Compensation of employees 

Latest release
Australian System of National Accounts: Concepts, Sources and Methods
Reference period
2020-21 financial year


11.6    2008 SNA defines compensation of employees as follows:

... the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.⁴⁵

11.7    Compensation of employees comprises wages and salaries (in cash and in kind) and employers' social contributions. It does not include any unpaid work undertaken voluntarily or any taxes payable by the employer on the wage and salary bill such as payroll tax.

11.8    Wages and salaries paid in cash are gross payments before deductions. Deductions include income taxes and social contributions payable by the employee even if withheld by the employer for administrative convenience, such as direct payment to a superannuation fund or the Australian Taxation Office (ATO). Penalty payments (e.g. overtime, hazardous work allowances), supplementary allowances such as housing and meal allowances (unless paid as social benefits), holiday pay, payment while on sick leave, bonuses, and commissions, tips and gratuities paid directly to the employee by a third party are included in wages and salaries. Excluded from wages and salaries are reimbursements for expenses incurred (e.g. transportation and accommodation expenses incurred on business travel, and removal expenses) and for equipment or clothing purchased (the reimbursements are treated as intermediate consumption of the employer).

11.9    Wages and salaries paid in kind covers the cost to an 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 include meals, housing, uniforms that can be worn away from work, vehicles available for personal use, goods and services produced by the employer enterprise, recreational facilities, transportation, car parking, child care, low interest loans and stock options. Some of these benefits may appear more like intermediate consumption, but are included in compensation of employees because, even though they are paid to attract employees, they are benefits that employees would often have to provide themselves.

11.10    Fringe benefits taxes which are payable on income in kind provided to employees are included as part of wages and salaries and also included in income taxes payable by households.

11.11    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. War gratuities which are regarded as social assistance benefits, are not included in wages and salaries.

11.12    The 2008 SNA recommends that 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 should be classified as employers' social contributions. However, it acknowledges it may be difficult to separate such payments from wages and salaries and therefore they may have to be grouped with wages and salaries. This is the case in Australia, as data providers are unable to consistently differentiate between these various types of severance and leave payments, and other wage and salary payments. Therefore, these payments are included in the ASNA estimates of wages and salaries.

11.13    Wages and salaries also include changes in provisions for future employee entitlements such as provisions for annual and long service leave.

11.14    Employers’ social contributions are amounts paid by employers (or imputed as payments by employers) to provide social benefits for employees. Social benefits include retirement benefits such as superannuation. Employer social contributions are usually paid directly by the employer into investment funds (called 'social insurance schemes' in 2008 SNA) operated by a separate financial institution, but can be paid into a fund set up within the employer enterprise. However, in some cases, employers pay the benefits directly from general revenue – where this occurs the employers are said to operate an unfunded social insurance scheme. In such cases, the employers’ social contribution implicitly required to fund future benefit payments from unfunded superannuation schemes is imputed and contributes to compensation of employees. This is the amount with the employer would be required to pay into a separate superannuation fund if the scheme were operated as a fully funded scheme.

11.15   Although employer contributions to funded social insurance schemes are usually paid by employers to the scheme operators, in the national accounts all employers’ social contributions (including imputed contributions) are treated as having been paid to employees, who are then treated as having made the payments to the schemes. This treatment is considered more realistic from an economic viewpoint in that the contributions are seen as part of the compensation and income of the employees, who are then seen as using the contributions to acquire access to social insurance schemes (to which they may also contribute directly). The treatment also means that employers’ social contributions add to GDP(I).

11.16    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).


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