit of the reduced tax immediately in their pay if the employer reduces their PAYG withholding
- can claim a deduction for the gift in their annual tax return
- should retain a statement from the employer with details of their gift
- to help in the preparation of their tax return
- in case the ATO checks their claims.
Salary sacrifice arrangements
Employees may also arrange for gifts to be made to DGRs under salary sacrifice arrangements. In this situation:
- the employer and employee agree that a certain amount of their pre-tax pay will be paid to a DGR
- the employee pays income tax on the reduced salary or wages
- the employer claims the tax deduction for the payment to the DGR, not the employee
- from 1 April 2008, the payment to the DGR is not a fringe benefit.
For a salary sacrifice arrangement to be effective, the agreement must be entered into before the employee becomes entitled to be paid the amount forgone as salary or wages.
The employer bases the PAYG withholding amount on the employee’s gross salary and wages paid – they do not include salary sacrificed amounts. When they prepare the employee’s PAYG payment summary, they show the gross amounts of all salary and wages (excluding salary sacrificed amounts) and the relevant total amount of PAYG withheld for the year.
If you are looking to set up one of these arrangements for your staff, please contact our team of accountants on 02 9223 9166 or fill out an express enquiry form today.