Rules, tax and other complexities

Final pays can get complicated so we recommend you speak to an accounting advisor about the specifics of your final pay.

To learn about tax on final pays, see this ATO information. For the rules, calculators and other final pay resources, check the Fair Work website.

If the employee is owed any pay for the current pay period (up until their final day at work), process this like a normal pay. This might not be for a complete pay period, so you may need to adjust their hours or salary and the tax withheld.

Remember - this is just their final regular pay and won't include any unused leave (which we'll cover below).

Processing this final regular pay ensures all applicable leave is accrued up to the employee's last day. Keeping this pay separate from any unused leave payment is a good way to clearly show what makes up the employee's final payments.

Need a refresher for doing a pay run?

Once you've processed their final regular pay, you can work out and pay their unused leave. Keep reading to see how.

After you've paid the employee's final standard pay, you can work out how much paid leave they're owed so you can pay it out.

1. Go to the Payroll menu and choose Employees.
2. Click the employee's name.
3. Click the Payroll details tab.
4. Click the Leave tab.
5. Take note of the total hours of accrued leave that you'll need to pay out, such as annual leave.

What about long service leave? Long service leave rules vary from state to state, so if you need help working out a payment for unused long service leave, speak to your accounting advisor.

You'll need to set up pay items for each type of unpaid leave you'll be paying out to the employee. Not only does this make it clear on the employee's pay slip what they're being paid, but it ensures superannuation and leave isn't accrued on the unused leave payments.

1. Go to the Payroll menu > Pay items.
2. On the Wages and salary tab, click the Unused Annual Leave pay item. If this doesn't exist, click Create wage pay item to create it.
3. Enter or confirm the details of this pay item.
   1. If you'd like a more personalised name for this pay item on the employee's pay slip, enter it in the Name for pay slip field.
   2. Set the Pay basis to Hourly.
   3. Choose the applicable ATO reporting category. If unsure, check with the ATO or your accounting advisor. Learn more about assigning ATO reporting categories for Single Touch Payroll.
   4. Set the Pay rate to Regular rate multiplied by and make sure the rate is 1.0000
4. Under Employees using this pay item, choose the employee who's being paid their unused leave.
5. Click Save.
6. Repeat steps 2-5 for any other accrued leave that needs to be paid out to the employee, such as unused long service leave.

Here's our example unused annual leave pay item:

Typically super and leave shouldn't be calculated on unused leave payments. Your MYOB business file might already be set up to prevent these calculations, but you should check to make sure.

To prevent super from accruing on unused leave payments

1. Go to the Payroll menu > Pay items.
2. Click the Superannuation tab.
3. Click the Superannuation Guarantee pay item.

4. Under Exemptions, make sure all the unpaid leave pay items that you set up earlier are listed. If they're not, click the Add exemption dropdown arrow and choose them.
   Here's our example:
   

   UI Text Box
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   Can't click Add exemption? This means the superannuation pay item isn't set up to calculate as a percentage of wages. If so, you'll need to manually remove the superannuation amount when you pay the unused leave.

5. Click Save.
6. Repeat steps 3-5 for each superannuation pay item that applies to the employee.

To prevent leave from accruing on unused leave payments

1. Go to the Payroll menu > Pay items.
2. Click the Leave tab.
3. Click the Annual Leave Accrual pay item.

4. Under Exemptions, click the Add exemption dropdown arrow and choose the unpaid leave pay items you set up earlier.
   Here's our example:
   

   UI Text Box
   size medium type note
   Can't click Add exemption? This means the leave accrual pay item pay item isn't set up to calculate as a percentage of wages. If so, you'll need to manually remove the leave accrual amount when you pay the unused leave.

5. Click Save.

6. Repeat steps 3-5 for each leave accrual pay item that applies to the employee.

You can now pay the employee their unused leave.

1. Start a new pay run for the employee. Need a refresher?
2. Select the employee and click the dropdown arrow to view their pay details.
3. Enter the hours of leave being paid out against the applicable unused leave pay item. For example, if the employee is being paid out for 10 hours of unused annual leave, enter 10 hours against the Unused Annual Leave pay item.
4. Make sure all other hours and amounts are removed from the pay. Super and leave shouldn't calculate on this pay.
5. If required, click into the PAYG field and change the amount (this ATO article might help).
6. Finish processing the pay as normal.

You're almost done... 

You now need to record the Termination date in the employee's record. When you do this, the employee's leave balances and standard pay details are deleted. This is OK as you won't need this information any longer.

To enter a termination date:

1. Go to the Payroll menu and choose Employees.
2. Click the employee's name.
3. Click the Payroll details tab.
4. On the Employment details tab, enter or choose the Termination date.
5. Click the Contact details tab.
6. Select the option Inactive employee. This will prevent the employee showing up in future pay runs and some payroll reports.
7. Click Save. You'll see a message confirming the termination.
   
8. Click Save to this message.

As part of your STP reporting, you need to notify the ATO that the employee has ended their employment. You need to let the ATO know:

• the employee's end date, and
• that you won't be paying the employee again this payroll year (known as 'finalising').

To notify the employee's end date

1. Go to the Payroll menu > Single Touch Payroll reporting.
2. Click the Employee terminations tab.
3. Choose the applicable Payroll year and click Add Termination.
4. Enter the termination details and click Notify the ATO.
   
5. When prompted to send your payroll information to the ATO, enter your details and click Send.

To finalise the employee

Once the employee's final pays have been accepted by the ATO (check the status of the pays in the STP reporting centre), you can finalise the employee.

1. Go to the Payroll menu > Single Touch Payroll reporting.
2. Click the EOFY finalisation tab.
3. Select the terminated employee and click Finalise and notify the ATO. This button only appears when you select an employee.
   
4. When prompted to send your payroll information to the ATO, enter your details and click Send.

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