This step lets the ATO know that you won't be paying the employee again this payroll year. You can finalise the terminated employee now, or when you complete your STP finalisation at the end of the payroll year.
What if I've terminated an employee before setting up Single Touch Payroll reporting?
If you terminated an employee during the 2018-19 financial year before you started using Single Touch Payroll, you might need to prepare a payment summary. This depends on whether the employee’s final pay was an Employment Termination Payment (ETP) or not.