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:
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:
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.
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:
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.
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 = $20,724.75)
To find total unused Long Service Leave:
To print a Leave Report for an employee:
Leave Report looks like:
To Calculated the PAYG on unused leave:
|Final Employment Date:||30/11/2018|
|All leave accrued after 18 August 1993|
|Unused Annual Leave||84.51||61||$ 5,155.11|
|Usused Leave Loading on Annual - 17.5%||0||0||$ -|
|Unused Long Service Leave||9.06||$ 2,287.50||$ 20,724.75|
|PAYG calculation on Unused Leave payout|
|1||Divide the total calculated unusual leave amount by normal number of pay periods in the year. (ie. Paid fortnightly, then 26 pay periods)||# Pays||26||$ 995.38|
|2||Disregard cents in the result||$ 995.00||(always round down, by ATO)|
|3||Add the amount at Step 2 (no cents) to normal gross earning for a single pay period)||Normal Gross Pay||$ 3,725.00||$ 4,720.00|
|4||Calculate the amount of PAYG to be withheld on the amount at Step 3 (using Tax Table or MYOB)||$ 1,362.00|
|5||What is the amount of tax withheld from a normal gross pay?||$ 982.00|
|6||Substract normal gross pay from the calculated amount of PAYG at step 4||$ 380.00|
|7||Multipy the amount at step 6 by the number of normal pay periods in the year.||$ 9,880.00|
|The amount to be withheld from the final payment for unused leave:||$ 9,880.00|
|Any amounts of unused annual leave and leave loading that accrued on or after 18 August 1993 are included at 'Gross payments' along with any other amounts.|
|All the amounts that are being withheld are included with other withheld amounts at 'Total tax withheld'.|
To enter this transaction into payroll:
Enter details as follows:
Note: when you do this transaction, automatic leave transations are created for annual and long service leave. See below.