PAYG amounts are calculated on leave payouts using the guidelines set out by the ATO here.
Once you have chosen to terminate an employee from within the pay run there are two methods for calculating the withholding amount when paying out unused leave that has accrued on or after 18th August 1993. The methods used depend on the value of the unused leave:
- Where the value of unused leave is $300 or more, PAYG is calculated using marginal tax rates. Refer to this article for further details on this method.
- Where the value of unused leave is less than $300, withhold 32% and disregard any cents. This article will discuss this method in more detail.
To help clarify, here is an example:
Greg is a full time employee earning $30.35 per hour 38 hours a week. This week he is due to be paid for 38 hours plus his termination pay, which consists of 5 hours of annual leave plus annual leave loading of 17.5%. Greg is also an Australian resident claiming the tax free threshold.
To work out the total PAYG withheld from this pay:
- Firstly, work out the value of Greg's unused termination leave amount: (5 annual leave hours x $30.35) + (5 x $5.31 annual leave loading rate) = $178.30. Please note, any other payout deemed to be ETP will not be used in the formula detailed in these steps. Refer to Payments for ETPs for more information on this topic.
- As the amount is less than $300 calculate 32% of this payout ($178.30 x 32%) = $57.06
- Now disregard the cents: $57
- Then, calculate the normal PAYG amount from Greg’s non-leave earnings: (38 hours x $30.35 per hour) = $1153.30
- PAYG on these weekly earnings (based on Greg’s tax scale) is $215
- Add the PAYG for normal earnings and unused leave earnings to determine total PAYG: $215 + $57 = $272
The context panel showing the PAYG calculations for unused leave can be viewed when clicking on the "?" icon in the employee's PAYG field:
Payments for ETPs
The PAYG on the unused leave context panel that we discuss in this article does not relate to termination components that are deemed ETPs. Although we automatically calculate the tax for ETP amounts in the pay run, these figures are not detailed in the context panel. This article should assist you further on ETPs.
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