Taxing final payments for employees
11 May 2020
If you face the difficult task of having to let employees go, there are some things to note when working out final pay and entitlements.
- An employment termination payment (ETP) is a lump sum paid within 12 months of an employee’s termination and is taxed differently from normal income. It includes:
- unused sick leave
- payments in lieu of notice
- gratuities
- amounts over the tax-free component of a redundancy.
- Redundancy and early retirement payments are tax-free up to a limit based on the employee’s years of service. The tax-free amount is not part of the employee’s ETP.
- Unused annual or long service leave aren’t part of an ETP. You’ll need to withhold tax from these payments at the relevant rates.
- Super and fringe benefits tax – don’t forget:
- to pay any remaining super contributions to the employee’s fund – by law we can’t extend the super guarantee quarterly due dates.
- any final fringe benefits tax obligations.
If your business is impacted by COVID-19 and you need further help managing your tax and super obligations, call our Emergency Support Infoline on 1800 806 218 or speak with a trusted tax adviser.
Source: Australian Taxation Office News Room
Date: 20 May 2020
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