Reimbursements: Payroll vs AP Australia, 2026: Why this decision matters
Paying staff back for work costs looks simple, until it breaks your reporting. Put a reimbursement through payroll the wrong way and you can misstate STP, inflate BAS W1, trigger the wrong super treatment, and miss a GST credit. Run everything through accounts payable (AP) without guardrails and you’ll pay people late and lose the audit trail you need for FBT. The line you draw, what goes via payroll, what goes via AP, decides how clean your books stay.
What a reimbursement actually is
The ATO’s position is straightforward: a reimbursement repays an employee exactly for an expense they incurred on your behalf. That’s not income. It doesn’t attract PAYG withholding, and it isn’t reported as earnings. In fact, the ATO’s STP Phase-2 guidance says it plainly: reimbursements should not be reported through STP. If you’re paying a flat amount for a circumstance, that’s not a reimbursement, that’s an allowance (income), and it does belong in STP with the correct allowance label.
Why AP is usually the right home
AP is built for receipts, tax invoices, and coding. That matters because employers can claim GST credits on reimbursed taxable purchases when the expense directly relates to the business and you hold a valid tax invoice. You can’t share that credit with the employee, only one party claims it, and it should be you. AP keeps the source documents and puts the GST in the right box of the activity statement by design.
There’s also the FBT angle. Many reimbursements are expense-payment fringe benefits, you’ve paid a private or mixed expense for the employee. The FBT rules let you reduce the taxable value under the otherwise-deductible rule where part (or all) of the expense would have been income-tax deductible to the employee. You need documentation to do that reduction properly, and an AP-style workflow is the cleanest way to capture it.
When using payroll is acceptable, and how not to break it
Sometimes payroll is the fastest cash channel. If you pay a reimbursement in the pay run, configure it so it doesn’t feed PAYG, W1/W2, super or STP earnings. Label it as a reimbursement (not an allowance), exclude it from disaggregation of gross, and attach the receipt trail in your system, not in someone’s inbox. You still apply the same GST and FBT logic in your ledgers; you’ve only changed the payment rail. The non-negotiable: don’t let a reimbursement appear in STP as income, the ATO’s guidance is explicit on that point.
Allowance vs reimbursement: draw the bright line
If you’re paying a set amount to cover a situation, travel money per day, a laundry amount, a tool or first-aid allowance, that’s allowance income, not a reimbursement. It belongs in payroll, it may require withholding, and under STP Phase 2 it must be itemised by type (travel, car, overtime meal, etc.) instead of being buried in “gross” or blended into base pay. Reimbursements are the opposite: exact cost back with evidence, no income, no STP. Mixing them up is how BAS, STP and super drift.
Payslips and visibility
You must issue a payslip within one working day of payday, and it must clearly identify what the employee was paid for work. If you push a reimbursement through payroll, show it clearly as a reimbursement so no one mistakes it for taxable earnings. If you run it through AP, you don’t clutter the payslip at all, the employee still gets their money, and your payroll data stays pure. Either way, keep the records; Fair Work expects proper payslips and proper time-and-wages records.
The grey bits you should decide upfront
Real life throws partial-business expenses at you, phone bills with personal use, conference trips with a weekend tacked on. That’s still reimbursement territory, but you need apportionment and the otherwise-deductible calculations for FBT if any private share exists. Write that rule once (“we reimburse the business proportion backed by a bill and usage note”) and enforce it in AP. If you can’t defend the proportion, don’t pay it.
A simple operating model that won’t collapse
Here’s the clean split. AP handles true reimbursements: exact costs with receipts, GST claimed where eligible, FBT assessed and reduced where allowed. Payroll handles allowances and wages: taxable amounts, STP itemisation by allowance type, super set per your OTE policy. If you ever use payroll to move a reimbursement for speed, configure it as non-reportable to STP and non-superable, and archive the invoices as if it were AP. That way your STP mirrors reality and your BAS and FBT work without archaeology.
Bottom line
If it’s a flat amount, it’s an allowance, income, PAYG logic, STP Phase 2 itemisation. If it’s the exact cost back with evidence, it’s a reimbursement, no income, no STP, but with GST and FBT handled correctly. Keep reimbursements in AP by default; if payroll pays them for convenience, configure the item so it behaves like AP under the hood. Get that one decision right and your payslips, BAS, super, and FBT will all line up.
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