You can make a termination payment through the pay run. To do this you will need to go to 'Pay runs' in the business dashboard, then open/create the pay run that you wish to make the termination in.
Once in the pay run, click on the arrow to the left hand side of the employee you wish to terminate, this will expand the employee's details, you can then click on 'Actions' and select 'Terminate employee'. See below.
Once you have selected 'Terminate employee' you will be prompted to select the date of the termination; don't forget to press 'Save' once you have entered the date.
Any annual leave owed to the employee will be calculated and the 'Pay out' option automatically ticked. This means that any holiday entitlement will be paid within this pay run, if the employee has used all their entitlement they will not be entitled to any annual leave payout.
To make a termination payment click on the 'Actions' button and select 'Add earnings', by expanding the dropdown menu you then have the option to select the 'Termination payment'.
Once you have selected this an information box will appear.
This is to remind you that tax and National Insurance (NI) Class 1A will be applied to any termination payment over £30,000.
Tax and NI will NOT be payable on termination payments UNDER £30,000.
If the termination payment is over £30,000 the employee will pay tax on any amount over that. Employee NI is not payable on any termination payments over £30,000 but employers will pay NI Class 1A contributions on any amount over £30,000.
For example, if an employee is paid a £45,000 termination payment, the employee will pay tax on £15,000 and no NI contribution; the employer will pay Class 1A NI on £15,000.
Once you have selected 'Termination payment' go to 'Units' and add '1', then go to 'Rate' and add the termination payment that you are making then press 'Save'.
The termination payment has now been added to the pay run and tax and NI calculations have been processed. The tooltip shows the employers NI broken down to show the split between the Class 1 and Class 1A contributions.
You can now finalise the pay run which will enable the P45 to be published and the relevant data items populated in the FPS to be sent to HMRC.
Split termination payments
You also have the ability to split a termination payment over different pay runs if required. To do this firstly terminate the employee as above to make the first payment, to then add a future payment create the pay run you would like the payment to be made in then select Pay run actions> Add employees.
When you add the employee the system will apply 'payment after leaving' regulations, this means that the employee's tax code will be amended to 0T wk1/mth1.
Make any termination payment as processed previously. In this example PAYE and Employer NI Class 1A have been populated, the reason for this being the cumulative total between the two separate termination payments are over £30,000.
After finalising the pay run all relevant 'payment after leaving' data items will be populated in the FPS to be sent to HMRC. Please note that an additional P45 will not be created.
Within Reports> P32 report Class 1 and Class 1A contributions for that period are broken down as illustrated below.