Unused Leave Payout on Termination

Unused leave payments on termination of employment (Schedule 7)

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments.

Withholding rates also vary according to the:

• Reason for termination
  • Normal termination (eg voluntary resignation, employment terminated due to inefficiency, retirement) 
  • Termination because of genuine redundancy, invalidity or early retirement scheme
• The date when leave was accrued.
  • Pre-16 August 1978
  • 16 August 1978 to 17 August 1993
  • Post-17 August 1993

You should use Schedule 7 – Tax table for unused leave payments on termination of employment if you pay an amount to an employee for unused leave on the termination of their employment or office.

Unused leave payments on termination of employment or office include:

• annual leave
• holiday pay
• leave loading
• leave bonuses
• long service leave.

The following example is only to illustrated how to work out the withholding amount for a normal termination of employment, post-17 August 1993 for Annual Leave and Long Service Leave. (i.e. Withholding rates are at marginal rates). This is probably the most common.

Example:

Jane, who reisgned on 30 November 2018, is to be paid 84.51 hours of unused Annual Leave. Her $/hour rate is $61.00. This equates to $5155.11 for 84.51 hours of unused Annual Leave. No leave loading. (Note: Any part of a payment for unused annual leave that accrued before 18 August 1993 has different withholding requirements to payments of unused annual leave accrued on or after this date.)

To find total unused Annual Leave:

• Click on Payroll toolbar menu.
• In the Employees tab, click on the name of the employee (e.g. Jane Doe) and then click on the Select Employee button.
• Click on the Leave Records tab.
• Leave Type should be Annual.

Note: Annual Entitlement - full-time and part-time employees get 4 weeks of annual leave, based on their ordinary hours of work. Usuall recorded/measured in Hours or Days.

• Make sure you have an amount entered in the:
  • Annual Entitlement (e.g. 37.50 hours x 4 = 150 hours) text box
  • Std. weekly hours (e.g. 37.50 hours per week) text box.
• In the bottom of the screen, you will see Leave accrual from 01/07/2018 (or beginning of the current financial year) to. Select the termination date from the drop-down list. e.g. 30/11/2018.
• Below that you can see the Total leave accrued for that year to the selected termination date. Total leave accrued = 84.51 Hours (This is the total of unused leave).
• This equates to $5155.11 of unused Annual Leave. (84.51 x $61.00 = $5155.11)

An employee gets long service leave after a long period of working for the same employer. (entitlement to LSL comes from States and Territory laws). 

Long service leave applies to most NSW employees who are full-time, part-time or casuals. If you have been working for the same employer for 10 years you are entitled to 2 months (8.67 weeks) paid leave, to be paid at your ordinary gross weekly wage under the NSW Long Service Leave Act 1955 (the Act).

Jane has accrued 9.06 weeks of unused Long Service Leave. She is paid $4575.00 per fortnight, $2287.50 per week. This equates to $20724.75 of unused Long Service Leave. (9.06 x $2,287.50 = $20,724.75)

To find total unused Long Service Leave:

• Click on Payroll toolbar menu.
• In the Employees tab, click on the name of the employee (e.g. Jane Doe) and then click on the Select Employee button.
• Click on the Leave Records tab.
• Leave Type should be Long Service.
• Leave Measured in e.g. Weeks

To print a Leave Report for an employee:

• Click on the Payroll toolbar icon
• Click on the Reports tab
• Click on the Leave Report radio dial
• Select the Employee from the drop-down list. e.g. Jane Doe.
• Date Period Selector, Period From select date period, e.g. 01/07/2018 to 30/11/2018.
• Tick the Include leave summary check box
• Click on the Print button

• Click on the Close button in the first Report Viewer window.

Leave Report looks like:

To Calculated the PAYG on unused leave:

To enter this transaction into payroll:

• Click on the employee e.g Jane Doe.
• Click on the Pays tab.
• Click on Add Pay
• Click on the Wages/Salary tab

Enter details as follows:

• Tick the Manual Tax/Super check box
• Enter in the calculated amount to be withheld from the final payment for unused leave. e.g $9880.00
• Enter in other details or change date accordingly
• Click OK to save.

• Add transaction to Cashbook when prompted.

Note: when you do this transaction, automatic leave transations are created for annual and long service leave. See below.