Terminating a Payee's Employment

A payee’s employment can be terminated at the Termination stage of the pay batch process by drilling down into the Payee Pay Details screen, which will be expanded to display the Termination section, as shown in the example below.

To terminate the payee’s employment, you must select a termination date and the termination reason. The termination date must fall within the pay period to which the pay batch corresponds and cannot be earlier than the end date of any active job order to which the payee is assigned.

Via the Termination screen, you can also do the following depending on the types of payments that a payee is eligible to receive on termination of their employment:

pay out outstanding leave balances as gross earnings
payout outstanding leave balances as a lump sum A payments
payout outstanding leave balances as a lump sum B payments
make lumps sum D payments
make employment termination payments (ETPs).

Each of these payment types are described in more detail below.

Lump sum A, B and D payments and ETPs only apply to payees with an income type/payee type of Individual Non Business. These payment types cannot be made to payees with an income type/payee type of Labour Hire.

Payout of Leave as Gross Earnings

If a payee’s employment is terminated as part of a normal termination, the following types of leave must be paid out as gross earnings, where the unused leave has accrued since 17/08/1993:

unused annual leave and annual leave loading
unused long service leave.

A normal termination is where a payee’s employment is being terminated for a reason other than genuine redundancy, invalidity or under an approved early retirement scheme.

Lump Sum A Payments

Lump sum A payments represent payout of certain types of unused leave that accrued before or after certain dates. There are two types of lump sum A payments as follows:

Type R - this type of lump sum A payment applies to payouts of unused annual, annual leave loading and long service leave that accrued since long service leave accrued after August 1978. This type of payment does not apply where a payee’s employment is terminated as part of a normal termination.
Type T - this type of lump sum A payment applies to payouts of unused annual leave and annual leave loading accrued since 17/08/1993 and unused long service leave accrued between 16/08/1978 and 17/08/1993. This type of payment only applies where a payee’s employment is terminated as part of a normal termination.

Lump Sum B Payments

Lump sum B payments represent payout of unused long service leave that accrued prior to August 1978.

Given that it would be unlikely that a payee would have unused annual leave that accrued prior to August 1978, this type of payment would be very rare.

Lump Sum D Payments

Lump Sum D payments represent the tax-free component of a genuine redundancy or approved early retirement scheme payment based on the years of completed service (up to the age-pension age). For example, a Lump Sum D payment may include the following:

severance/redundancy pay
pay in lieu of notice (PILON).

Employment Termination Payments (ETPs)

ETPs represent the following types of payments made at termination:

severance payments and PILON in excess of the tax-free threshold - only applicable if paid as part of a genuine redundancy or approved early retirement scheme
non-genuine redundancy severance payments (i.e. where payee has been dismissed from a job role despite the job still being required or the payee has reached the pension age or age of mandatory retirement)
ex-gratia, gratuity or golden handshake payments
payouts of unused rostered day off (RDO) leave, time in lieu (TOIL) leave and unused personal/carers' leave (for important information about this, see below)
compensation and wrongful dismissal payments.

A portion of an ETP might also be non-taxable if the ETP relates to employment pre-July 1983 or is being made due to invalidity of the payee. Where this is the case, there will be a taxable and non-taxable component to the ETP.

ETP Codes

ETP payments require an ETP code that identifies the type of ETP payment that applies. The ETP codes are listed and described in the table below.

ETP Code	Description
R	Select this code if the payment is being made for any of the following: early retirement scheme genuine redundancy invalidity compensation for personal injury, unfair dismissal, harassment, discrimination
O	Select this code of the payment is being made for any reason that is not covered by code R such as any of the following: golden handshake gratuity payment in lieu of notice payment for unused sick leave payment for unused Rostered Days Off
S	Select this code if you are making a code R payment and you have already made a code R or code O payment in a previous income year for the same termination (i.e. the payment is being paid in multiple installments across different income years).
P	Select this code if you are making code O payment and you have already made a code R or code O payment in a previous income year for the same termination (i.e. the payment is being paid in multiple installments across different income years).
D	Select this code if the payment is a death benefit that will be paid to a dependent of the deceased.
B	Select this code if the payment is a death benefit that will be paid to a non-dependent of the deceased and a payment has already been made to the non-dependent in a previous income year for the same termination (i.e. the payment is being paid in multiple installments across different income years).
N	Select this code if the payment is a death benefit that will be paid to a non-dependent of the deceased.
T	Select this code if the payment is a death benefit that will be paid to a trustee of the deceased estate.

ETP Tax Types

ETPs are taxed differently depending on the following factors:

whether the payee has reached the preservation age
whether the payment is within the ETP cap.

The preservation age is the age at which a payee is eligible to retire and access their superannuation. The preservation age differs depending on the payee’s date of birth, as shown in the table below.

Date of Birth	Preservation Age
Before 01/07/1960	55
01/07/1960 – 30/06/1961	56
01/07/1961 – 30/06/1962	57
01/07/1962 – 30/06/1963	58
01/07/1963 – 30/06/1964	59
01/07/1964 onwards	60

The ETP cap is a threshold below which an ETP is taxed at a concessional (lower) rate. Any portion of the ETP amount that exceeds the cap amount is taxed at the highest marginal rate. The concessional rate is 17% for payees over the preservation age and 32% for payees under the preservation age. The highest marginal rate for amounts that exceed the cap is 49% regardless of age.

The ETP cap amount is indexed and changes each year. To find the current cap amount, refer to:

https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=16#ETP_cap_for_life_benefit_termination_payments

When processing an ETP, you must select the tax type that applies to the payment. This will determine if the payee is under or over the preservation age and whether the payment is under or over the ETP cap. The table below lists and describes the tax type that can be selected.

Tax Type	Description
Under Preservation Age – Up to Cap Amount	Select this tax type if the payee has not, as of June 30, reached preservation age and the ETP amount is within the ETP cap. This applies a tax rate of 32% to the ETP amount that you specify. This tax type does not apply to ETPs with an ETP code of N, B, D or T.
Preservation Age or Over – Up to Cap Amount	Select this tax type if the payee has, as of June 30 or earlier, reached preservation age and the ETP amount is within the ETP cap. This applies a tax rate of 17% to the ETP amount that you specify. This tax type does not apply to ETPs with an ETP code of N, B, D or T.
All Ages – Above Cap Amount	Select this tax type if ETP amount is over the ETP cap. This applies a tax rate of 49% to the ETP amount that you specify. This tax type does not apply to ETPs with an ETP code of T.
All Ages	Select this tax type if the ETP code that applies to the payment is T (i.e. death benefit that will be paid to a trustee of the deceased estate). Where this is the case, you must manually calculate the tax that applies to the payment. For more information about how to calculate the tax on such ETPs, refer to: https://www.ato.gov.au/individuals/working/in-detail/leaving-a-job/taxation-of-termination-payments/?page=17#Death_benefit_E

If the total amount of an ETP exceeds the ETP cap you must split the payment into separate ETPs for the portions of the payment within the cap and above the cap respectively and select the appropriate tax type (Up to Cap Amount/Above Cap Amount) for each payment. Otherwise, the entire payment will be taxed at either the concessional rate or the highest marginal rate respectively.

Payout of Leave as Part of ETP

Part of an ETP payment can consist of the balance of unused rostered day off (RDO), time off in lieu (TOIL) and, under some awards, personal and carers’ leave.

The balance of unused leave cannot be automatically paid out as an ETP in the same way that unused leave can be paid out as a gross payment or a Lump Sum A or B payment. Instead, if unused leave must be paid as part of the ETP amount, the dollar value of the unused leave must be manually factored into the ETP amount.

See also: