Table of Contents Terminations 2014 - 2015.pdf · Table of Contents . ... tax purposes because the...

Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________

Termination Pays

Table of Contents Terminations .................................................................................................................... 2

Types of Terminations ...................................................................................................................... 2 Notice Period of Termination ............................................................................................................ 2

Redundancy Weeks to pay ............................................................................................................... 3 What’s included in a Termination? .................................................................................................... 3

Employment Termination payment (ETP) .................................................................... 4 ETP Categories ................................................................................................................................ 4

Types of ETP’s ................................................................................................................................. 4 Payment Summary Codes for ETP ................................................................................................... 5

Tax on Terminations ....................................................................................................... 5 Tax Treatment on non-ETP ........................................................................................................... 6 Tax Free Component/Limit ........................................................................................................... 6

Tax Treatment on ETP .................................................................................................................. 8 Tax on In lieu of Notice and Redundancy Bundle .......................................................................... 8 Preservation Age .......................................................................................................................... 9

ETP Cap Limits ............................................................................................................................. 9 Employee 65 or Over .................................................................................................................. 11

Terminations Process ................................................................................................... 11 Step 1 – Process Normal Pay first .............................................................................................. 11 Step 2 – Determine Type of Termination and what is included .................................................... 11

Step 3 – Determine Entitlements to pay ...................................................................................... 12 Step 4 – Setup Additional Payroll Categories for Termination ..................................................... 12

Step 5 – Calculate Tax ................................................................................................................ 12 Step 6 – Process Termination in Payroll and SGC on Terminations ............................................ 12 Step 7 – Terminate Employee and provide ETP if required ......................................................... 12

Examples of Termination ............................................................................................. 13 Genuine Redundancy with Gratuity and Entitlements ................................................................. 13 Resignation with Entitlements of Annual Leave and LSL ........................................................... 14

Redundancy and In Lieu of Notice Bundle ................................................................................. 15

© The Institute of Certified Bookkeepers


Employee Terminations Termination pays will be different according the circumstances involved, we recommend to always check the award or workplace agreement of the employee and the National Employment Standards. They can be straight forward such as where the employee resigns and gives notice and they are simply paid out any unused annual leave or unused long service leave. Terminations are more complex where it involves a member retiring, death, dismissal or redundancy; these situations may involve an “eligible termination payment” or ETP.

Types of Terminations • Resignation • Retirement – employee reaches a certain age though employer cannot force retirement in the

current law • Invalidity – terminates employment due to ill health (employee must have 2 medical certificates

to prove invalidity) • Abandonment – employee does not return to work and provides no explanation. After 3 days

of no contact it is considered resignation without notice • Dismissal

o Dismissal with notice – employers must give minimum period of notice o Summary dismissal – employee dismissed on the spot for serious misconduct o Constructive dismissal – employee resigns after threat of dismissal

• Fixed Term Contract – contract ends • Redundancy – employee’s position is no longer required by the employer • Early Retirement Scheme – employers offer employees incentives to retire early or to resign

due to reorganising the business. The scheme must meet 3 conditions:- 1. Scheme is available to a broad group of employees 2. Scheme is implemented due to reorganising the business 3. Scheme is approved by the Commission of Taxation

Notice of Termination If an employer is terminating an employee’s employment, proper written notice must be given and the period of notice is dependent on the period of service. The below table outlines the minimum period of notice required. Period of Service Period of

Notice Not more than 1 year 1 week More than 1 year but not more than 3 years 2 weeks More than 3 years but not more than 5 years 3 weeks More than 5 years 4 weeks Note: If employee is over 45 years and worked at least 2 years of continuous service, add another week to period of notice

Payment in Lieu of Notice is an option for the employer rather than the employee working out the compulsory period of notice outlined above. Payment in Lieu of Notice must be at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum notice period.



Weeks of Redundancy Pay It is very important to check the award and/or the workplace agreement that the employee is engaged under. You will also need to check whether there is a transitional arrangement in place between the old award and the new modern award. If so, the employee must be paid at whichever is the higher rate. For example, an old award may have allowed for a higher rate of severance pay than does the current modern award. If the transitional arrangement is in place until the 31st December 2014, and the employee is made redundant before that date, then the redundancy must be paid as per the old award. Many modern awards only provide for redundancy pay as per the National Employment Standards, (NES). The table below shows the minimum payable as per the NES. Some awards or agreements provide for several weeks’ severance pay per year of service without imposing any cap, however the NES imposes a cap of 12-16 weeks’ pay depending on years of service. (After 10 years’ service it is expected that the employee would be owed Long Service Leave, hence the lower rate of redundancy pay). Employee’s period of continuous service with the employer on termination Redundancy

Pay At least 1 year but less than 2 years 4 weeks At least 2 years but less than 3 years 6 weeks At least 3 years but less than 4 years 7 weeks At least 4 years but less than 5 years 8 weeks At least 5 years but less than 6 years 10 weeks At least 6 years but less than 7 years 11 weeks At least 7 years but less than 8 years 13 weeks At least 8 years but less than 9 years 14 weeks At least 9 years but less than 10 years 16 weeks At least 10 years 12 weeks

Termination Pay Includes • Unused annual leave – up to the last day at work • Annual leave loading - if annual leave loading is normally paid then include in termination pay

(refer to modern award or enterprise agreement) • Long service leave – see state by state LSL rules • Redundancy / severance pay • RDOs (rostered days off) – any RDO’s unpaid must be paid out at termination • Pay in lieu of notice • Golden handshake – used for highly ranked executives • Unused personal leave – only if stipulated in the modern award or workplace agreement



Employment Termination Payments An employment termination payment (ETP) is a lump sum payment made to an employee on termination in certain conditions. ETP categories:

• Genuine redundancy payments in excess of the tax free amount • Non-Genuine redundancy payment, where….

o A redundancy can be genuine from the business point of view (eg the position is genuinely redundant), but the ATO might deem it to be a non-genuine redundancy for tax purposes because the employee is aged 65 or older. In such a case the employee receives all the gross pay of a normal redundancy, but the taxation is that of a dismissal. The one exception in the taxation is that the ‘severance’ pay, being an ETP for non-genuine redundancy, is a code “R” ETP. (A normal dismissal ETP would be code “O”.)

o An employee resigns and a few days later the company announces redundancies, with

his position being one of them. The company offers the resigning employee their full redundancy pay. It cannot be taxed as a genuine redundancy. The ‘severance’ pay would be a code “O” ETP.

o An employee is on a fixed term contract and at the end of their contract, rather than

offering an extension or perhaps letting them go and employing someone else, they make the position redundant.

o An employer will sometimes make an employee “redundant” when in fact they should

have performance managed them

• Unused rostered days off • Payments in lieu of notice • Ex-gratia or “golden handshakes” • Unused personal leave • Compensation for loss of job or wrongful dismissal

In order to qualify as an ETP, payment must be made within 12 months of termination date. Payments made outside 12 months should be taxed as ordinary income at marginal tax rates. Note that transitional arrangements for concessional taxing of ETP payments finished on 30 June 2012.

There are two type types of ETP’s

1. Life Benefit Termination Payments – Is an ETP made to an employee in consequence of the termination of their employment for any reason other than death?

2. Death Benefit Termination Payments - Is an ETP made by an employer to a deceased employee's beneficiaries? It is received by a taxpayer after another person's death, in consequence of the termination of the other person's employment. It must be received no later than 12 months after the termination.



Payment Summary Codes for ETP’s ETPs require a separate payment summary to be issued within 14 days after termination and must be defined with the correct ETP codes as per below table.

Life Benefit ETP Codes Code Description (See ETP caps page5) R ETP made because of one of the following (Excluded ETPs)

- Early retirement scheme - Genuine redundancy - Invalidity - Compensation for

• Personal injury • Unfair dismissal • Harassment • Discrimination

O Other ETP not described by R (Non-Excluded ETPs) - Golden handshake, - Gratuity - Payment in lieu of notice - Payment for unused sick leave - Payment for unused rostered days off

Multiple Payments for Same Termination S You made a Code R payment to your employee in a previous income

year for the same termination P You made a Code O Payment to your employee in a previous income

year for the same termination

Death Benefit ETP Codes Code Description D Death benefit ETP paid to a dependent of the deceased B Death benefit ETP paid to a non-dependent of the deceased and you

made a termination payment to the non-dependent in a previous income year for the same termination

N Death benefit ETP paid to a non-dependent of the deceased T Death benefit ETP paid to a trustee of the deceased estate

Tax Treatment of Terminations Tax treatment will depend on the type of termination and whether it is an ETP or not. The majority of non ETPs use the marginal rates to calculate tax whereas ETPs tax calculation differs. Tax on ETPs may comprise a tax free component and a taxable component. The tax free component will apply up to the ATO limit for: Termination due to ill-health (invalidity) (Tax Free on ETP) Commenced employment prior to July 1983, therefore pre-July 1983 employment is tax free

(Tax Free on ETP)

Genuine redundancy (Lump Sum D – See below ATO Tax Free Limit) Early retirement scheme (Lump Sum D – See below ATO Tax Free Limit)



ATO NAT 70980 Tax Free Threshold Limit 2014-2015 tax-free limit

$9,514 plus $4,758 for each year of completed service.

Taxable Component – the remaining balance of the ETP after the tax free component is defined, is the taxable component; this is reported separately on the payment summary.

Tax Calculation of Terminations Payment The table below outlines the different components of a termination payment with their tax treatment and allocation on the payment summary.

TYPE: Resignations, Retirement and Dismissals

PAYG Tax Calculation Payment Summary Allocation

UNUSED ANNUAL LEAVE + LEAVE LOADING - Accrued up to 17/8/93 - Accrued from 18/8/93

All tax at 32% All taxed at marginal rates

Lump Sum Payment A Gross Payment

UNUSED LONG SERVICE LEAVE - Accrued up to 15/8/78 - Accrued from 16/8/78 to 17/8/93 - Accrued from 18/8/93

5% assessable taxed at marginal rates All Tax at 32% All taxed at marginal rates

Lump Sum Payment B Lump Sum Payment A Gross Payment

TYPE: Genuine Redundancy, Early Retirement Scheme and Invalidity


UNUSED ANNUAL LEAVE + LEAVE LOADING - All Payments

All tax at 32%

Lump Sum Payment A

UNUSED LONG SERVICE LEAVE - Accrued up to 15/8/78 - Accrued from 16/8/78

5% assessable taxed at marginal rates All Tax at 32%

Lump Sum Payment B Lump Sum Payment A

GENUINE REDUNDANCY AND EARLY RETIREMENT SCHEME From 1/7/2014 Up to limit of $9,514 + $4,758 per completed year of services (if the payment is over the tax free amount, the excess is an ETP)

Tax Free

Lump Sum Payment D

Calculating Tax using Marginal Tax Rates A quick method of determining the appropriate marginal tax is as follows; 1. Take normal annual salary and add termination pay to get new annual salary 2. Divide the new annual salary by 52 weeks to get the new weekly wage and determine the

difference between this tax and the normal tax (per week/fortnight/month) 3. Enter the new weekly wage amount. Note the tax payable for this new amount (either from the

software or ATO tax tables). 4. Deduct the normal weekly tax from the new amount determined above. 5. Multiply the tax difference by the number of pay periods to date. This is the amount of tax that

should be deducted from the employee’s termination pay. © The Institute of Certified Bookkeepers


(Example: Based on 1/7/2014 Tax Scales)

A Annual Salary (current) $52,000.00 B Weekly Pay (current) $1,000.00 C Hourly Rate (current) $26.32 D Annual Tax (current) $9,256.00 E Tax per pay (current) $178.00 F Total tax to date as per Payroll System $4,094.00

G Unused AL hrs $75.00 H Annual Leave amount payable (GxC) $1,974.00

I Pay periods to date incl last pay $23.00 J Avg increase in pay per week with AL (H÷I) $85.83

K Revised average weekly pay (B+J) $1,086.00 L Revised pay per annum (Kx52) $56,463.00 M Revised tax per annum (Use Tax Scales) $11,076.00 N Revised weekly tax (M ÷52) $213.00 FINAL PAY Normal $1,000.00 Unused AL $1,974.00 Total Gross $2,974.00 Tax Deducted (N-E)xI $805.00 Net Pay $2,169.00

Tax Calculation of Employment Termination Payment (ETP) The table below outlines the different components of an ETP termination payment with their tax treatment and allocation on the payment summary.

EMPLOYMENT TERMINATION PAYMENTS (ETPS)


EMPLOYMENT TERMINATION PAYMENTS (ETP) - Invalidity Component - Pre 1/7/83 Component Post 1/7/83 Component Life Benefit ETP – Taxable Component for Excluded-ETP

• Early Retirement Scheme • Genuine Redundancy • Invalidity • Compensation for injury, unfair

dismissal, harassment or discrimination

Under preservation Age Preservation Age or over

Tax Free Tax Free ETP cap: 32% up to Threshold then 49% 17% up to Threshold then 49%

ETP code “R” All ETP payments on ETP Payment Summary



Life Benefit ETP – Taxable Component for Non-Excluded ETP

• Golden Handshake • Non-Genuine Redundancy • Severance Pay • A gratuity • In lieu of notice* (See page 4) • Unused Sick Leave • Unused Rostered Days off

Under preservation Age Preservation Age or over Death Benefit ETP – Non Dependants Taxable Component* All Ages Death Benefit ETP – Dependants Taxable Component All Ages *Payments made to Trustee of deceased estate

Use smallest of ETP cap and Whole-of-income cap: 32% up to Threshold then 49% 17% up to Threshold then 49% ETP Cap: 32% up to Threshold then 49% ETP Cap: Nil up to Threshold then 49% No tax withheld by employer

ETP code “O” ETP Payment Summary OR Lump Dum D ETP code “N” ETP code “D” ETP code “T”

Threshold – ETP Cap $185000 or Whole of Income Cap $180,000 (See Page 9 for explanation)

Use the lessor of the ETP Cap or Whole of Income Cap

Tax on Payment In Lieu of Notice when bundled with Genuine Redundancy Generally in lieu of notice payments are considered ETPs and would be included on the ETP payment summary except when bundled with a genuine redundancy. In this case, both the genuine redundancy and in lieu of notice payment are added together and included in the tax free portion up to the limit based on the number of years the employee has worked for their employer. This payment can be included at Lump Sum D on the regular payment summary. Its important to note that the in lieu of notice can ONLY be bundled to the genuine redundancy when the employee is seen to be disadvantaged when asked to leave immediately after being made redundant. The test is this: if the employee were to voluntarily resign, would they be required to work the notice period or would they have been paid in lieu of notice? If it can be demonstrated that it is likely the employee would be required to work the notice period, then the pay in lieu of notice can be Lump Sum D up to the relevant cap amount. The amount over the cap will be an ETP. For example, an administration employee would normally be required to work their period of notice. In this case, if the employee is made redundant and paid in lieu of notice, the payment can be part of Lump Sum D on the regular payment summary. If it is demonstrated that the employee would have been more likely to be paid in lieu of notice if they had resigned, the payment must remain an ETP. For example, salespeople are commonly asked to leave immediately upon resignation; therefore this employee being made redundant would have their in lieu of notice payment classified as an ETP. © The Institute of Certified Bookkeepers

Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ Preservation Age used for ETP Tax on the taxable component for ETP will depend on the preservation age of the employee. Preservation age is generally the age that you can access your superannuation benefits. The preservation age is determined using the employee’s date of birth. The following table helps determine the preservation age.

Date of Birth Preservation Age Before 1/7/1960 55 1/7/1960 - 30/6/1961 56 1/7/1961 – 30/6/1962 57 1/7/1962 – 30/6/1963 58 1/7/1963 – 30/6/1964 59 After 30/6/1964 60

ETP Caps (limits) As shown in the table, for 2014-2015 the ETP cap is $185,000 and Whole-of-Income cap (WOI) remains at $180,000. The taxable components of ETPs have a cap to decide the value of tax depending on the type of ETP and the age of the employee. There are two types of ETP caps: ETP cap (Type 1) which is indexed annually, which are called ‘EXCLUDED ETPs. Whole-Of-Income Cap (WOI) (Type 2) which is not indexed, which are called ‘NON-EXCLUDED ETPs. Amounts paid in excess of these caps are taxed at the highest marginal rate (plus Medicare levy). The following table lists the types of ETPs subject to tax withholding and the applicable cap for each type of payment.

Type 1 - ETP cap only $185,000 EXCLUDED-ETPS

Type 2 - Smaller of the ETP cap and Whole-of-Income cap $180,000 – NON-EXCLUDED ETPS

Early Retirement Scheme that exceeds tax free limit (only the amount that exceeds the limit is an ETP)

Golden Handshake (either contract, award or recognition of service)

Genuine Redundancy that exceeds tax free limit (only the amount that exceeds the limit is an ETP)

Non-Genuine Redundancy (see page 3)

Payment made for permanent injury Severance Pay Compensation for personal injury Gratuity Compensation for unfair dismissal In lieu of Notice Compensation for discrimination Unused Personal Leave/Sick Leave Payment made for death of employee Unused Rostered Days off

The whole-of-income cap (WOI) is determined by the salary the employee has already earned, therefore requires a few steps to calculate the cap.

Step 1 – Add all taxable payments (excluding NON-EXCLUDED ETPs) Step 2 – Subtract Step 1 value by WOI cap $180,000 determining new cap Step 3 – If new cap is lower than WOI cap of $180,000, then use the new cap



Step 4 – Amounts less than the new cap are taxed at concessional rate, depending on the preservation age, and amounts above the new cap are taxed at the highest marginal rate.

Example 1: Type 1 – ETP cap ($185,000 for 2014/2015) Mary Jones had a serious accident at work resulting in permanent injury to her back. Her employer has agreed to a payout of $250,000 to compensate for her injury. Mary Jones is under the preservation age. Payout for permanent injury is considered an ETP cap Type 1, therefore the first $185,000 is taxed at 32% and then the remainder $65,000 is taxed at 49% Example 2: Type 2 – Choice of ‘smallest cap’ between ETP cap & Whole-of-Income (WOI) cap Aidie Large, under preservation age, has been terminated. Wages to date are $50,000 and outstanding entitlements are $50,000. Aidie was also paid $120,000 as a ‘golden handshake’, which has no tax free component. Therefore, as the golden handshake is an ETP – Type 2, we are required to calculate the Whole-of-Income cap.

Step 1 Total taxable payments to date (excluding NON-EXCLUDED ETPs, ie wages and entitlements) $100,000

Step 2 ETP cap $180,000 less Step 1 total $80,000 Step 3 Step 2 value is less than WOI cap therefore $80,000 becomes new cap Step 4 Tax $80,000 at 32% rate $25,600

Step 5 Tax $40,000 ($120,000 golden handshake less $80,000 new cap) at 49%

rate $19,600

Step 6 Total tax payable = Step 4 + Step 5 $45,200 Example 3: Type 2 – Multi payments with both ETP cap and Whole-of-Income cap Billy, over preservation age, has been made redundant after 5 years. Termination payment of $70,000 includes $45,000 genuine redundancy and $25,000 gratuity. Wages to date are $140,000 and outstanding entitlements are $5,000. As the genuine redundancy holds a tax free portion and is classified as an ETP cap (excluded ETP) this must be dealt with first. Step 1 Genuine redundancy amount over tax free limit ($45,000 – $33,304

($9,514+ (5yrs x $4,758)) $11,696

Step 2 Billy is over preservation age and $11,696 is under $185,000 ETP Cap Step 3 Tax on $11,696 at 17% $1,988 Gratuity payment of $25,000 is considered a non-excluded Whole-of-Income cap (WOI), therefore the following steps are required. Step 1 Total taxable payments to date (excluding non-excluded ETPs) $157,634

($140,000 + $5,000 + $11,696-excluded ETP = taxable payments) $156,696

Step 2 WOI cap $180,000 less Step 1 $23,304 Step 3 Step 2 value is less than WOI cap therefore $23,304 becomes new cap Step 4 Therefore portion of Gratuity of $25,000 is $23,304 taxed at 17% rate $3,961 Step 5 Remaining gratuity of $$1,696 taxed at 49% rate $831 Step 6 Total tax payable = Step 4 + Step 5 $4,792 © The Institute of Certified Bookkeepers

Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ Employee 65 or Over

An employee 65 or over issued a genuine redundancy or early retirement scheme are not eligible for the tax free limit on the payout. Due to their age, the termination is treated as a normal termination which requires any Unused Leave is taxed at marginal rates and not a flat rate of tax. However, the ATO does make one concession for this aged employee and that is the severance can be a code “R” ETP. This means that although they don’t get it tax free, they at least can have up to $185,000 of severance at 17% tax. Note, this severance value should not be included in ‘whole of income cap’ calculation if there is a non-excluded ETP in the payout. Below is the ATO ruling re the exception for this code “R” ETP: ATO ETP Cap Limits

Employee 65 or Over PAYG Tax Calculation Payment Summary Allocation

UNUSED ANNUAL LEAVE + LEAVE LOADING - Accrued up to 17/8/93 - Accrued from 18/8/93

All Tax at 32% All taxed at Marginal Rates

Lump Sum A Gross Payments

UNUSED LONG SERVICE LEAVE - Accrued up to 15/8/78 - Accrued from 16/8/78 to 17/8/93 - Accrued from 18/8/93

5% assessable taxed at marginal rates All tax at 32% All taxed at Marginal Rates

Lump Sum B Lump Sum A Gross Payments

GENUINE REDUNDANCY AND EARLY RETIREMENT SCHEME From 1/7/2014 (no tax free limit)

ETP cap: 17% up to Threshold then 49% “not included in whole of income cap”

ETP “Code” R

Possible other Non-Excluded ETP for over 65 payout - A gratuity - In lieu of notice* (See page 4) - Unused Sick Leave - Unused Rostered Days off

Use smallest of ETP cap and Whole-of-income cap: 17% up to Threshold then 49%

Threshold – ETP Cap $185,000 or Whole of Income Cap (WOI) $180,000 (See Page 9 for explanation)

Use the lessor of the ETP Cap or Whole of Income Cap

Termination Process Step 1 – Process Normal Pay Process the employee’s normal pay first. This is recommended so their entitlement balances are updated before the termination pay. Step 2 –What Type of Termination and What is Included

• Unused annual leave – calculate outstanding AL • Unused long service leave – calculate LSL and check if unpaid leave or LSL was taken over

the employment service—refer to state LSL laws • ETP – Is it a genuine redundancy? If so, how much severance pay is required? • ETP – Is payment in lieu of notice involved? • ETP – Are there any unpaid RDOs? If so, how many days/weeks? • ETP – Does the award or agreement include unpaid personal leave on termination?


http://www.ato.gov.au/Individuals/Working/In-detail/Leaving-a-job/Taxation-of-termination-payments/?anchor=ETP_cap%23ETP_cap

Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ It is recommended when terminating an employee through payroll software that you have separate categories for each termination component. This allows each component to be either exempt from tax, not included in SGC superannuation calculations and flagged to be excluded or included on payment summaries. Some wage categories that may be required include:

ETP Genuine redundancy (wage type)* ETP In lieu of notice (wage type)* ETP Unused personal leave (wage type)* ETP Gratuity (wage type)* ETP Tax (deduction)* *set up ETP wage categories to be exempt from PAYG withholding tax **it is important that the tax relating to an ETP is not included in the normal PAYG Withholding tax category. (See above schedule for tax on terminations). Note: All ETPs and ETP tax are to be included in W1 or W2 of the BAS.

Step 3 – Determine Entitlements Determine outstanding leave categories (i.e., unused annual, long service, personal if applicable, and rostered days off), either through the payroll software or manually. Online long service leave calculators exist for most states. Step 4 – Set Up Employee for Payroll Categories Add the required payroll categories such as unused AL or LSL and any ETP categories as determined in Step 2 to the employee’s file. Check the correct allocation or exemption of superannuation guarantee to each category. Step 5 – Calculate Tax Calculating tax depends on the reason for the termination and in most cases when recording a standard termination pay, it will be necessary to adjust the PAYG Withholding tax that the software calculates automatically. The tax will be calculated at either marginal rates or a flat rate, see above tables to determine type of calculation. You must manually calculate the tax amount applicable to each payroll category when processing a termination pay. Step 6 - Process Termination Pay Enter the number of hours in the unused annual leave category and then adjust the tax to the calculated amount in step 5. Check ICB Superannuation Document for SGC calculation on Terminations (Note: Unused annual, personal and long service leave is EXEMPT from superannuation) Enter amounts for ETP components. Remember to use the ETP tax category for these amounts. If an ETP is involved, produce the ETP payment summary and provide to the employee within 14 days of termination date. The regular payment summary is provided to the employee at the end of financial year Step 7 - Terminate Employee Enter the termination date in the employee’s payroll information. The termination date will be picked up by the software for the payment summary information. (Post ’93) Tax @ marginal rates


http://www.icb.org.au/out/23405/Superannuation%20-%20PDF


Examples of Terminationis 4 weeks (Post ’93 a

EXAMPLEGENUINE REDUNDANCY AFTER 8 YEARS WITH LSL AND AL + GRATUITY $500 200000 16666.67JO STEVENS (OVER PRESERVATION AGE) 16666.67DOB 15/07/1959 3846.154 pre weekSTART DATE 1/07/2005FINISH DATE 31/12/2014

REDUNDANCY 14 WEEKS 53,846 ANNUAL SALARY $200,000TAX FREE PORTION ($9514+($4758x9 52,336 WEEKLY SALARY $3,846.15OVER TAX FREE PORTION 1,510

Salary YTD $100,000TYPE 1 - ETP CAP Tax YTD $34,008

1,510 17.00% 257 TAX

TYPE 2 - SMALLEST OF ETP CAP AND WHOLE OF INCOME CAP (WOI) FOR GRATUITY1. TAXABLE PAYMENTS YTD 148,433 (GROSS INCL YTD+LSL+AL+REDUNDANCY OVER LIMIT)2. WOI CAP $180k 31,5673. GRATUITY $50K =4. 31,567 17.00% 5,366 TAX5. 18,433 49.00% 10,504 TAX

PERIOD OF SERVICE 9yrs 6mths TERMINATION PAYLSL 8.2 REDUNDANCY Tax FREE 52,336 LUMP SUM DLSL x Gross Wage 31,538 REDUNDANCY ETP Tax 1,510 ETP

UNUSED LSL 31,538 LUMP SUM AAL @ 31/12/14 152 4 weeks UNUSED AL 15,385 LUMP SUM A

$15,385 GRATUITY 50,000 ETPGROSS 150,769

GROSS TAX RATELSL 31,538 10,092 32.00% PAYGW TAX 15,015 PMT SUMMAL $15,385 4,923 32.00% ETP TAX 16,127 ETP

NET PAY 119,627

GENUINE REDUNDANCY + GRATUITY + ENTITLEMENTS Jo Stevens was made redundant after 8 years from a Victorian business. Her termination included a ‘gratuity’ payment of $50,000. Award uses NES standards She started on 1/7/2005 and finished date is 31/12/14 Long Service Leave in weeks is 7.4 weeks (Post ’93) Tax @ marginal rates Annual Leave outstanding is 4 weeks (Post ’93 and No LL) @ marginal rates



RESIGNATION with AL and LSL Annie Mitchell has resigned from a Victorian business at which she has worked for 11 years, 5 months and 1 week She started on 13/7/2002 and finished date is 20/12/14 Long Service Leave in weeks is 10.7 weeks (Post ’93) Tax @ marginal rates Annual Leave outstanding is 4.43 weeks (Post ’93 and No LL) @ marginal rates

TERMINATION CALCULATION ANNIE MITCHELL

START DATE 13/07/2002 Annual Salary $34,580 FINISH DATE 20/12/2014 Hourly Rate $17.50

Weekly Gross Wage $665 $WEEKS WORKED 12yrs 5mths 1wk Weekly Tax $72 LSLeave 10.7 LSL x Gross Wage $7,115

ALeave @ 20/12/14 in hours 168.394 4.431421 weeks $2,947

Calculation Gross Tax

Gross Wage thus far $16,625 $1,800 thus far LSL $7,115 AL $2,947 NEW Total Gross $26,687 New Weekly Gross / 25 weeks $1,067 $206 tax NEW Tax to Date (25 x $204) $5,150 Less Tax thus far $1,800 TAX for LSL + AL $3,350 • Payment Summary – All Gross Wage is W1• Unused Annual leave and Long Service Leave are not

included in SGC Superannuation Calculations.


Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ REDUNDANCY WITH IN LIEU OF NOTICE

JOHN WELLS aged 61 YEARS (OVER PRESEERVATION AGE)

START DATE 1/01/1979 1/07/1983 5.6 Annual Salary

$80,000.00

FINISH DATE 1/01/2015

35 Hourly Rate

$40.49

YEARS OF SERVICE = 36 Years

Weekly Gross Wage

$1,538.46

EMPLOYER PAYS SERVERENCE 4 WEEKS FOR EVERY YEAR OF SERVICE

Weekly Tax

$361.00

GENIUNE REDUNDANCY (GR)

SGC SUPER? 4 weeks paid x 36 years service x weekly wage ($1538) $221,538.46

NO SGC

ATO Tax Free Portion = $9,514 + ($4,758 x 36 years) $165,544.00 Lump Sum D ETP Portion is the excess = $221538 less (GR and LON tax free) $52,917.54 ETP ETP Tax Pre 1/7/83 Tax Free (50 months - 4 1/2

years) $6,299.71 ETP Summary ETP (TYPE 1) Tax Post 1/7/83 @ 17% up to $185,000 $46,617.83 ETP Summary $7,925.03 tax portion of ETP IN LIEU OF NOTICE (LON)

2 Weeks tax free $3,076.92 Lump Sum D

YES SGC

LONG SERVICE LEAVE 30.33 LSL less 10 weeks already taken 20.33 LSL x Gross Wage $31,276.92 Lump Sum A

NO SGC

Tax at 32% as post 16/8/78 32.00% $10,008.62 Tax Annual Leave Outstanding Hrs 160 4.21 weeks

AL x Gross Weekly Wage $6,477.73 Lump Sum A

NO SGC

Tax at 32% $2,072.87 Tax Summary for this pay Gross Tax

Genuine Redundancy + In Lieu of Notice $168,620.92 0 Lump Sum D ETP Summary $52,917.54 $7,925.03 ETP Summary Annual + Long Service Leave $37,754.66 $12,081.49 Lump Sum A Total $259,293.12 $20,006.52

REDUNDANCY and IN LIEU OF NOTICE John Wells has worked for a NSW company for 36 years and has been made redundant due to resizing of the company. The company pays 4 weeks severance for every year of service and paying 2 weeks In Lieu of Notice. Annual Leave Outstanding is 4.2 weeks Long Service Leave is 30.3 weeks less 10 weeks already taken = 20.3 Genuine Redundancy is 4 weeks x 36 years x $1538

Note: A payment in lieu of notice is an Employment Termination Payment (ETP) and any payments which are ETPs and meet the conditions for payment under a genuine redundancy are tax free up to a limit based on the number of years the employee has worked for their employer. In this case, the employment is being terminated under a Genuine Redundancy so the payment in lieu of notice (along with any genuine redundancy payment) will be tax-free up to the limit and any amount over the limit will be the ETP and taxed at the applicable rate.


Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ REDUNDANCY PAY FOR JOHN WELLS

PAYMENT SUMMARY FOR JOHN WELLS


Payroll - Termination Pays 2014/2015 (July 2014) __________________________________________________________________________________________ ETP – EMPLOYMENT TERMINATION PAYMENT FOR JOHN WELLS

References: ATO Tax on ETP ICB Guide on Long Service Leave ICB Employee Termination Template ICB Superannuation Document


http://www.ato.gov.au/Rates/Schedule-32---Tax-table-for-employment-termination-payments/

http://www.icb.org.au/out/42029/Long%20Service%20Leave

http://www.icb.org.au/Resources/Payroll/Termination-Template

http://www.icb.org.au/out/23405/Superannuation%20-%20PDF

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