Processing a final pay

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When an employee finishes working for you, you need to pay them the balance of the annual leave they’ve accrued but not yet used. You don’t need to pay them for unused personal leave, such as sick leave.

If the employee is also owed regular pay up to their termination date, process this as a separate pay - it makes it easier to identify the different components of the final pay.

Employment termination Payments (ETPs)

If the final pay is an ETP, such as a payment in lieu of notice or a 'golden handshake", it's handled differently to other final payments. If you're set up for Single Touch Payroll reporting, learn about Processing an employment termination payment (ETP). If you're not using Single Touch Payroll, you'll need to manually process the ETP and complete an ETP payment summary form for the employee (available from the ATO).

ETPs can get tricky, so you might need help from the experts on our community forum or an accounting advisor.

Tax on final pay

Tax on a final pay can get complicated, and our example below is a simple one. Seek advice from your accounting advisor or the ATO for help with your specific final pay needs. This help article on the ATO website is a good place to start.

OK, let's step you through the details of processing a final pay.

1. Determine the employee's unused leave

Make sure you've paid the employee any regular pay owed up until their termination date. You can then work out how much leave they've accrued which you'll need to pay out.

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

2. Pay unused leave

You can now pay the employee their unused leave - here's how:

Start a new pay run for the employee. Need a refresher?
Select the employee and click the dropdown arrow to view their pay details.
Enter the hours of leave being paid out. For example, if they've accrued 10 hours annual leave, enter 10 hours against the Annual Leave Pay pay item.
Clear all other hours and amounts from the pay. This ensures super and leave is not accrued on this pay out.
If required, click into the PAYG field and change the amount (this ATO article might help).
Finish processing the pay as normal.

3. Deactivate the employee and record their finish date

You're almost done...

Go to the Payroll menu and choose Employees.
Click the employee's name.
Click the Payroll details tab.
On the Employment details tab, enter or choose the Termination date.
Click the Contact details tab.
Select the option Inactive employee.
Click Save.

Need to provide an Employment Separation Certificate? Visit the Department of Human Services website for details.

4. Report the termination to the ATO

One last thing to do:

If you've been reporting payroll information to the ATO via Single Touch Payroll, you'll need to notify the ATO of the termination.

If the employee returns to work, find out how to reactivate them.

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Employment termination Payments (ETPs)

Tax on final pay

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