Employee Bonuses Guide
Understand the complete tax, superannuation and payroll implications for your business
Paying a bonus is a way to reward performance, retain good people, and share the year's success. But getting the super or tax treatment wrong can turn a well-intentioned reward into a payroll headache or a compliance issue.
Our guide walks you through what you need to know before your next bonus run.
Do you pay super on bonuses?
In most cases, yes. Performance-based bonuses and most similar payments count as qualifying earnings, which means the superannuation guarantee applies at the current rate of 12%.
This catches some employers off guard. It’s typical to think of a bonus as an extra, discretionary payment outside normal wages. But the ATO's test is focused on what it relates to versus what it’s called. If a bonus is tied to an employee's performance, hours worked, or ordinary duties, it's generally qualifying earnings and super is payable.
The exceptions that catch people out
Not every bonus attracts super. The main exception is a discretionary bonus that isn't tied to performance, hours, or any measurable output. For example, a one-off gift for a special occasion unrelated to work performance. These are less common than people assume, and the line can be unclear in specific cases.
Overtime payments are excluded from ordinary time earnings (OTE), so if a bonus specifically compensates for overtime hours, that particular component may not attract super. But a general performance or Christmas bonus almost always does.
A good rule of thumb is if you're unsure whether a specific bonus is OTE, treat it as such, or check with your accountant before processing. It creates a lot more cost and hassle to underpay than overpay super.
When to pay super on a bonus
From 1 July 2026, Payday Super requires employers to pay superannuation guarantee at the same time as wages, with contributions required to reach the employee's super fund within a set number of business days of each payday. This is a change from the old system, where employers had 28 days after the end of each quarter.
Bonus payments now need to be factored into your super obligations for that specific pay run, rather than batched and dealt with later. If you're still running payroll processes built around quarterly super deadlines, now is the time to update them.
There's also an earnings cap to be aware of. Once an employee's earnings for the year exceed the maximum contribution base, you're no longer required to pay super guarantee on anything above that threshold. This threshold changes each year, so it's worth checking the current figure before assuming a large bonus is fully exempt or fully liable.
Tax withholding & reporting
Bonuses are taxed, but not usually at a special "bonus rate." They're simply part of an employee's assessable income for the year. The complexity comes from how much tax you withhold at the time of payment.
How much to withhold
The method depends on what the bonus relates to.
1: If the bonus relates to a single pay period
For example, if it’s tied to that week's or month's performance, you generally add it to the employee's normal earnings for that period and withhold tax using the standard PAYG tax table.
2: If the bonus relates to a longer period, or doesn't relate to a specific period at all
For example, an annual performance bonus, the ATO requires a different approach. Employers use a specific tax table for back payments, commissions, bonuses and similar payments, which effectively spreads the bonus across the year to estimate the right withholding amount.
This second method often results in a noticeably higher amount of tax withheld from that particular pay run, sometimes at rates that look alarmingly high to employees. People typically think it’s a mistake or an error in the payroll system. But it’s actually a reflection of how the ATO's formula annualises the payment to avoid dramatically under-withholding tax on a large lump sum. Employees aren't taxed twice; the higher withholding is reconciled at tax time, when the bonus is added to their total income and taxed at their actual marginal rate. Any excess withheld is refunded.
It's worth flagging this to your team in advance so if and when they see a high tax deduction on their bonus payslip, they know the reason behind it.
Reporting obligations
Bonus payments, along with the tax withheld, are reported through Single Touch Payroll (STP) as part of your normal pay run reporting. There's no separate lodgment required for bonuses specifically, but they do need to be correctly categorised in your payroll software so the withholding calculation and STP report are accurate.
If a bonus relates to a prior financial year, or covers a defined period, additional reporting considerations may apply. This is a good area to check with your accountant, especially if your bonus structure isn’t straightforward.
Payroll & timing best practices
Decide on timing before you commit
Bonuses paid within a single pay period are simpler to process than one-off annual payments, both for tax withholding and for super. If you have flexibility in when a bonus is paid, aligning it with your regular pay cycle can reduce administrative complexity.
Check your payroll software is set up correctly
Not all payroll systems automatically apply the correct bonus tax table. Before running a bonus payment, confirm your software is calculating withholding using the appropriate method for the bonus's structure and correctly flagging the payment as qualifying earnings for super purposes, if applicable.
Budget for the total cost, not just the bonus amount
A $5,000 bonus isn't just a $5,000 cost. Once superannuation is added, the real cost to the business is higher. Factoring this into your bonus budgeting avoids surprises when the pay run is processed.
Keep records of how bonuses were calculated
If a bonus is performance-based, keep documentation showing the basis for the payment and how the amount was determined. This is useful for internal consistency, for answering employee questions, and for substantiating your position if the ATO ever queries whether a payment was correctly treated as OTE.
Communicate with your team
Employees are far more likely to be satisfied with a bonus, even after a larger-than-expected tax withholding, if they understand how the process works. A short explanation of the withholding method and reassurance that it reconciles at tax time go a long way.
Getting it right from the start
Bonuses are one of the more straightforward payroll compliance areas once you understand the underlying principles.
Most attract super,
Tax withholding often uses a specific method that front-loads the tax, and
Timing now matters more than ever with Payday Super in effect.
Where things get more complex is in bonus structures that span periods, involve non-cash elements, or sit close to the discretionary/performance-based line. In these cases especially, seek advice from your accountant before you process the payment.
If you'd like help reviewing your bonus payment processes, or want a second opinion on a specific payment structure, we're here to help.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and/or other advice as may be appropriate having regard to their particular circumstances.