Q: In preparing for the review of ESCT rates for the coming new financial year, we seek your advice on how the ESCT rates should be applied for employees employed for the full financial year. Specifically, we need to determine whether the ESCT rate is based on their actual past financial year earnings or their current salary.

Below are the scenarios for your consideration:

• Employee employed for the full year from 1/4/24 to 31/3/25 with one month on Leave Without Pay (LWOP) – How should the ESCT rate be calculated in this case, considering the employee’s income is reduced due to one month of LWOP?

• Employee employed for the full year from 1/4/24 to 31/3/25 with a salary increase effective from 1/10/24, say from $10k to $11k – Should the ESCT rate reflect the actual total earnings of $10.5k, or the increased salary of $11k?

• Employee employed for the full year from 1/4/24 to 31/3/25 with a lump sum bonus in October 2024 – Should the lump sum bonus (depending on performance) be included in the total earnings for ESCT purposes?

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A: Yes to all three of the bullet points above. ESCT, when set, looks back from 31 March to 1 April of the previous year to determine what the employee earned and the employer contribution. It is not based on what they earn now. Once set, it is a final tax and will be reviewed again in the following new tax year.

• It does not matter if the employee was on LWOP in the last year; it is based on total gross earnings and employer contributions for the period.

• If there was a salary increase or bonus in the last year, the ESCT is based on the gross earnings for the overall period + employer contributions to determine the ESCT rate.