Terminations. Presented by ROSS GIBSON

Transcription

1 Terminations Presented by ROSS GIBSON

2 Here are the facts!

3 Average Pay $6,250 per month + $5,000 Unused leave and Claiming Tax-free Threshold MARGINAL RATES CALCULATION Average Pay: $ 6,250 Gross amount to be taxed: $ 5,000 Plus 5% Lump Sum B: + $ 0 Taxable Termination Pay: = $ 5,000 Average Termination Pay: $ 416 Average Pay + Average Term Pay: $ 6,666 Tax: $ 1,599 Average Pay: $ 6,250 Tax: $ 1,456 Difference in Tax: $ 143 TOTAL TAX PAYABLE: $ 1,716 34% 3

4 TAPS Helpline Car Allowance Should an employee s payment of unused annual leave on termination be calculated using the rate for: Salary only, or Salary + Car Allowance? To answer this you will need to refer to the employee s contract and more importantly, how you apply it to the real world. 4

5 TAPS Helpline Car Allowance Fair Work Act states: Section 90 Payment for annual leave: (1) an employee takes a period of paid annual leave, the employer must pay the employee at the employee s base rate of pay (2) when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave. 5

6 TAPS Helpline Car Allowance Salary $52,000 p.a. plus Car allowance of $15,600 p.a. Method Amount per week Car Allowance Pay on working weeks only $325 x 48 $15,600 Pay on taking annual leave $300 x 52 $15,600 Both methods are correct!! 6

7 ETP Excluded ETP (Type R) Non-Excluded ETP (Type O) 7

8 Employment Termination Payments If its not a payment for Ordinary Pay (incl Bonus & Commissions) Annual Leave and Leave Loading Long Service Leave It s an ETP 8

9 An ETP may include: Payments in lieu of notice Gratuity or golden handshake The excess amount of the lump sum D tax free amount Compensation for wrongful dismissal Unused personal carers leave Unused RDOs Payments made on death of an employee 9

10 Excluded ETP Code R Indexed figure: $205,000 Excess over Lump Sum D Settlement payments Unfair dismissal Discrimination Harassment Personal injury Invalidity Non-excluded ETP Code O Whole of Income cap: $180,000 Everything else! 10

11 Excluded ETP Code R Indexed figure: $205,000 Non-excluded ETP Code O Whole of Income cap: $180,000 47% $ ETP payment Less year-to-date income $ $180,000 17% or 32% $205,000 Less value of AL, LL & LSL $ Threshold Amount $ 11

12 GENUINE REDUNDANCY CRITERIA (JOB HAS BEEN ABOLISHED) The dismissal occurs before the employee turns 65, and before the employee would have had to retire anyway The payment is greater than the amount which would have been payable had the employee voluntarily resigned at the same time. ITAA Section No agreement for later employment 12

13 GENUINE REDUNDANCY AND EARLY RETIREMENT SCHEME PAYMENTS: (not applicable for Invalidity Payments) Limit: $10,399 + $5,200 per completed year of service COMPLETED YRS BASE RATE + SERVICE RATE TAX-FREE PORTION 1 $10,399 (1 x $5,200) $15,599 2 $10,399 (2 x $5,200) $20,799 3 $10,399 (3 x $5,200) $25,999 4 $10,399 (4 x $5,200) $31, months $10,399 - $10,399 13

14 TAPS Helpline What can be included in the Lump Sum D? Is this a payment due to redundancy? Resignation Redundancy Include in Lump Sum D? Sales Manager PILON PILON No Receptionist Work notice period PILON Yes 14

15 TAPS Helpline Taxing non-excluded items on redundancy One of our Sales Managers, William is being made redundant. He has been with the business for 5 years. William is being given $120,000 as payment in lieu of notice, regardless of his termination reason. Do I tax the payment in lieu of notice as: An ETP? or Include the payment in the tax-free portion? 15

16 TAPS Helpline Taxing non-excluded items on redundancy PAY ITEMS GENUINE REDUNDANCY 37yo Severance Pay: $ 80,000 Ex-gratia payment: $ 30,000 Unused Personal Leave: $ 15,000 Total payments due to redundancy: $125,000 Lump Sum D: [($5,200 x 5yrs) + $10,399] $ 36,399 Excess (Excluded ETP Type R): $ 88,601 Tax Withheld: $ 28,352 Age at End of Financial Year is 37 < Preservation Age is Payment in lieu of notice of $120,000 cannot be included in the Lump Sum D calculation. It will need to be taxed separately as a Non-excluded ETP! 16

17 Compare the two caps ITEMS INDEXED FIGURE WHOLE OF INCOME $205,000 $180,000 Less Year-to-date income: $ 60,000 Less Taxable value of any AL, LL or LSL: $ 10,000 Less Excluded ETP: $ 88,601 Threshold Amount: $116,399 $110,000 Taxing the Non-excluded ETP GROSS TAX RATE TAX 17% $110,000 32% $35,200 $ 10,000 47% $ 4,700 $120,000 TOTAL $39,900 17

18 TAPS Helpline Redundancy payments to employees over 65 years We are making a number of employees redundant. One of our employees, Charles, is 69 years old and has been with the business for 5 years. Is this a non-genuine redundancy? What is the difference between genuine and non-genuine redundancies when calculating the payment? 18

19 TAPS Helpline Redundancy payments to employees over 65 years PAY ITEMS NON-GENUINE REDUNDANCY NON-GENUINE REDUNDANCY Severance Pay: $80,000 $80,000 Ex-gratia payment: $30,000 $30,000 Unused Personal Leave: $15,000 $15,000 Total payments due to redundancy: $125,000 $125,000 Lump Sum D: [($5,200 x 5yrs) + $10,399] $36,399 $ 0 Excess (Excluded ETP Type R): $ 88,601 $125,000 Tax Withheld: $ 28, % Remember, annual Leave and long service leave will be taxed at marginal rates with a non-genuine redundancy! 19

20 TAPS Helpline Multiple Redundancy Payments Kate, one of our executives has been made redundant after 8 years of service. As part of their termination and due to cash flow issues, Kate has agreed to receive her ex-gratia payment by two instalments. Payment# 1 $140,000 to be paid on 20 th June 2018 Payment# 2 $140,000 to be paid on 20 th July

21 PAYMENT #1 - June 2018 $140,000 Lump Sum D : (8 x $5,078) + $10,155: $ 50,779 Excess (Excluded ETP Type R): $ 89,221 Total Tax on 32%: $ 28,551 Total Tax on 47%: PAYMENT #2 - July 2018 $140,000 Lump Sum D: Current Financial Year: (8 x $5,200) + $10,399: Less Previous Financial Year ATO limit: $ 51,999 $ 50,779 $ 1,220 Excess (Excluded ETP Type R): $138,780 ETP 32% on 1 st $205,000 ($205,000 - $89,221 = $115,779): $ 37,049 ETP 47% on $23,001: $ 10,810 Total Tax on ETP: $ 47,859 21

22 SUMMARY PAYMENT #1 PAYMENT #2 TOTAL Taxable Component: $ 89,221 $138,780 $228,001 Tax: $ 28,551 $ 47,859 $ 76,410 Net: $ 60,670 $90,921 $151,591 ETP Code: R S Use Code Use when you are currently paying and you have previously paid S: An Excluded ETP (Code R) a code R or O payment was paid in the previous financial year to the employee for the P: A Non-excluded ETP (Code O) same termination 22

23 TAPS Helpline Salary Sacrifice Arrangement Are staff allowed to salary sacrifice their termination pay into their superannuation fund? For example long service leave or an ex gratia payment? Possibly 23

24 TAPS Helpline Salary Sacrifice Arrangement Effective SSA involves the employee agreeing to receive part of their total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages. Taxation Ruling: 2001/10 Starting 01 November 2017, I would like to sacrifice 100% of all future annual leave accruals that will be paid out to me on termination of employment. 24

25 TAPS Helpline Child Support Is Child Support deducted from the employee s termination pay? Or just from their ordinary hours in their regular pay? 25

26 TAPS Helpline Child Support Contact Dept. Human Services when Employee intends to leave Resigns / Terminates Change in Pay Cycle Change in Employment Status Change in Business (e.g. merger, etc.) Deductions vary Child Support can be deduction from Salary or Wages Commissions Bonuses & Allowances Retirement or Termination Contract labour Other remuneration 26

27 TAPS Helpline Child Support Deduction notice Schedule of Child Support Deductions (subject to Protected Earning Amount) Notice Pursuant to Section 72A: This is a fixed percentage or dollar amount from any payments due to the employee. The Protected Earnings Amount does not apply in this case. 27

28 TAPS Helpline Child Support Alex is on a salary of $1,250 per week. 5 weeks on unused annual leave. A Section 72A is received for a lump sum amount of $2,000. Unused Annual Leave $6,250 marginal rates $2,132 Less Child Support $2,000 Net payment to employee $2,118 28

29 TAPS Helpline PAYG Variation One of our employees has a PAYG Variation for the current financial year for 15% PAYG on Salary & Wages. Can I apply the 15% to the employee s termination pay? Possibly 29

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32 TAPS Helpline Superannuation on Leave Loading We pay annual leave loading when an employee takes annual leave. We also pay super on the leave loading. Is the leave loading superable if the employee terminates? No, the annual leave loading forms part of the unused annual leave on termination and is not part of the OTE definition. Therefore, no super is applicable to the annual leave or to the leave loading. 32

33 TAPS Helpline Service Casual to Permanent One of our redundant employees has the following history: Hired as a Casual: 01/08/11 Permanent status: 09/09/16 Termination date: 01/11/18 Are they entitled to a redundancy as they were casual for most of his employment? 33

34 TAPS Helpline Service Casual to Permanent There is no precise legal definition of a casual worker. It is accepted that a casual is hired on an informal, uncertain and irregular basis: - Irregular patterns of work - No expectation of ongoing employment - Series of separate contractual engagements 34

35 TAPS Helpline Service Casual to Permanent AMWU v Donau Pty Ltd Background: A number of permanent shipyard employees that were being retrenched had prior periods of service as casuals, working on a regular and systematic basis, with no break between the casual and permanent periods of service. - Casuals are not entitled to severance pay under the FWA s123(c) - During their casual employment these employees received a 25% casual loading. Decision: A period of continuous service as defined by the FWA s384(2)(a) includes a period of regular and systematic casual employment.

36 TAPS Helpline Payment in Lieu of Notice How do I calculate the payment in lieu of notice? Is unpaid leave included when calculating the service period? Does the payment accrue annual leave and long service leave? Do I calculate superannuation on the payment? What is the termination date? 36

37 TAPS Helpline Payment in Lieu of Notice Same value, if worked What about the extra week if the employee is over 45 and worked 2 years continuous service? Super is applicable Payment in Lieu of Notice No Accruals Term date is last day at work Clerks Private Sector Award states: 13.2 The notice of termination required to be given by an employee is the same as that required of an employer except that there is no requirement on the employee to give additional notice based on the age of the employee concerned. 37

38 TAPS Helpline Overpayments How do I process an overpayment for an employee that is terminating? Can I just deduct it from their termination pay or do I need their permission first? This is all about Permitted deductions FWA s324(1)(a) states: An employer may deduct an amount from an amount payable to an employee if the deduction is authorised in writing by the employee. 38

39 TAPS Helpline Overpayments Is there a requirement for the employee to repay the debt? Current Financial Year Immediately reverse Gross/Tax/Net The employer benefits from a reduction in the amount of PAYG in the next payment to the ATO The employee repays Net debt from Net Pay Previous Financial Year Immediately reverse Gross $ only Unable to reverse PAYG since the financial year is closed Issue an amended payment summary to the employee The employee has received the benefit of higher PAYG amount The employee repays Gross debt from Net Pay 39

40 TAPS Helpline Overpayments PREVIOUS FINANCIAL YEAR CURRENT FINANCIAL YEAR Item Paid Should Pay Overpayment Item Paid Should Pay Overpayment Gross $4,000 $2,000 $2,000 Gross $5,000 $3,000 $2,000 Tax $1,500 $1,000 $ 500 Tax $2,000 $1,500 $ 500 Net $2,500 $1,000 $1,500 Net $3,000 $1,500 $1,500 Employee repays the Gross amount from their Net pay. Employee repays the Net amount from their Net pay. 40

41 TAPS Helpline Overpayments Pay all outstanding entitlements Apply the appropriate tax Fair Work Ombudsman states: An employer can be liable to a penalty of up to $63,000 per contravention - Ending Employment Fact sheet. Deduct the overpayment (Gross or Net as required) from the Net pay 41

42 TAPS Helpline Bonuses William was made redundant earlier in the year. He qualified for a Short Term Incentive payment which is related to completing a project during employment. Is the bonus to be taxed as: Marginal rates? or An ETP? or Tax-free (Lump Sum D)? 42

43 TAPS Helpline Bonuses MARGINAL RATES Bonus for work-related performance Short Term Incentive Bonus Sign-on Bonus Referral Bonus BONUS LUMP SUM D (Redundancy) or ETP (Termination) Retention Bonus Non-qualifying Bonuses but given as an Ex-gratia payment 43

44 TAPS Helpline Unpaid leave effect on Service Harry is being made redundant. Commenced: 15/04/2014 Redundant: 14/10/2018 Harry had previously taken 12 months of unpaid leave to travel overseas. Is the period of unpaid leave included in the length of service for calculating notice and severance entitlements? 44

45 HARRY Employment period: Less Unpaid leave Service period: 4.5 years 1.0 year 3.5 years NOTICE REDUNDANCY Period of continuous service Minimum notice period Period of continuous service Redundancy pay 1 year or less 1 week At least 1 year <2 years 4 weeks More than 1 year 3 years 2 weeks At least 2 years <3 years 6 weeks More than 3 years 5 years 3 weeks At least 3 years <4 years 7 weeks More than 5 years 4 weeks At least 4 years <5 years 8 weeks 45

46 TAPS Helpline Notice Period: Contact Vs NES An employee s contract states that on termination the employee is entitled to a payment to the equivalent of 3 months salary. Under the Fair Work, the NES states that we owe the employee a minimum of 4 weeks notice. What is the employer obligated to pay? The NES amount for 4 weeks or the Contract amount for 3 months? 46

47 TAPS Helpline Notice Period: Contact Vs NES The contract is far more generous to the employee than the NES in regards to the notice period. Is the employee better off overall? The employee would be receiving a far greater value for the 3 months at their base salary rather than the 4 weeks as a payment in lieu of notice. The employee would have no recourse as they are receiving more at the base salary than the value of the payment in lieu of working the minimum period. 47

48 TAPS Helpline Q & A QUESTION Does HELP get applied to an employee s termination? Can an employee s final day be a public holiday? Can I withhold monies due on termination if the company property has not been returned? ANSWER No. HELP is applied to a marginal rates calculation for a bonus, but not on a termination. Yes. The physical last day at work will be the prior day. The official termination date is the public holiday. Leave will accrue up to and including the public holiday. No. Most awards allow for unworked notice to be deducted from termination pay, but there is no mention of a deduction for not returning company property. 48

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