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5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000   
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Contents >> Chapter 19: Compensation of employees


19.1 This component consists of the value of entitlements earned by employees from their employers for services rendered during the accounting period. It covers wages and salaries received by employees in cash and in kind, changes in provisions for future employee entitlements (although estimates of these are not yet included in the ASNA), and employers' social contributions.


19.2 Employees are defined as all persons engaged in the activities of incorporated business units, in the production of general government services and the services of non-profit organisations, members of the defence forces, and all persons engaged in the activities of unincorporated enterprises except the proprietors and unpaid members of the family. Trainee teachers are deemed to be outside the labour force, and therefore payments to them are excluded from wages and salaries and included instead as social assistance benefits.

19.3 Wages and salaries comprise the value of employee entitlements, including those paid in cash and in kind, and changes in provisions for future employee entitlements (although the latter component has not yet been implemented in the ASNA). Cash incomes are gross payments before taxation and other deductions, and include commissions, tips, sick pay, pay for annual and long service leave, penalty pay and shift allowances. Income in kind covers the cost to the employer of goods and services which are provided to the employee, or to another member of the employee's household, free of charge or at a substantial discount, and which are clearly of benefit to the employee as a consumer. Examples are the provision of food and accommodation (other than when the employee is travelling on business for the employer), motor vehicles for private use, and education expenses. Loans by employers to employees at rates of interest below market rates are regarded as involving income in kind. Consequently, the difference between interest calculated at market rates and the interest actually paid by the employee is included in wages and salaries. Fringe benefits taxes which are payable on income in kind provided to employees are not included as part of wages and salaries because in the national accounts they are treated as a component of taxes on production and imports. This treatment is adopted because it is the employer who is legally liable for the fringe benefits tax, not the employee.

19.4 Employers' social contributions are contributions by employers to pension and superannuation funds; and premiums paid by employers to workers' compensation schemes for occupational injuries and diseases. SNA93 recommends that the following be classified as employers' social contributions: severance, termination and redundancy payments by employers; sick leave payments; and payments for other forms of leave other than annual leave and long service leave. However, this has not been implemented in the ASNA because, in Australia, data providers are unable to consistently differentiate between these various types of severance and leave payments, and other wage and salary payments. These payments are therefore included in the ASNA estimates of wages and salaries.

19.5 Payments to members of the defence forces consist of salaries and allowances, attendance pay and the value of food, clothing, and travel supplied to permanent members, reserves and cadets. Deferred pay is included but war gratuities, which are regarded as social assistance benefits, are not.

19.6 There is a minor definitional difference between compensation of employees as a component of GDP (recorded in the gross domestic product account and the national income account) and as an item in the household income account. In the gross domestic product account and the national income account, compensation of employees includes amounts paid by resident producers to non-residents. This income is shown in the external income account as labour income to overseas. To obtain compensation of employees as recorded in the household income account it is necessary to deduct labour income to overseas from the value shown in the gross domestic product account and the national income account and to add labour income from overseas. Labour income from overseas is also shown in the external income account, and comprises labour income paid to residents working for non-resident employers (either in Australia or overseas).

Annual estimates

19.7 Annual estimates for wages and salaries for Australia, and by State, are an aggregation of the quarterly estimates. Industry estimates for Australia are derived annually from the balanced S-U tables, except for the latest financial year, for which estimates are obtained by extrapolation using movements based on the quarterly data sources outlined below. Wages and salaries in relation to annual and long service leave are generally recorded on a payments basis. However, where long service leave arrangements are organised through separately constituted industry funds, such as those for the building and construction industry, it is the employers' payments into those funds which are included in compensation of employees. In effect, such long service leave funds are treated in a similar fashion to superannuation funds.

19.8 For the superannuation component of employers' social contributions, estimates are prepared separately for the funded schemes and for the unfunded (or partly funded) schemes. The funded superannuation component of employers' social contributions is the sum of employer contributions to funded schemes operated by life insurance offices and separately constituted pension funds. Data sources consist of the Survey of Major Labour Costs and the annual S-U tables.

19.9 A substantial number of general government employees and employees of a number of public non-financial corporations are covered by unfunded or partly funded superannuation schemes. Superannuation contributions for unfunded and partly funded schemes are imputed, based on the employers' contributions that are implicitly required to fund future benefit payments in relation to these schemes. The imputed estimates for unfunded and partly funded superannuation schemes are compiled by the ABS Public Finance Section using data from the Commonwealth and State Treasuries on unfunded employee liabilities, and data from the Commonwealth Actuary regarding the contributions that would be required to fund the Commonwealth's liabilities if the contributions were paid into a separate superannuation fund. The treatment of unfunded superannuation schemes is discussed more fully in Chapter 22.

19.10 Industry data for employers' contributions to superannuation are obtained from the annual supply and use tables for all sectors except general government. Industry data for this component for general government are based on data from the Survey of Major Labour Costs.

19.11 Estimates of the workers' compensation component of employers' social contributions are benchmarked to the annual S-U tables, both in total and by industry. However, the estimates from the S-U tables for the general government component of this aggregate are based on data from the Survey of Major Labour Costs. The workers' compensation premiums which are included in employers' social contributions include direct workers' compensation premiums payble and the direct cost of workers' compensation to employers who are permitted to self-insure. Additional payments by employers which are made voluntarily to their employees to cover the difference between workers' compensation payments and their normal wages are included in the wages and salaries component of compensation of employees, rather than being included in employers' social contributions.

Quarterly estimates

19.12 Estimates of wages and salaries are made for each State and Territory by summing the following elements:

      • wages and salaries paid in cash to employees of the private non-farm sector and civilian employees of the public sector, both of which are on a basis adjusted for pay periodicity;
      • farm wages and salaries;
      • changes in provisions for future employee entitlements (not yet included);
      • payments to members of the defence forces;
      • payments made to the staff of Australian embassies and consulates overseas;
      • the value of income paid in kind; and
      • adjustments for labour income included in the balance of payments statistics.

19.13 For quarters and years up to and including 1980-81, estimates for civilian wages and salaries paid in cash were based principally on monthly payroll tax returns and government returns, with an adjustment for businesses exempt from payroll tax. Estimates for the quarters of 1981-82 and 1982-83 were based on data from the interim Quarterly Survey of Earnings and numbers of wage and salary earners from the Labour Force Survey (LFS). Estimates for quarters from September quarter 1983 are based on the large scale Survey of Employment and Earnings (SEE) together with quarterly information from the LFS.

19.14 The SEE collects employment and earnings data from a sample of both private employers and public sector units (prior to September quarter 1988 the collection covered all government sector units rather than a sample). Excluded from the survey are employees in the private sector primarily engaged in agriculture, forestry and fishing; persons employed in private households; employees of foreign embassies, consulates etc. in Australia; employees based outside Australia; and members of the Australian permanent defence forces. As the SEE is an employer based survey, it provides data on the number of jobs held and earnings derived from jobs held. However, due to unavoidable delays in recording new businesses on the ABS business register (from which the SEE sample is drawn), and other deficiencies in the coverage of the business register, the SEE tends to understate total employment and earnings. The extent of the coverage problems was significantly reduced from December quarter 1996 when adjustments were made to the whole time series to allow for missing businesses and an ongoing new business provision was introduced.

19.15 The LFS is based on a sample of dwellings, and provides information on the number of people in jobs (as opposed to SEE which provides estimates for the number of jobs held). All civilians aged 15 and over are represented in the sample except for diplomatic personnel of foreign governments and other foreign residents in Australia. Although the LFS does not provide the information on earnings required for national accounts purposes, it provides a more complete estimate of the number of wage and salary earners than does the SEE. As a result, the employment and earnings estimates obtained from the SEE are used in conjunction with the LFS estimates (and various other sources) to obtain an estimate of total wages and salaries on a quarterly basis.

19.16 From 1983-84, civilian wages and salaries paid in cash are estimated in the following way. Estimates of farm wages and salaries and non-farm 'unrecorded' wages and salaries are added to wages and salaries derived from the SEE. Farm wages and salaries are derived from the Agricultural Finance Survey (AFS). For those years when the AFS was not conducted, estimates were interpolated using other indicators such as Australian Bureau of Agricultural and Resource Economics indexes of prices paid for hired labour. Non-farm 'unrecorded' wages and salaries are estimated as the difference between the number of employee jobs from the SEE and the number of non-farm employed wage and salary earners from the LFS (adjusted for multiple jobholding, employees on strike, employees on worker's compensation not paid through the payroll, employees on unpaid absences and employees overseas), multiplied by the average wage rate from SEE. The adjustment for multiple jobholding converts the LFS employment estimate to a jobs basis which is consistent with the SEE number of jobs measure. The estimates for multiple jobholding are based on data from the periodic Survey of Multiple Jobholding which is conducted as a supplementary component of the Labour Force Survey.

19.17 Salaries and allowances for members of the defence forces are derived from annual information supplied by the Department of Defence and allocated to quarters using data for defence wages paid, from the Department of Finance and Administration ledger. The Department of Finance and Administration is also the source for estimates of wages and salaries paid to Australian residents employed overseas in Australian embassies and consulates. The value of income paid in kind is estimated using annual data relating to the value of fringe benefits which are supplied by the Australian Taxation Office and allocated to quarters using linear interpolation and extrapolation. Labour income to and from overseas is obtained from the balance of payments statistics.

19.18 SNA93 is explicit in recommending that compensation of employees be measured on an accrual basis. In principle, this requires that the total cost of employee compensation be reflected in the periods in which the employee provided services to the employer. Provisions for employee entitlements which qualify as wages and salaries include provisions for long service leave and annual leave. An important aspect of accrual accounting is that wages and salaries should be recorded on a time worked basis rather than on the number of paydays in an accounting period. The methods used to implement this treatment vary over the time period covered by the estimates for wages and salaries. In the quarterly national accounts, data for compensation of employees for all periods are published on a basis adjusted for pay periodicity.

19.19 From the September quarter 1996, a significant step in the direction of accrual accounting was implemented in the SEE, with the collection of data to enable accurate pay-day adjustment of earnings to a 'payable' basis. A pay-day adjustment based on data from the Pay Periodicity Survey had previously been applied in the seasonal adjustment process, but not in the derivation of original estimates. This survey was last conducted in respect of September quarter 1992, and adjustment factors for subsequent quarters were calculated using these benchmark data and calendar information. Pay Periodicity Surveys were previously conducted in respect of the September quarter 1984 and the September quarter 1988. Prior to the introduction of the SEE, pay periodicity factors were derived using regression analysis.

19.20 Quarterly estimates of employers' social contributions are usually obtained for each State and Territory by distributing the annual estimates according to the quarterly distribution of private wages and salaries and public civilian wages and salaries. For incomplete years, the quarterly estimates of employers' social contributions are generally calculated by using the proportion of social contributions to civilian wages and salaries in the previous year adjusted as appropriate for any expected change in this proportion. The quarterly allocation of employers' social contributions has been adjusted for some recent years to allow for the impact of the introduction of the Superannuation Guarantee Levy legislation.

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