Honorariums can be an excellent way to show appreciation to those who provide a voluntary service for your business.
However, with so many rules and eligibility criteria, knowing what qualifies as an honorarium payment and how they function can be challenging. This article will explore what an honorarium is, how it works, and whether you need to pay tax when you receive one.
An honorarium is a one-time payment made to an individual to recognise their voluntary service to an organisation.
Notably, the person who makes the honorarium payment must feel under no obligation to provide compensation. This means that the payment is not expected or legally required, and the organisation has no intention of entering into a formal contractual relationship with the payee. Think of an honorarium as a 'token of appreciation' given as a thank you for a service.
In general, organisations provide honoraria to people who give a service outside the scope of their regular job role. They are often given to volunteers in recognition of time spent preparing or performing a specific task. Honorariums are typically not awarded to employees of the organisation. Business owners will normally find other ways to reward their workers and foster well-being.
For example, a business owner asked to speak at a conference may receive an honorarium in recognition of the distance they travelled for the event. Similarly, an academic giving a voluntary lecture to a local university might receive an honorarium for the time spent preparing and practising their presentation.
Note that to be classified as an honorarium, the person receiving the payment must not expect or have prior knowledge that they are receiving payment for their services; the honorarium is simply a one-time award given in recognition of service after an individual has provided it.
An honorarium differs from a gift because of the intent behind the payment. While a gift can be given at any time as a gesture of goodwill, an honorarium is provided in direct response to a person's voluntary services.
The honorarium also differs from a daily spending allowance provided to workers to cover travel expenses like accommodation, food, drinks and transport.
Peter is a writer that works for a local newspaper. In his spare time, he volunteers as a coach for his son's cricket team. Peter meets with the team twice a week, delivers instructions, arranges practice and offers guidance. He also schedules games, books out venues and organises supplies for the club. At the end of the year, Peter receives an unexpected one-time $150 honorarium for his services to the team.
The amount of money given as an honorarium typically depends on the time and effort put into the voluntary service. For example, a well-known professor delivering complex voluntary lectures over three months will likely receive a larger honorarium payment than a one-time guest speaker at a conference.
That said, the amount paid can vary wildly depending on the organisation. An honorarium is a token of appreciation; the gesture is usually more important than the money provided. The fee is typically nominal, meaning it is not comparable to the amount that an organisation would pay if the service was delivered professionally as part of an individual's regular work responsibilities.
When it comes to lodging your tax returns, it’s important to take advantage of every potential deduction you can.
In Australia, whether an honorarium is taxable depends on the nature of the services provided. If an individual offers a voluntary service that is not connected to their professional income-producing activities, an honorarium will not be taxed.
On the other hand, if the voluntary service is linked to an individual's regular employment, an honorarium will be classified as assessable income.
Samantha is a professor of chemistry at a university in Australia. During her time off work, she also volunteers at a sustainability group, where she regularly arranges events, hosts meetings and draws up proposals to send to the local council.
Samantha volunteers to speak at an event to promote the importance of recycling and deliver an action plan for improving sustainability in the local area. In response, her sustainability group pays her a $250 honorarium in recognition of her services. As this reward is not connected to Samantha's income-producing activities as a chemistry professor, the honorarium is non-taxable.
Jim is an experienced writer working as a journalist for a local newspaper. In his spare time, he volunteers to help a local charity by producing written content for their website. Jim writes a series of free articles, blog posts, and website content pieces for the charity.
After a monthly meeting, Jim is awarded a one-time $500 honorarium in recognition of his voluntary services to the business. As his voluntary work is linked to his income-producing job as a journalist, Jim's honorarium will be assessable income.
Any sum of money that is paid as a fee for a professional service is not considered an honorarium. This includes:
In addition, reimbursements of expenses, such as a payment to cover travel and accommodation expenses, are not considered honoraria. The difference lies in the intent behind the payment. Whereas a reimbursement is designed to cover costs, an honorarium payment is awarded in recognition of services provided.
It is important to note that whether a payment can be classified as an honorarium depends on several factors and is not always clear-cut. In general, it is the organisation's responsibility to determine whether a payment is an honorarium. If in doubt, seek professional advice from your accountant.
If you're looking to pay a one-time honorarium in recognition of an individual's contribution to your business, QuickBooks can help.
Once you've made the payment, QuickBooks' bank reconciliation function can help you line up your bank statement to your accounts in QuickBooks, so you always know exactly where your money is going.
Try QuickBooks today with a 30-day free trial to see how our powerful accounting software can make your bookkeeping a breeze.
While every care has been taken to ensure the accuracy of the information presented as at 01 May 2023, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.
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