Financial Management – Honorariums and other payments
Tax obligations, including Single Touch Payroll reporting
Author: Colin Davies, Independent Director Bowls SA and Chair, Finance, Risk and Audit Committee with technical assistance from Wayne Manna, Chartered Accountant
The following advice is a general discussion on the tax law’s applicability to bowling clubs and associations for payments made to volunteers, including reporting obligations under the Single Touch Payroll (“STP”) rules.
The advice is generic and every club’s situation may vary according to their individual circumstances. If any doubt exists, appropriate legal or taxation advice may need to be sought. Alternatively, a club can submit an application for a Private Ruling to the Australian Taxation Office (“ATO”), which is the final arbiter on income taxation matters, short of referrals to the AAT or a Court.
Payment Types
Payments made by a club to an individual will typically fall into one of the following categories:
- Honorariums paid to volunteers
- Reimbursement of personal expenses incurred in connection with voluntary services
- Payments for independent professional services
- Payments to employees
As a general rule, in most cases, the relationship between the club and the individual will be clear; the club’s legal obligations and the nature of any payments made to the individual will also be clear.
What is an Honorarium?
An “honorarium” is generally thought to be a payment provided to a volunteer for providing voluntary services, where there is no intention the club and volunteer intended to enter a formal contractual relationship.
Honorariums are paid voluntarily, not intended to be a “reward for services rendered”, are paid without the volunteer having any expectation of payment and are paid to compensate the volunteer for expenses incurred carrying out their volunteer role.
What is Not an Honorarium?
For example, an electrician operating as a sole trader engaged to repair club lighting will be an independent contractor and the club’s obligations won’t require detailed analysis – a payment by the club is part of the electrician’s business income. Similarly, a person working full time or close to full-time to manage a club’s administration and receiving a salary will be an employee and the relationship between club and worker will be one of employer/employee. On the other hand, there can be less clear cut instances where payments made by a club to an individual member may not have the character expected.
Level of Payment
There are no “hard and fast” rules about what level of payment will be treated as an honorarium, but the central issue is the nature of a payment made, not the quantum. In each case, the facts will determine whether a payment is an honorarium or has some other character, but in most cases payments of $100 to $2,000 annually are most likely to be genuine honorariums. Higher payments may still be non-assessable honorariums, particularly where the volunteer’s role is more expansive and carries higher responsibilities. However, where the amount paid is paid regularly and/or the amounts are significantly in excess of expenses incurred and paid without regard to the likely amount of expenses that would be incurred, it is possible the amount may be a payment for services.
Honorarium payments are, as noted, not income of the recipients and create no obligations for the payer under Single Touch Payroll (STP), Pay As You Go – Wages (PAYG-W) or Super Guarantee Charge (SGC).
Reimbursements v Payment for Service
Where amounts paid precisely reimburse a volunteer for expenses they incur, those reimbursements are not income, but the expenses incurred by the volunteer are not tax deductible. A club reimbursing a volunteer for expenses they incur has no tax obligations arising from those payments.
Where a club member carries on a business and provides their business services to a club, any payment made in respect of those services could be regarded as a payment for services as an independent contractor and income of the recipient. An example might where a club member carrying on business as an IT consultant is “engaged” to set up a POS system in the club bar and the club makes a payment for those services. That a payment made is ex-gratia and might be less than the arm’s length value of the services may not matter to the ATO, because in undertaking to provide services where there is an agreed outcome, the club member may, in fact, enter into a contractual relationship with the club. Conversely, where the payment made is token and purely voluntary, there may be an argument the services were not provided for reward.
A club may make payments to people who are club members appearing to act in a voluntary capacity but where an employer/employee relationship exists. One example could be where a club member takes on a role managing the club’s bar facility and receives a regular payment for taking on that role.
Employer/Employee Relationship
Working out whether an employer/employee relationship exists can be a complicated exercise, but as a rule, the factors to look for include whether any remuneration offered equates to an arm’s length salary, if the remuneration is calculated on an hourly basis, the extent to which the worker is under the control and direction of the club and the degree to which the volunteer’s services are integral to the club’s operations and this might include things such as whether the bar manager is required to wear a uniform while behind the bar. The more of those factors are in evidence, the more likely the bar manager would be an employee. It won’t matter if a club makes its own determination that an individual is not an employee – regard has to be had to the elements of the relationship and whether an individual is, or is not an employee is a question of fact in each case and that a club insists an individual is not an employee is no barrier to that person having the rights of an employee.
For example:
- If a club bar is operated to provide an additional source of funds, the club stipulates the hours the bar is to be open and the duties the bar manager is expected to carry out (e.g., managing sales takings and inventories) and the bar manager is paid an agreed hourly rate, or their remuneration is calculated to equate to an hourly rate commensurate with their duties and paid regularly, e.g., weekly or fortnightly, the bar manager may well have entered into a contract of service and be an employee.
- A lack of a formal agreement won’t be decisive if it is possible to discern a contractual relationship from the “terms” of the arrangement and “labelling” the bar manager as a volunteer won’t exclude the possibility they are an employee.
Club’s requirements for an employee
If the bar manager, an employee, the club will be subject to the usual employer obligations – STP reporting, PAYG-W, SGC and WorkCover. Payroll tax most likely wouldn’t apply because the total wages would be below the payroll tax threshold, but if that were not the case, some exemptions are available for not-for-profit organisations, subject to the employer making an application Revenue SA for an exemption.
For some employees, there may also be obligations under the Fair Work Act and/or an award and a club will need to understand the extent of those obligations.
More Support
National Volunteer Guide
The National Volunteer Guide may be a useful and comprehensive source of information on all of the legal aspects of administering an NFP. It also includes a reasonably comprehensive analysis of
- The difference between “volunteer”, “employee” and “independent contractor”
- Obligations of an NFP in each case.
The publication should be read solely as a guide, may not reflect the current technical or legal position on any specific issue and is not intended to be relied upon as legal advice.
Scenarios and Tax Issues
The most likely scenarios and tax issues, if any, are summarised in the following table:
| Scenario | Characteristics | Tax Implications for individual | Tax implications for NFP |
|---|---|---|---|
| Honorarium – voluntary services | – Paid voluntarily, for voluntarily provided services – Paid to compensate recipient for personal expenses incurred – Amount paid is not substantially in excess of the personal expenses a volunteer is likely to incur – Amount paid not commensurate with value of services provided | – Amounts received are not income – Expenses incurred are not deductible | – None |
| Reimbursement to volunteer | – Volunteer incurs personal expenses in the course of providing voluntary services – NFP reimburses volunteer actual amount of expenses incurred | – Amounts received are not income – Expenses incurred are not deductible to the volunteer | – None |
| Payment to employee | – Not an honorarium – Employee at common law and subject to terms of a formal “contract of service” – Remuneration might be lower than market value for similar services outside of NFP sector, but that doesn’t change legal character of relationship between individual and NFP | – Payments are salary & wage so are assessable – Work-related expenses may be deductible | – PAYG-W may be required, depending upon amount of remuneration – SGC will be payable (especially after 1 July 2022 as $450 threshold doesn’t apply after that date) – Payroll tax might apply depending on level of wages, but many NFP’s can apply for payroll tax exemption |
