This article includes the following topics:
- Is this an employment termination payment as defined by the ATO
- Calculating the termination payout
- How to complete a termination payout during a pay run
- How to complete a ad-hoc termination payout outside of a pay run
when processing a termination payout, the PAYG value will need adjusting. Please consult the ATO or your account/payroll advisor if unsure.
If you're including a redundancy payment consult your accountant for advice on how to calculate these payments. Your accountant will also tell you how much extra tax should be withheld. You will need to manually include this extra tax.
When an employee leaves, you need to process a termination payment for them. You'll need to calculate any termination amounts you owe the employee—for example, unused annual leave amounts or a golden handshake—in addition to processing their final standard pay. Termination payments are taxed at different rates depending your employee's age, how long they were employed with you and the reason for the termination (such as voluntary redundancy or retirement).
Working out the final payment amount
Termination payments can get complicated as there are a number of awards and employment contract provisions that determine what needs to be paid. You may also make an additional payment in lieu of good service or workplace policy. The procedures we've outlined explain how you record the different elements of a termination payment. However, you'll need to work out the payment amount and how the payment needs to be reported on payment summaries (for example, are the amounts reported as ETP payments or lump sum payments).
Before you begin, check the relevant award or employment contract for exact details of what needs to be paid to the employee on termination. We also suggest you read the ETP information on the ATO's website, as it explains what's classified as an ETP payment or a lump sum payment. If you're unsure about how to handle a payment, please speak to the ATO.
What is this article about
This guide explains the process of completing an employment termination payment. This is typically processed as a separate pay run to clearly show the components which make up the employees final pay.
Why is this important
These can include normal wages, unused leave and any applicable employment termination payment components.
For any advice relating to employment termination payments, please speak to your accounting adviser or the ATO.
Note: When processing termination payouts, please make sure you use the correct rate types (if you require different rate types, please let us know):
|Rate type||Standard (yes/no)||
|Rec Leave - Payout||No||No|
|Leave Loading - Payout||No||No|
|Employment Termination Payout||No||No|
|Payment in lieu||No||Yes|
Is this an Employment Termination Payment (ETP) as defined by the ATO
Not all termination payments are classified as an ETP. For clarification on what is (and isn't) an ETP, visit the ATO website or speak to your accounting adviser.
Calculating the termination payout
The Australian Tax Office provides useful tools to help you calculate the termination payout.
Employment termination payments
Employment termination payment calculator
FairWork provides a useful page on calculating an employees final pay
How to complete a termination payout during a pay run
To complete a termination payout during a pay run, complete the pay run first in easyemployer to transfer the payroll information to Payroll Guru (see: Executing a pay run using Payroll Guru)
1. Open Payroll Guru
2. Open the pay run
3. Click the employee to bring up their Payslip
4. Click on View payslip to view the current pay slip to determine the entitlement balances to be paid out (this will include current entitlements on the hours in the current pay run)
5. Record the accrual values that you would like to pay out (to 4 decimal places if required)
6. Go back to previous page
7. Click on Edit qty on the right hand side next to any rate type to show the editable pay slip
8. Add the quantity to determined in 5 to the applicable type e.g. Rec Leave - Payout, Leave Loading - Payout etc, Employment Termination Payout (not to be used for leave payouts) If you need to add rate types to the employee, see Add rates of pay and allowances to an employee
9. Once completed, click Edit Payslip
10. Adjust the PAYG values if required
How to complete a ad-hoc termination payout outside of a pay run (recommended)
To complete a termination payout outside of a pay run, open the easyemployer Payroll Report to determine the rate types (payroll categories) to be paid out
1. Open Payroll Guru
2. Click Payrun
3. Click New pay run
4. Choose the process date and click Set process date
5. Choose the employee and click Select employee
6. Set the Period ending and click Select period ending
7. Enter the quantities recorded on the payroll report next to each rate type
8. Once completed, click Add to pay run
9. Down the bottom of the screen, click the employees name to view their payslip
10. Click on View payslip to view the current pay slip to determine the entitlement balances to be paid out (this will include current entitlements on the hours in the current pay run)
11. Record the accrual values that you would like to pay out (to 4 decimal places if required)
12. Click on Edit qty on the right hand side next to any rate type to show the editable pay slip
13. Add the quantity to determined in 11 to the applicable type e.g. Rec Leave - Payout, Leave Loading - Payout etc, Employment Termination Payout (not to be used for leave payouts) If you need to add rate types to the employee, see Add rates of pay and allowances to an employee
14. Once completed, click Edit Payslip
15. Adjust the PAYG values if required
Processing a termination and/or REC leave payout through Payroll Guru