There are 3 methods an employer can use to record donations made by an employee that the employer pays directly on their behalf.
- After Tax Donation. This way the gross/net pay is calculated as usual with the tax amount; the donation is made from the net pay. The donated amount appears on the payment summary at the end of the year. The employee can then claim this donation against their taxable income in their tax return.
- Salary Sacrifice. This way the employee can “sacrifice” the wage to the charity, and pay no tax on the sacrificed amount. This is reported the same as super salary sacrifice, and reduces gross payments accordingly. This however does not get reported on the payment summary, and the employee cannot claim the amounts donated against their tax return.
- Workplace Giving Scheme. An employer may offer a workplace giving program where a donation to a DGR is deducted from the employee’s wages and paid directly to the DGR on behalf of the employee. This is an optional program and is an ATO approved scheme where the tax is calculated differently – essentially the employee gets a slightly reduced tax rate for donating some of their after tax income to a charity. The donated amount appears on the payment summary at the end of the year. The employee can then claim this donation against their taxable income in their tax return. There are specific guidelines and tax calculations for setting up a workplace giving program.
In all cases, the employee still gets the Super Guarantee paid on the gross wage. Also in all cases, for the employer to pay directly to the charity it must be a registered Deductible Gift Recipient.
If the employee wishes to donate to an entity other than a registered DGR, they must do this themselves, the employer cannot get involved. It is up to the employer to check the status of the charity and confirm that they are DGR before paying them. Check the charity’s ABN to verify their status.
There is no limit to how much of their wage an employee can donate. If they choose, they can donate their entire wage.
