PAYG on Employee Termination Payments
In the event of certain types of employee terminations, PAYG must be calculated and deducted using a specific method for Employee Termination Payments called the ETP Cap, which is applied to termination payments for the following terminations types:
- Early retirement scheme
- Genuine redundancy
- Invalidity
- Compensation for personal injury
- Unfair dismissal
- Harassment
- Discrimination
Additional information is available on the Australian Taxation Office website https://www.ato.gov.au/Business/Your-workers/In-detail/Taxation-of-termination-payments/.
For other types of employee terminations, PAYG must be calculated and deducted using a specific method for Employee Termination Payments on Termination using the ETP Whole Cap, which is applied to the following termination types:
- A golden handshake
- Non-genuine redundancy payment
- Severance pay
- A gratuity
- In lieu of notice
- Unused sick leave
- Unused rostered days off
Employers might have to withhold from unused leave payments accrued between 16 August 1978 to 17 August 1993 on termination of employment and using the Lump Sum A method of calculation for the following unused leave payment types:
- Annual leave
- Holiday pay
- Leave loading
- Leave bonuses
- Long service leave
These same unused leave payment types might be subject to PAYG withholding if they were accrued prior to 16 August 1978 on termination of employment using the Lump Sum B method.
Additional information is available on the Australian Taxation Office website https://www.ato.gov.au/Forms/Withholding-from-unused-leave-payments-on-termination-of-employment/.
Garnishments
Garnishments aren’t technically taxes. Rather, they are post-tax deductions that are calculated against qualified earnings. Garnishments in Australia are normally a cash value, but there are situations where percentages might need to be applied. Qualifying earnings are any payments that qualify for PAYG. Where there isn’t enough money to deduct both tax and a garnishment, the tax takes priority.
Payroll tax isn’t withheld by Dayforce and isn’t displayed on pay slips. However, payroll tax information is included in a report that is generated when a pay run is committed.
Payroll tax is an employer-paid state and territory tax that is payable when the amount of Australia-wide wages paid by an employer exceed state and territory tax-free threshold amounts in the particular state or territory where the employer pays wages.
Payroll tax rates and thresholds are determined by the particular state or territory and apply to most wages, which can include:
- Gross wages (including any PAYG tax that the employer is required to withhold)
- Superannuation contributions
- Allowances: can include the covering of estimated expenses (for example, motor vehicles, tools, travel, and others) but does not include reimbursements paid to employees. Most allowances attract payroll tax.
- Fringe benefits: non-cash benefits (for example, company cars or phones).