An employment termination payment (ETP) is a payment received by an employee because their employment was terminated. Not every terminated employee receives an ETP - it depends on what the termination pay is made up of and whether any of those payment types fall into the ETP classification. A list of what is defined as an ETP can be accessed here. ETPs are broken down into 'codes' and treated differently for tax purposes. A list of each ETP code can be accessed here.
This article will discuss Type O ETPs and specifically:
- Processing non-superable or superable Type O payments, such as in lieu of notice; and
- Paying out unused leave, such as sick leave and rostered days off.
Adding a Type O ETP in the pay run
You can only create Type O ETP earnings for an employee once you have commenced the termination process. To do this, go the employee's pay > click on 'Actions' > 'Terminate Employee' > enter termination date and click 'Save'. From here, the next action required depends on whether the Type O being paid out is unused leave or a lump sum payment. Both scenarios are explained below.
Processing Type O payments that are not unused leave
Once you have commenced the terminate process (as explained above), you will see the following details in the employee's pay:
Tick the "Redundancy/ETP" checkbox and then click on 'Actions' > 'Add Type 'O' ETP'. This action will only display if the "Redundancy/ETP" checkbox has been ticked. The following fields will appear relating to Type O payments:
Enter the required amounts in the relevant fields and click on 'Save'. This will then automatically calculate any tax as per the ETP guidelines.
Take note of the "Attracts Super" checkbox. Ticking this will calculate SG on the amount entered in this row. If you have multiple Type O payments where some are superable (for eg in lieu of notice) and others are not, you will need to create multiple Type O lines to separate these payments. Additional Type O lines are added by clicking on 'Actions' > 'Add Type 'O' ETP'.
An example of how multiple payments should be separated are as follows:
Any comment entered in each row will appear in the employee's pay slip if the "Show line notes" setting is ticked in the Pay Slips setting screen.
To clarify, the general rules of SG eligibility will still exist in this scenario. For eg, if the employee has earned less than $450 (or whatever minimum threshold has been set for the employee) in the month they will not be paid any super, even if the "Attracts Super" checkbox is ticked.
Paying out unused leave classified as ETP
Any leave categories that have NOT been excluded from termination pay and classified as ETP (ie the "ETP" checkbox in the leave category setting has been ticked) will be paid out as a Type O earning automatically, once you have commenced the terminate employee process. The leave will be paid out as "Other Earnings" and classified as a Type O Unused Leave payment:
The amount will then be taxed in accordance with the ATO's ETP guidelines.
If you have any questions or feedback, please let us know via email@example.com.