Wages elements in Castaway help you calculate the profit and loss expense, cashflow timing and balance sheet impact of wages and other employee-related on-costs. You can add Wages elements into any Direct Cost, Overhead, Other Expense or Non-Operating expense section.
Wages elements are designed to handle 3 types of on-cost, including personal income tax withholding ("PAYG"), pension contributions ("Superannuation") and other employer costs ("Payroll tax"). Each of these components is automatically linked to relevant balance sheet items, i.e. General PAYG Payable, General Superannuation Payable and General Payroll Tax Payable.
No GST is applied in the Wages element. Note that other staff-related costs, like recruitment, training and so on, are best set up as Costs elements.
Using Wages elements around the world
Although the element editors use Australian terminology like PAYG, Superannuation and Payroll Tax, the same calculations work around the world. For example:
- PAYG = an amount withheld from employee wages and remitted to the local taxing authority (aka PAYE in UK and NZ, income tax in Canada)
- Superannuation = an employer expense paid as a contribution to an employee's retirement savings (aka workplace pension in the UK, CEC in NZ, CPP contributions in Canada)
- Payroll tax = an employer expense remitted to a local taxing authority (aka Employer NIC in the UK, EI premiums in Canada)
The names used in all of our reports can be tailored to suit your specific requirements too.
By default, Castaway combines the Wage expense, Superannuation and Payroll Tax together as a single line value on the Profit & Loss reports. If you would prefer to present these as separate lines, we recommend using multiple Wages elements. Many people set these up under sub-heading for more reporting flexibility:
Using element formulas
If you decide to set up separate elements for Superannuation and Payroll Tax (or their local equivalents), a good approach is to use element formulas to calculate the values automatically.
Let's work through an example. For this exercise, we'll use Australian settings as follows:
- Superannuation = 10.5% of wages
- Payroll tax (based on New South Wales rates) = 5.45% of staff cost (wages + superannuation) above an $1,200,000 annual threshold ($98,361/month)
For simplicity, we will hard-code the rate % and threshold values into these formulas. Note however, that using constants in formulas is not best practice. We discuss a better approach (using Drivers), in the next section.
Starting from the Forecast workspace > Element Settings tab:
- Create a Wages element and name it 'Superannuation' (or your country's equivalent)
- In the element properties, set your Superannuation Calculation Method to Add Formula
- Click on the 3-dot box next to Superannuation Formula Editor to access the formula builder
- In the Elements box on the left of the screen, double-click Wages. A reference to that line should then appear in the Calculation box on the right of the screen
- Click the X button (once) in the middle column
- Enter 0.105 in the Value cell and then click the Add button
- Check that the Calculation Result looks sensible and then click OK
- Create a Wages element and name it 'Payroll Tax' (or your country's equivalent)
- In the element properties, set your Payroll Tax Calculation to Add Formula
- Click on the 3-dot box by Payroll Tax Formula Editor
- Set the calculation as 0.0545 x (Wages + Superannuation - 98,361)
- Check the Calculation Result and click OK
Using Drivers for dynamic formulas
In the example above, we hard-coded the % rates and the threshold value. As in Excel, using constants in formulas is not good modelling practice. It makes calculations less visible, harder to audit and inflexible to model. In Castaway, we recommend setting up your % rates and threshold values as Driver elements and then including those Drivers in your element formulas.
In this example, we'll replace the hard-coded Superannuation rate with a Driver element.
- In the Chart of Accounts, add a Driver element and name it Superannuation Rate
- Type 0.105 in the first cell of the Enter Driver data row and fill the numbers to the right
- Go to the Superannuation wages element and click on the 3-dot box by the Superannuation Formula Editor to edit the formula
- In the Elements box, click the Superannuation Rate driver. In the Calculation box, click the hard-coded 0.105. In the middle column, click the Replace Member button
- In the Chart of Accounts, add a Driver element and name it Payroll Tax Rate
- Type 0.545 in the first cell of the Enter Driver data row and fill the numbers to the right
- Add another driver and name it Payroll Tax Threshold and add 98,361 in the first cell of the Enter Driver data row and fill the numbers to the right.
- Go to the Payroll tax wages element and set the formula as Payroll Tax Rate driver x ( Wages element + Superannuation Wage element- Payroll Tax Threshold driver )
Another approach is to use Datalinks to allow for more complex and/or confidential payroll and superannuation calculations to be completed in Excel and then linked across to Castaway.
Download a sample file to compare the setup of the wages component together and separately here: