Summary

Employees can be terminated for various reasons. The types of termination payments an employee can receive are determined by factors such as the employee’s termination reason, award or situation.

Employment Termination Payments (ETP)

Generally, Employment Termination Payments are lump sums paid to an employee on resignation. The ETP may be divided into components because each component is taxed differently.

In PayGlobal, the ETP calculation is separate from payroll transaction logic because employers must inform employees of any ETPs before payment.

If part of the employee’s ETP is made under a transitional arrangement, then the employer needs to give the employee a Transitional termination payment pre-payment statement (NAT 70812) to complete and return. The employee can determine the portion paid in cash and roll over a portion to their superannuation fund.

If the ETP is a cash payment, then it appears on the ETP payment summary.

Decide whether payment is an ETP

The employer needs to decide if any part of the lump sum payment is an ETP. Only certain employee termination payments are ETPs and they are taxed differently from other termination payments.

The following table shows which employee termination payments can be included in ETPs.

ETP

Non-ETP

Unused rostered days off (RDOs)

Payments for unused annual leave and/or leave loading

Payment in lieu of notice

Payments for unused long service leave

Unused sick leave

Salary, wages and allowances owing to the employee, for work done or leave already taken

A gratuity or ‘golden handshake’

Compensation for personal injury

Compensation for loss of job

Payment for restraint of trade

Compensation for wrongful dismissal

Foreign termination payments

Payments for loss of future super payments

Employee share scheme payments

Payments arising from the employee’s termination because of ill health (invalidity), other than compensation for personal injury

An advance or loan

Payments for genuine redundancy or paid under an early retirement scheme that exceed the tax-free limit

Payments for genuine redundancy or paid under an early retirement scheme that are within the tax-free limit

Lump sum payments made after the death of an employee

Redundancy Payouts

The New National Employment Standards introduced by the Fair Work Act define the following minimums for redundancy payouts:

Employee’s period of continuous service with employer

Redundancy pay period

At least 1 year but less than 2 years

4 weeks

At least 2 years but less than 3 years

6 weeks

At least 3 years but less than 4 years

7 weeks

At least 4 years but less than 5 years

8 weeks

At least 5 years but less than 6 years

10 weeks

At least 6 years but less than 7 years

11 weeks

At least 7 years but less than 8 years

13 weeks

At least 8 years but less than 9 years

14 weeks

At least 9 years but less than 10 years

16 weeks

At least 10 years

12 weeks