When terminating an employee in the pay run all unused annual holidays, alternative leave and holiday pay 8% will automatically be paid out. The only exception here would be:
- if the leave category setting was manually changed and "Exclude from termination payout" was selected; or
- the employee had no entitlement/leave balance for any one of those leave types (for eg employees with pay-as-you-go provisions).
An employee must also be paid 8% of their gross earnings since their last entitlement date for annual holidays (or their start date if they have been employed for less than 12 months). This article will explain how the 8% Termination Holiday Pay component has been calculated and what has been included in determining the final figure.
Once an employee who is entitled to annual holidays is terminated, the following earnings line will appear under the "Other Earnings" section of their pay:
This payment relates to the 8% gross earnings component only. Any unused holiday pay entitlement will appear in a separate earnings line under the "Hourly Earnings" section of the employee's pay.
When clicking on the "?" icon in the earnings line, a context panel will appear detailing all the components that make up the final amount detailed in the pay run. We will now run through each item:
Termination Date: this is the date manually entered in the 'Terminate Employee' dialog that appears after you click on Actions > Terminate Employee.
Annual Holiday Entitlement Date: by default, this is the date the employee last had their leave anniversary. For employees with less than 12 months service the date will default to what would have been their first leave anniversary date had they still been employed. Alternatively, the date that appears here will be the date entered in the "Leave Entitlement Date" field of the Terminate Employee dialog.
Annual Holidays Entitlement: this is the number of annual holiday hours the employee is entitled to.
Employee Standard Weekly Hours: the number of hours worked by the employee as specified in the employee's Pay Run Defaults screen. If the employee's hours are specified as '0' we will use a default value that is calculated using the business' Standard Hours Per Day value x 5 days.
Notional Annual Holiday Extension Period: on termination of employment, the employee’s end date is notionally extended by any unused annual holiday entitlement, and any public holidays falling during that period must be dealt with as if the employee was still employed. This is what we have termed as the Notional Annual Holiday Extension Period. This period is calculated by dividing the Annual Holidays Entitlement by the Employee Standard Weekly Hours.
Notional Annual Holiday Entitlement Date: this date is determined by adding the Notional Annual Holiday Extension Period to the employee's Termination Date.
Using the above screenshot as an example.
Jean Paul works 5 days a week, Monday to Friday. At their termination date of 13 December 2019 (which in this example falls on a Friday) they have 2.20 weeks (11 days) remaining of annual holiday entitlement. If these 11 days are added on to their termination date this takes them to 30 December. Two public holidays fall within this period, (25 and 26 December), so these must be treated and paid as public holidays.
The 2 days’ annual holidays which would have covered the 25 and 26 December are then added on to the end of the period. This extended period includes the public holidays 1 and 2 January. These public holidays are also treated and paid as public holidays.
1 and 2 January are now treated as public holidays, this means two annual holiday days are not being used. These two annual holiday days are then added on to the end of the period, creating a new extended period ending on 3 January 2020.
Annual Holidays Payment: any annual holidays that the employee is entitled to but has not taken (or been paid out) must be paid out on termination of employment. This payment is the $ value of the employee's Annual Holidays Entitlement, calculated using the AWE/OWP formula. If an employee had taken leave in advance via a pay run in this platform and as a result has a negative leave balance, the amount displayed here will be the negative value of the leave that was paid in advance. N.B. If the employee has a negative leave balance in their opening balance or via a leave adjustment, the system will calculate the negative leave $ amount based on the employee's OWP calculation method.
Public Holidays Payment: this payment is determined by adding the employee's unused annual holidays to the end of the employment date and there is a public holiday that falls on the employee's working day as if they were still employed. This payment is calculated using the RDP/ADP formula. For the system to correctly calculate this, ensure the regional anniversary day is configured for each location.
Alternative Holiday Payment: if an employee has alternative holidays earned from working on a public holiday that have not been taken or paid out, they are to be paid out at the end of employment. This payment is calculated based on the number of Alternative Holiday hours available to the employee x their hourly rate. If an employee had taken leave in advance and as a result has a negative leave balance, the amount displayed here will be the negative value of the leave paid in advance. If an employee had taken leave in advance via a pay run in this platform and as a result has a negative leave balance, the amount displayed here will be the negative value of the leave that was paid in advance. N.B. If the employee has a negative leave balance in their opening balance or via a leave adjustment, the system will calculate the negative leave $ amount based on the employee's RDP/ADP calculation method.
Historic Gross Earnings: information on the purpose of historic gross earnings can be found here. In summary, if a business has transferred over from a previous payroll system to this payroll system we acknowledge historic gross earnings for the purpose of calculating gross earnings after the employee's Annual Holiday Entitlement Date. The earnings displayed here will reflect the historic gross earnings on or after the first pay period recorded from the employee's Annual Holiday Entitlement Date if the employee has been employed for more than 12 months. If the employee has been employed for less than 12 months, it will display as the employee's start date. If there are no historic gross earnings imported into the system for the employee, this field will not appear in the context panel.
Gross Earnings: the gross earnings recorded here are any earnings paid through this payroll system from the date specified up to the employee's final pay. The 'from' date that appears here varies based on certain scenarios:
- if the employee has been employed for less than 12 months and has only been paid via this payroll system, the date will be recorded as their start date;
- if the employee has been employed for more than 12 months and has only been paid via this payroll system, the date will be recorded as the day after the employee's Annual Holiday Entitlement Date. Additionally, the earnings displayed here will reflect the earnings paid to the employee on or after the first pay period recorded from this date.
- if the employee has previously been paid via another payroll system and has historic gross earnings imported into the system, the date recorded will be the start date of the first pay run processed for the employee in this pay run.
Total Gross Earnings: this is the sum of the following earnings:
- Annual Holidays Payment. If this is a negative amount due to leave being taken in advance, the amount will not be used to determine total gross earnings;
- Public Holidays Payment;
- Alternative Holiday Payment. If this is a negative amount due to leave being taken in advance, the amount will not be used to determine total gross earnings;
- Historic Gross Earnings; and
- Gross Earnings.
Final Annual Holidays 8% Payment: this is 8% of the Total Gross Earnings figure. If there is a negative amount for Annual Holidays Payment and/or Alternative Holiday Payment (due to the fact leave taken in advance is being reversed), this amount will be deducted AFTER the 8% of total gross earnings has been calculated.
Overriding the Final Annual Holidays 8% Payment
There may be instances where the final amount calculated in the pay run needs to be adjusted in circumstances where there is data missing from the payroll system. If this does occur, the user can override the amount and enter their own calculated amount. To perform this action, select the "Override" checkbox, enter the amount and then click on "Save".
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