Bonus and Commission payments are lump sums paid to employees to acknowledge the completion of a task or performance achievement.

These payments are reported and taxed differently based on different scenarios:

Payment Type	Scenario	STP Reporting	Applied Tax	Subject to Super
Commission	Sales Target achieved	Gross Earnings	Lump Sum Method A/B	Yes
Bonus	Performance Based over a period	Gross Earnings	Lump Sum Method A/B	Yes
Bonus	One off payment in one pay period	Gross Earnings	Standard	Yes
Bonus	Payment for working overtime	Gross Earnings	Standard	No

When a Bonus or Commission payment is made in recognition of performance or targets achieved over a set period of time (Quarter, Semester or Annual) the applicable tax can be calculated as an average of the total Gross Earnings earned over the relevant period.

There are applicable taxable methods: Method A and Method B(ii)

Method A

This method calculates withholding by apportioning additional payments made in the current pay period over the number of pay periods in a Financial Year, and applying that average amount to the gross earnings in the current pay period.

If you are paying a commission, bonus or similar payment for a defined period of less than 12 months, you can choose to calculate withholding by using the number of pay periods the payment relates to at step 3. For example, if a commission relates to four weeks and the employee is paid weekly, you divide the commission by four pay periods at step 3, rather than 52 pay periods.

Method B(ii)

This method calculates withholding by averaging all additional payments made in the current financial year over the number of pay periods in a financial year, and applying that to the average total earnings to date.

Reference Articles

ATO - Schedule 5 - Tax Table for back payments, commissions, bonuses and similar payments