Paying your employees > Termination payments > Task 3: Create payroll categories for termination payments
Task 3: Create payroll categories for termination payments
Termination payments are normally taxed at different rates and may not accrue superannuation. Also, different types of payments are reported separately on ETP payment summaries. You may need to create several new payroll categories as part of your ETP preparations in order to report payments correctly.
note : Calculations required to make employment termination payments
Consult your accountant or visit the ATO at ato.gov.au/businesses for advice on how to calculate ETP and bona fide redundancy payments.
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If the employee whose services you are terminating is entitled to a redundancy payment, you may need to pay an employment termination payment (ETP) and a bona fide redundancy payment. You will need to set up payroll categories for these payments, such as ETP and ETP tax.
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If the employee whose services you are terminating has unused holiday pay, you will need to create a wage category for unused holiday pay if one does not already exist.
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When reporting Lump Sum Payment A amounts on payment summaries, you now also need to report the reason for the employee's termination as part of reporting this amount. Terminations can be one of two types, redundancy or termination. A redundancy type includes bona fide redundancy, approved early retirement or invalidity payments. A termination type includes all other termination reasons (such as resignation).
To report the termination payment type, you need to create a termination payroll category for each amount that will be included as part of a Lump Sum Payment A amount. When creating a category, give it a name that identifies the payment type. For example, if you need to create a wage category for unused holiday pay for a bona fide redundancy payment, use a name such as ‘Unused Holiday Pay (R)’, where (R) indicates a redundancy type.
Later, when you prepare the payment summary, you need to link each Lump Sum Payment A payroll category to a relevant Lump Sum Payment A field (redundancy or termination) in the Payment Summary Fields step of the Payment Summary Assistant.
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1
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Go to the Payroll command centre and click Payroll Categories. The Payroll Category List window appears.
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2
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Click the Wages tab.
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3
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4
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Type a name for the category in the Wages Name field.
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note : Lump Sum Payment amounts
If you are creating a payroll category to record a Lump Sum Payment amount, give the payroll category a name that identifies the payment type. For more information, see Payroll categories for Lump Sum Payment A payments.
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5
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Choose the type of wages—Salary or Hourly—according to the type of payment: Hourly for unused holiday pay, Salary for ETP amounts, etc.
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6
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7
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In the select column (
 ), click next to the employee who is leaving. |
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8
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Click OK and then OK again. The Payroll Category List window reappears with the new payroll category in the list.
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9
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If you are creating a payroll category to pay an entitlement balance (such as unused holiday pay), and the payroll category used to accrue the entitlement is set up to calculate leave based on a percentage of gross hours, you need to exclude the new payroll category from the entitlement accrual calculation.
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a
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Click the Entitlements tab. The list of entitlement payroll categories appears.
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b
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Select the payroll category used to calculate the accrual, for example, Holiday Entitlement, and click Edit. The Entitlements Information window appears.
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c
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d
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In the select column (
 ), click next to the payroll category name to exclude any hours entered for this payroll category from being included in the entitlement accrual calculation. |
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e
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10
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Repeat from step 2 for each required termination payroll category.
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