I am employed through a tripartite contract involving a U.S. company, myself, and an Australian entity.
The U.S. company offers employees monthly "use it or lose it" stipends, divided into three categories:
- Home Office (covering expenses like internet, cell phone, food, and computer equipment),
- Health and Wellness (covering gym memberships, wearables, nutrition, and education), and
- Continued Education (covering courses, books, classes, and e-ink devices).
To avail these stipends, employees must purchase an item, submit a claim along with the receipt, and receive approval from the finance team. The approved amount, up to the monthly cap, will then be included in the subsequent salary payment.
The Australian entity, which handles my compensation, has so far processed these claims as taxable income on my pay slip. When asked about this approach, they said these were processed as allowances.
My understanding is that these amounts could only qualify as allowances if they were paid out entirely each month without requiring us to submit receipts or lodge claims. In other words, an allowance is income allocated for a potential expense; it is up to the employee whether or not to actually spend that post-tax allowance. In contrast, what I experience is different: if I pay $100 for internet, I receive only $67 back, as the additional income is subjected to personal tax rates.
Should these amounts be classified as Reimbursements, Allowances, or Fringe Benefits?
I believe that designating them either as Reimbursements or Fringe Benefits would allow me to recover the full cost of the expense. On the other hand, an Allowance would merely be a nominal sum that doesn't require proof of purchase and is treated as regular income.
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