Termination Payments in Australian Payroll

Payroll administrators and other authorized users can manage termination payment information for Australian employees in the People feature, in the Payroll > Termination Payment screen.

Important: It's best practice to complete the information in the Termination Payment screen before processing an employee termination. This termination payment information includes the normal gross earnings.

Role feature access: Application Container > People > Employee Profile > Payroll > Termination Payment

In Dayforce, payroll administrators can also override years of service and calculate redundancy payments by using the Years of Service from TerminationUI token for a generated earning or deduction. You can use this override in the Expression Builder to automate the calculation of employee termination. See Calculate Redundancy Payments for Years of Service.

If the employee whose profile you've loaded has termination payments, they show as a list in descending order in the grid in the Termination Payment screen. To create a termination payment record, click Add. This action expands a section with the fields that, as you enter information in them, update the columns in the termination payment grid. A brief description of these fields follows:

• Effective From: The pay period start date in which the employee is terminated. For example:

  Employee: John Smith

  Termination date: 17 October 2020

  Pay frequency: Monthly

  Termination payment screen effective from: 1 October 2020

• Effective To: The end of the termination record. This field can be blank in a regular termination scenario. When a person is rehired, the payroll administrator needs to enter the effective to date for any future termination payments to be calculated correctly. For example:

Employee: John Smith

Termination date: 17 October 2020

Pay frequency: Monthly

Termination payment screen effective from *(record 1): 1 October 2020

Rehire date: 1 January 2021

Termination date: 30 April 2021

Termination payment screen effective from (record 1): 1 October 2020

Termination payment screen effective to (record 1): 31 December 020

Termination payment screen effective from (record 2): 1 April 2020

• Termination Code (Default code is R if no code is selected): A drop-down list containing the following termination codes:
  • R: Termination because of genuine redundancy, invalidity, or the employee's participation in an early retirement scheme
  • O: Normal Termination
  • S: R code payment and the prior year's income was paid using a code R or O
  • P: O code payment and the prior year's income was paid using a code R or O
  • D: Deaths benefit paid to dependent
  • B: Death benefit paid to non-dependent
  • N: Death benefit paid to non-dependent and prior income year paid to non-dependent
  • T: Death benefit paid to trustee
• Hire Date: This field defaults to the most recent hire date. Payroll administrators can edit this field as required.
• Termination Date: Date of the employee's termination.
• Years of Service: The number of years the employee has worked. This field is calculated automatically based on information given from the Hire Date and Termination Date. It’s important for the calculation of the Lump Sum D threshold.
• Days of Service: The number of days the employee has worked. This field is calculated automatically based on information provided from the Hire Date and Termination Date. It's important for the calculation of the invalidity segment.
• Days of Service Prior to 1 July 1983: The number of days the employee worked before 1 July 1983. This field is calculated automatically based on information given from the Hire Date and Termination Date, and is applicable when employment is before 1 July 1983
• Previous Termination Payment Paid: Any ETP 11 amounts that were previously paid to the employee. This amount is used to calculate the ETP cap. This field is used in the following scenarios:
  1. Employee was made partial ETP 11 payments.
  2. The employee was terminated, rehired, and then terminated again.
• Normal Gross Earning: Regular ordinary earnings such as salary or wages, allowance, overtime, and retro pay. These employment termination payments exclude ETP 7, ETP 11, Schedule 5, Method A, and Method b(ii) tax types.

  When an employee terminates and no normal gross earnings are recorded in the Termination Payment screen, Dayforce follows these steps:

  • It references the last regular pay period for the employee, regardless of whether the termination is processed in a regular scheduled pay run or an off-cycle in this pay period.
  • For example, if an employee is terminating in pay run PR05-00 or during an off-cycle PR05-01, and there are no gross earnings shown on the Termination Payment screen, then:
    • If the employee received payment in pay run 04-00, Dayforce uses the gross earnings from PR04-00 to calculate the marginal tax on leave.
    • If the employee was NOT paid in pay run 04-00, the regular gross earning accompanying the termination payment is used to determine the marginal tax on unused leave.
  • The last regular pay refers to the previous regular pay run of the pay group.
  • The termination payment consists solely of the payout of unused leave entitlements.
  • This process does not apply to Lump Sum A.
  • It is recommended to always list the Normal Gross Earnings for clarity.

Employment Termination Payments for Genuine Redundancy

Redundancy payments can be complex where a payment type might apply to both non-redundancy and genuine redundancy reasons. Also, a terminated employee for genuine redundancy reason can receive both non-excluded ETP type O and excluded ETP type R for the same payment date. When this situation happens, make sure that you understand and use the earnings associated with the right system ETP tax compliance rules in Dayforce. An individual ETP tax compliance rule is classified as an R of O type and can be seen in both the Name and Description fields.

For instance, in lieu of notice for genuine redundancy is used for tax-free payments, up to a limit depending on the employees' years of service. For terminated employees who received termination payments instead of notice with a termination reason of genuine redundancy (Termination Payment code "R"), you can use an earning code that is associated with a system tax compliance rule of "ETP Payment In Lieu of Notice–Type R" in the Tax Compliance Rules tab in Payroll Setup > Earnings and Deductions. By using the right earning code in this case, you can see termination payment amounts up to the tax-free amount reported under Lump Sum D and superannuation.

Note: Earning codes associated with the "ETP Payment In Lieu of Notice–Type O" are for use with termination payment code "O" (Normal termination). These earning codes aren't subject to Lump Sum D and doesn't affect superannuation.

If your environment doesn't have an earning with the desired system ETP tax compliance rule such as "ETP Payment In Lieu of Notice–Type R", you can set up a new earning code.

To set up a new earning code:

1. Go to Payroll Setup > Earnings and Deductions, click the Tax Compliance Rules tab, and then click Earning.
2. Create and configure a new earning code that is linked with a desired system ETP rule, for example, “ETP Payment In Lieu Of Notice–Type R”.
3. Make sure you use the right settings, for example, a valid termination code in the Payroll > Termination Payments screen in People, is set for a terminating employee.
4. Run the pay run and use the earnings for the terminating employee.