Annualised Salary in Australia: a guide to understand

22 of December, 2022

We all know what it’s like to go to work every day and receive a salary. But have you ever heard of an annualised salary? It’s a concept that is not as widely known as regular salary, yet it is becoming increasingly popular in Australia.

In this post, let’s understand what an annualised salary is, the advantages and disadvantages of it. We will also see how to calculate your annual salary in Australia, and the tax implications associated with it. So let’s dig into how to manage the payroll of your company in those cases.

What is an Annualised Salary?

An annualised salary is a type of payment system where an employee is paid a salary that is calculated as if they were working for a full year. Even if they are only working for part of the year.

This means that the employee receives a lump sum payment that is based on the number of hours they are expected to work during the year. For example, if an employee is expected to work 40 hours per week for 52 weeks, they will receive a salary that is equivalent to 40 hours per week for 52 weeks.

The main advantage of an annualised salary is that it eliminates the need to keep track of hours worked and makes it easier to budget. An employee can know exactly how much they will be paid over the course of a year. This can be beneficial if they are trying to plan for their future.

However, it’s important to note that an annual salary does not guarantee that an employee will work full-time hours for the entire year.

In fact, employers may decide to adjust the number of hours that an employee works during the year depending on the needs of the business. This means that an employee could end up working fewer hours than what was initially agreed upon.

Another disadvantage of an annual salary is that it can make it difficult for employers to accurately calculate overtime pay. Since an employee’s salary is based on the number of hours they are expected to work for the entire year, it can be difficult to calculate overtime pay for hours worked beyond the expected number.

Advantages and Disadvantages

The advantages of an annualised salary include:

• Predetermined salary: An employee can know exactly how much they will be paid over the year, which can be beneficial if they are trying to plan for their future.
• Eliminates the need to track hours: Eliminates the need to keep track of hours worked, which can make it easier for employers to manage payroll.
• Budgeting made easier: An employee can know exactly how much money they will receive for the year, which can make budgeting easier.

The disadvantages of an annualised salary include:

• No guarantee of a full-time salary: An employee may end up working fewer hours than what was initially agreed upon, which could lead to a reduced salary.
• Difficulty calculating overtime pay: Since an employee’s salary is based on the number of hours they are expected to work for the entire year, it can be difficult to calculate overtime pay for hours worked beyond the expected number.
• Lack of flexibility: An annualised salary does not allow for flexibility, as an employee is expected to work the same number of hours each week. This can be difficult for employees who have other commitments or need to take time off for personal reasons.

How to Calculate an Annualised Salary in Australia

Calculating an annualised salary in Australia is fairly straightforward. All you need to do is multiply the number of hours you are expected to work in a week by 52, which is the number of weeks in a year. For example, if you are expected to work 40 hours per week, your annual salary will be 40 x 52 = 2080.

Multiply your hourly rate by the number of hours you are expected to work in a week, and then multiply that number by 52 to calculate your annual salary if you are paid an hourly rate. For example, if you are paid $20 per hour and are expected to work 40 hours per week, your annualised salary will be $20 x 40 x 52 = $41600.

It’s important to note that an annualised salary is not the same as a regular salary. You expect somebody to work a certain number of hours over a year to base their annual salary on, whereas you base their regular salary on the number of hours they worked.

Alternatives to an Annualised Salary

If you’re not comfortable with the idea of an annualised salary, there are other payment options available. The employee can choose to get paid an hourly rate or a daily rate, which will give them payment for each hour or day they work instead of a lump sum for the entire year.

Another option is to be paid a salary on a regular basis. This is a more traditional payment option and allows you to receive a fixed salary each month or week, depending on the agreement between the employee and the employer. This can be beneficial when looking for more financial stability.

Understanding the Tax Implications of an Annualised Salary

It’s important to understand the tax implications of an annualised salary in Australia. The employee must pay tax on the entire annualised salary, regardless of the number of worked hours, which could result in paying more tax than if paid a regular salary.

It’s also important to note that an annualised salary does not entitle the employee to any additional tax deductions or benefits. If you are paid an annualised salary, you will not be eligible for the Low-Income Tax Offset or the Medicare Levy Surcharge.

Conclusion

An annualised salary can be a great option for those who want to know exactly how much money they will receive over the course of the year and for employers who want to simplify the payroll process.

However, it’s important to understand the advantages and disadvantages of an annualised salary and to calculate your salary correctly. It’s also important to understand the tax implications of an annualised salary before agreeing to any payment arrangement.

If you’re considering an annualised salary for your employees in Australia, I hope this blog has helped you understand the concept and make an informed decision. Keep reading Sesame‘s blog to keep up to date with everyting HR related.