Method B(ii) Withholding

Method B(ii) is one of two ATO-approved methods for calculating Pay As You Go (PAYG) withholding on additional payments made to employees, including back payments, bonuses, commissions, and similar payments that relate to more than one pay period or to an undefined period.

Method B is more complex than Method A but produces a withholding amount that more closely approximates the actual tax payable. Method B(ii) specifically applies to additional payments where a more precise withholding calculation is required, particularly for employees with higher incomes, study and training support loan debts, or variable earnings across the financial year.

Like Method A, Method B(ii) is defined under Schedule 5 of the ATO's PAYG withholding tax tables, the tax table for back payments, commissions, bonuses, and similar payments.

The Role of Method B(ii) in Payroll

• For employers: Method B(ii) provides a more precise calculation of withholding on additional payments, reducing the likelihood that an employee will face a significant tax shortfall at year end. While more involved than Method A, it is the preferred method for complex payment scenarios and is fully accepted by the ATO.
• For employees: Withholding calculated using Method B(ii) more closely reflects the actual tax likely to be owed on the additional payment. This is particularly relevant for employees with HELP or other study and training support loan debts, where the standard withholding rate may not adequately account for the additional liability.

When to Use Method B(ii)

Method B(ii) is most appropriate when:

• An employee receives a large bonus or back payment that significantly increases their income for the period.
• An employee has a HELP or other study and training support loan debt and receives additional payments.
• Greater withholding accuracy is required to reduce the risk of an end-of-year tax liability for the employee.
• The additional payment covers an undefined period or spans multiple financial years.

Both Method A and Method B(ii) can be used for any additional payment made, regardless of the financial year the additional payment applies to, including all back payments, commissions, bonuses, or similar payments.

How Microkeeper Handles Method B(ii)

Microkeeper's payroll platform includes a built-in feature that lets payroll managers select the tax method: Method A or Method B(ii), for each individual payment line on a payslip, such as commissions or bonuses. This means the correct withholding is applied at the line level within the pay run itself.

Withholding amounts calculated using Method B(ii) are included accurately in Single Touch Payroll reporting, ensuring ATO compliance with each pay run.

For anyone wanting to calculate or verify withholding outside of a pay run, Microkeeper's free online Method A and B(ii) calculator is available and no login is required.

FAQs About Method B(ii)

What is the difference between Method A and Method B(ii)?

Both methods are ATO-approved for calculating PAYG withholding on additional payments. Method A is simpler and suitable for most scenarios. Method B(ii) is more involved but produces a result that more closely approximates the employee's actual tax liability, making it preferable for higher-income employees, those with loan debts, or complex payment situations.

Is Method B(ii) mandatory?

No. Calculations made using either Method A or Method B are acceptable to work out the withholding amount. However, Method B(ii) is recommended where greater accuracy is required to avoid a significant end-of-year tax shortfall for the employee.

What does the "(ii)" in Method B(ii) mean?

Method B has two variations. Method B(i) applies to back payments where the exact pay periods the payment relates to are known. Method B(ii) applies to additional payments where the period is undefined or where the payment cannot be easily attributed to specific prior pay periods, such as commissions or bonuses covering an open-ended period.

What if my Method B(ii) calculation produces a negative result?

If your calculation results in a negative amount, treat the result as nil. This applies to both Method A and Method B(ii).

Can I use Microkeeper's calculator to check my withholding before processing a pay run?

Yes, in two ways. Microkeeper's free online calculator supports both methods and is available to anyone without a login. Microkeeper customers can also apply the tax method directly to individual payment lines within the payslip, without needing to calculate externally.

Best Practices for Method B(ii)

Use for high-value or complex additional payments: Method B(ii) is particularly valuable when the additional payment is large relative to the employee's regular earnings, or when greater precision is needed to avoid an end-of-year shortfall.

• Check for loan debts: If an employee has declared a HELP or other study and training support loan debt, Method B(ii) is generally the more appropriate choice to ensure the correct combined withholding is applied.
• Use purpose-built tools: The multi-step nature of Method B(ii) makes manual calculation error-prone. Use payroll software or a dedicated calculator, such as Microkeeper's online Method A and Method B(ii) calculator, to ensure accuracy.