How to report back payments
Sometimes there may have been an oversight or delay and you need to make a back payment to an employee. As back payments are not a single type of payment, there is no single way to report them through STP. Instead, you need to consider the circumstances of the back payment.
In some cases, the back payment you are making may be a lump sum E payment. This is a separately reported payment type for STP.
If you are making a back payment to an employee and it is not lump sum E, then report it in STP as the relevant payment type (such as gross, allowances or overtime).
Lump sum E
Lump sum E is an amount of back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment.
Prior to 1 July 2025, you must report a back payment as Lump sum E if the amount was equal to or greater than the lump sum E threshold amount of $1,200.
Post 1 July 2025, the $1,200 threshold no longer applies. Any amount that qualifies as a lump sum E payment must be reported as Lump sum E.
Your payroll solution may report lump sum E:
- in each STP report, or
- only when you finalise your reporting at the end of the financial year.
Both ways are acceptable.
You must report lump sum E year-to-date (YTD) amounts by specifying each prior financial year to which the amount relates.
When you report lump sum E payments, you no longer need to issue a lump sum E letter to employees at the end of the financial year. This information will now be available on their income statement.
Lump sum E reporting examples
The following table outlines some examples of what should and shouldn't be included in Lump sum E.
Include | Don't include |
|---|---|
For payments made prior to 1 July 2025:
For payments made post 1 July 2025:
| For more information, see Reporting the amounts you have paid. |
Example: lump sum E reporting paid prior to 1 July 2025
Ross' employer identified on 15 February 2022 that Ross has not been paid his higher duties allowance for the past 22 months totalling $3,300, due to an administration error. Using the normal ATO backpay rules, the pay office has split the payment into the following categories:
- The past 12 months of backpay (15 February 2021 to 15 February 2022) totals $1,800. This is taxed and reported in the current financial year. As the backpay is for an allowance, it will be reported in the appropriate allowance field.
- The amount that is greater than 12 months old (14 February 2021 and earlier) totals $1,500 which means it must be reported as lump sum E because it is greater than the lump sum E threshold of $1,200. The lump sum E component must be allocated to the appropriate financial year. $600 relates to the 2020–21 financial year and $900 relates to the 2019–20 financial year.
This is reported in STP Phase 2 as follows:
- KN tasks $1,800
- Lump sum E 2021 $600
- Lump sum E 2020 $900.
Ross’ employer does not need to provide him with a letter as the lump sum E amounts have been allocated to the appropriate financial years in the STP report.
End of example
Example: lump sum E reporting paid post 1 July 2025
Brett’s employer identifies on 7 October 2025 that Brett has not claimed his cents per kilometre allowance for the first quarter of the prior financial year (1 July 2024 to 30 September 2024) due to a technical issue.
- At that time, the ATO reasonable rate that Brett’s employer used was 0.88c a km.
- Brett’s timesheet shows that he travelled 583 km.
- The payment was accrued more than 12 months prior to the date Brett's employer was going to pay him his backpay.
Because the back payment is being made after 1 July 2025, the lump sum E threshold of $1,200 does not apply and the payment must be reported as Lump sum E. The amount of 0.88 × 583 = $513.04 is reported in STP Phase 2 as follows:
- lump sum E 2024 $513.04.
Brett’s employer does not need to provide him with a letter as the lump sum E amounts as they have included the amount per the relevant financial year in their STP reporting.
End of exampleLump sum E payments over 10 years in arrears
If you have a lump sum E payment to report that relates to a period more than 10 years prior, you will need to include the amount in the 10th year. This is due to a limitation in STP reporting which only allows you to report one YTD value per financial year up to 10 years in arrears.
Example: lump sum E more than 10 years in arrears
John makes a back payment on 20 May 2025 to an employee who did not receive an allowance they were entitled to receive since 2009. A portion of the back payment relates to periods greater than 10 financial years. This means John needs to report the lump sum E amounts for each year in his current tax return.
John reports the portion of the back payment relating to the financial year (2025) under the appropriate allowance field as follows:
- 2024 – $1,000
- 2023 – $500
- 2022 – $500
- 2021 – $1,200
- 2020 – $1,000
- 2019 – $750
- 2018 – $1,100
- 2017 – $1,200
- 2016 – $5,000
- 2015 – $8,500 (YTD total for years 2015 – 2009).