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This information applies to MYOB AccountRight version 19. For later versions, see our help centre.


 

 

ANSWER ID:31371

AccountRight Plus, Premier and Enterprise, Australia only

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.

OK, let's take you through the required tasks to set up and process an employee's termination payment.

 

1. Determine outstanding entitlements

Any outstanding entitlements for the terminated employee must be taken into account when processing their termination payment, for example unused hours of holiday leave, etc. These outstanding entitlements can be identified by running the Entitlement Balance (Summary) report as follows:

  1. Go to the Reports menu and choose Index to Reports.
  2. Click the Payroll tab.
  3. Click the Balance Summary report (under the Entitlements sub-heading).
  4. Click Customise.
  5. Select the applicable employee.
  6. Ensure the report's date range captures the beginning and end of the current payroll year.
  7. For Entitlements, select All.
  8. Click Display. The Entitlement Balance (Summary) report is displayed showing the amount of hours owed to the employee as shown in the following example:
    Image

Providing the Dated From and To dates on the report encompass the entire payroll year, the Available Hours value on the report will represent the lifetime balance for the employee.

2. Create payroll categories

As termination payments are normally taxed at different rates and may not accrue Superannuation, it's recommended you create new payroll categories for these payments. This will also help to categorise the payments correctly on the employee's Payment Summary.

Depending on the components which make up the employee's termination payment, create the required payroll categories as follows:

To create a payroll category for unused entitlements

  1. Go to the Payroll command centre and click Payroll Categories.
  2. Click the Wages tab.
  3. Click New to create a new wages category.
  4. Name the new category Unused Holiday Pay (for example).
  5. Select Hourly as the Type of Wages.
  6. Leave all Wages Information at their default values.
    If required, you can override the default wages account for this category by selecting Optional account. If unsure, speak to your accounting advisor.
  7. Click Employee and select the employee whose employment is being terminated.
  8. Click OK.
  9. If the employee has additional outstanding entitlements, for example Unused Long Service Leave and Unused Leave Loading, repeat steps 3 to 8 to create wages categories for these and name them accordingly.

Unused leave loading

The Pay Rate needs to equal the Regular Rate Multiplied by 0.1750. See Setting up leave loading for more information.

 

To create ETP payroll categories

(Only required if the payment is classified by the ATO as an ETP)

Create these 3 payroll categories:

  1. Go to the Payroll command centre and click Payroll Categories.
  2. Click the Wages tab.
  3. Click New to create a new wage category.
  4. Name the new category ETP Taxable.
  5. Leave all other values at their default. If required, you can override the default wages account for this category by selecting Optional account. If unsure, speak to your accounting advisor.
  6. Click Employee and select the employee whose employment is being terminated.
  7. Click OK.
  8. Repeat steps 3 to 7 to create another wage category named ETP Tax Free.
  9. Click the Deductions tab.
  10. Click New to create a new deduction category.
  11. Name the new category ETP Tax Withheld.
  12. Ensure the Linked Payable Account has the applicable account specified. You can leave all other values at their default.
  13. Click Employee and select the employee whose employment is being terminated.
  14. Click OK.

 

To create a wage category for Lump Sum Payments

(Only required if there is a Lump Sum Payment)

  1. Go to the Payroll command centre and click Payroll Categories.
  2. Click the Wages tab.
  3. Click New to create a new wage category.
  4. Name the new category Lump Sum Payments.
  5. Leave all other values at their default. If required, you can override the default wages account for this category by selecting Optional account. If unsure, speak to your accounting advisor.
  6. Click Employee and select the employee whose employment is being terminated.
  7. Click OK.
3. Exempt the new payroll categories from superannuation

The payroll categories created above may need to be exempted from accruing superannuation. Please speak to your accounting advisor or the ATO to determine if this is applicable in your situation. The payroll categories can only be exempted from superannuation categories which are calculated on a % basis.

To exempt the new payroll categories from accruing superannuation

  1. Go to the Payroll command centre and click Payroll Categories.
  2. Click the Superannuation tab.
  3. Click the zoom arrow next to the superannuation category where the wage categories are to be exempted.
  4. Click Exempt.
    If the superannuation category is calculated on a dollar basis, not as a percentage, the Exempt button will be inactive and you won't be able to exempt it.
  5. Select the applicable wage categories created above, for example Unused Holiday Pay, Unused Leave loading, ETP Taxable (as applicable).
  6. Click OK.
  7. Repeat steps 3 - 6 for all applicable superannuation categories.
4. Exempt the new payroll categories from holiday leave accrual

As with superannuation, if Holiday Leave Accrual is setup to be a % of gross hours, the payroll categories created above may need to be exempted to ensure no holiday leave is calculated on the termination payment. Please seek advice from your accountant or the ATO to determine if this is applicable in your situation. If the Holiday Leave Accrual is setup to be a dollar value, skip to Create the termination paycheque below.

To exempt the new payroll categories from Holiday Leave Accrual

  1. Go to the Payroll command centre and click Payroll Categories.
  2. Click the Entitlements tab.
  3. Click the zoom arrow next to Holiday Leave Accrual.
  4. Click Exempt. If holiday leave accrual is calculated on a dollar basis, the Exempt button will be inactive - click Cancel and move to the next task.
  5. Select the applicable payroll categories created earlier, for example Unused Holiday Pay, Unused Long Service Leave, Unused Leave Loading (as applicable).
  6. Click OK.
5. Create the termination pays

For all termination payments, it's suggested to create separate pays for each of the termination payment components. For example, a separate pay is recommended for:

  • the employee's final pay
  • the employee's unused leave
  • any Lump Sum Payments
  • [ETPs only] the employee's ETP components 

To process the employee's final pay

  1. Process the employee's final pay for the pay period as per normal.
    If you use timesheets, in the first step of the pay run, choose the Bonus/Commission option for the pay frequency. This will allow you to process the terminated employee's pay without needing to enter a timesheet.
  2. Finalise this pay.
  3. Process a separate pay for the unused leave
  4. On the unused leave pay, zero out the values to ensure there are no hour or dollar values.
  5. Enter the hours next to Unused Holiday Pay, Unused Long Service Leave, and/or Unused Leave Loading (as applicable) as determined above.
  6. Manually calculate the PAYG Withholding. To assist with this calculation, see the ATO website for the latest articles.
  7. Enter the PAYG Withholding as a negative value in the Amount column as shown in the example below.

To process a Lump Sum Payment

If the employee is being paid a Lump Sum Payment, you can create a separate pay just for this payment.

In the pay, zero all values and only enter the value of the Lump Sum Payment against the category you created earlier. Here's our example.

To process an ETP pay

This additional pay is only required for ETPs to contain the ETP components of the termination payment.

  1. Calculate the ETP Taxable, ETP Tax free, and ETP Tax Withheld values. To assist with the calculation, see the ATO website for the latest articles.
  2. Enter the values into the Amount column as shown in the example below. Remember to enter the ETP Tax Withheld as a negative amount.
6. Enter the Termination Date in the employee's card

Entering a Termination Date in the employee's card will clear all entitlement balances (hours) for the employee, and their payroll history will be purged when you start a new payroll year. However, their pays will remain in the system until you start the next financial year in your software.

Be aware that removing the Termination Date from an employee's card will not restore the entitlement balances.

  1. Go to the Card File command centre and click Cards List.
  2. Click the Employee tab.
  3. Click the zoom arrow next to the applicable employee.
  4. Click the Payroll Details tab.
  5. Enter the Termination Date.
  6. Click OK.
  7. Click OK to the displayed warning.
7. Prepare the employee's payment summary

In most cases once an employee has left employment they will require a payment summary. The steps below are a summarised version of how to prepare a payment summary and ensure the payroll categories you created above are linked to the applicable payment summary fields. Our support note Preparing and printing payment summaries contains more details on the payment summary process.

  1. Go to the Payroll command centre and click Print Payment Summaries. The Payment Summary Assistant will be launched.
  2. At the Payment Summary Fields step of the assistant, link the payroll categories you created earlier in this support note to the applicable payment summary fields.
    For example, the ETP categories you created earlier will typically be selected against the matching payment summary fields.

    For more information on which payroll categories should be linked to the payment summary fields in the Payment Summary Assistant, please check with the ATO or speak to your accounting advisor. However, note that if an ETP does not have a taxable component it does not need to be selected on the payment summary.

  3. When you print or save the payment summaries for employees who have an ETP, a separate ETP payment summary will be generated for the employee. The ETP information will also be contained in the EMPDUPE file generated for the ATO.
  4. Finalise the payment summaries as described in Preparing and printing payment summaries .