Terminating an Employee in Accounts Business

Transcription

1 Terminating an Emplyee in Accunts Business When wrkers leave the emply f the business, whether it is vluntary r invluntary, they will ften be entitled t a number f additinal payments abve their nrmal pay. In many cases this will mean the Accunts Business user will need t create additinal payrll items t prcess these payments. Sme f these payments may have special tax treatments. When cmpleted the emplyee s recrd needs t be marked as terminated. Taxatin treatment f the varius terminatin payrll items are different t the nrmal PAYG tax rates, s users must take particular care in applying terminatin payrll items t emplyees. In general there are tw types f terminatin payments: 1. Items appearing n the Individual Nn-Business Payment Summary: a. Payut f Unused Annual Leave b. Payut f Unused Lng Service Leave c. Tax Free cmpnent f a genuine redundancy d. Reimbursement r expenses incurred in previus years 2. Additinal items t appear n the Eligible Terminatin Payment (ETP) Payment Summary: a. All ther payments nt included in 1 abve. The ATO prvides infrmatin n terminating an emplyee at: What additinal payments an emplyee is entitled t will depend n his emplyment cntract, award cnditins, general requirements f industrial relatins law and the circumstances f the departure. Accunts Business users shuld wrk with their accuntants and managers t determine what entitlements apply in each case. In this guide we will utline the types f payments an emplyee may be entitled t, hw they are reprted n the Payment Summary and hw they are handled by Accunts Business. It has been prepared with infrmatin available at 31/8/2013 fr use in Accunts Business 2013 R2. Cnditins f terminatin payments and their tax treatments can change frequently s users shuld always check with their Accuntants and the ATO fr the latest relevant infrmatin. Please Nte: While we try t prvide yu with the slutin yu need, we cannt warrant that the infrmatin set ut in this dcument is ttally errr free r will necessarily reslve any prblem yu may have. Reckn Limited ABN Level 12, 65 Berry Street Nrth Sydney NSW 2060 Australia T F inf@reckn.cm.au

2 QuickGuide t terminating an emplyee 1. Prcess last nrmal pay 2. Calculate additinal payments and assciated taxes 3. Prcess additinal payments (apprpriate payrll items may need t be created) 4. Terminate the emplyee in Accunts Business 5. Where applicable, prcess any Eligible Terminatin Payments (ETP) 6. Prvide the emplyee with an INB Payment Summary and where applicable, an ETP Payment Summary Additinal fields in the INB Payment Summary It is the 4 bxes labelled Lump Sum Payments A, B, D and E that are used when an emplyee leaves the business. 2

3 Please nte that the tax treatment f these payments may vary accrding t date f emplyment and the reasn fr the departure. In shrt these payments represent: Lump Sum A unused annual leave entitlements and accumulated lng service leave entitlements; Lump Sum B lng service leave entitlements earned up t 1978; Lump Sum D tax-free prtin f genuine redundancy r early retirement scheme payments; Lump Sum E payments relating t wrk dne in earlier incme years and being paid as a lump sum. Setting up the Lump Sum payrll items Yu must create payrll items fr these lump sum payments t assign them t the crrect field n the INB Payment Summary. Create them as an Additinal item and select the apprpriate Lump Sum in Tax Tracking Type: Please nte that Lump Sum A has tw ptins: [R] is fr genuine redundancy, retrenchment and invalidity and [T] fr all ther terminatins. Yu cannt apply Taxes t these lump sums as they are nt cntained in the PAYG tax scales. On the Taxes screen uncheck PAYG Tax. Usually these items are included fr State Payrll Tax calculatin, s that ptin shuld be ticked. Check yur state s Office f State Revenue fr cnfirmatin. Yu will need t manually calculate the crrect amunt f tax please see the ATO website at: fr prevailing tax rates - and adjust the PAYG Tax amunt n the Prepare Paycheque screen. 3

4 Lump Sum D payments are a tax-free prtin and s d nt attract any PAYG tax. Lump Sum E payments will als attract tax, but need t be calculated manually fr the specific circumstance. Accunts Business will autmatically tick these payrll items fr inclusin in calculating the statutry Super Guarantee amunt. Check with yur accuntant r ATO whether yur payments must be included fr Super calculatin. If yur payments t a Lump Sum categry include a mix f superable and nn-superable items, then it will be simpler t adjust the super amunt n the Prepay Paycheque screen. If yu want t turn ff Super calculatin n these Lump Sum items, edit yur Super item, frward t the last screen: Include payments in cntributin and uncheck the Lump Sum items: Lump Sum items are by default ticked fr inclusin in Super calculatin. 4

5 Paying the Lump Sum amunts As lump sums have special tax treatments yu must calculate the crrect amunt f tax manually, accrding t ATO directins. Cnsequently we suggest yu prepare the final pay separately frm the last nrmal pay. This will help yu check the tax amunt yu enter is crrect. Enter all Lump Sum payrll items and then ver-write the amunt f PAYG payable with the amunt yu manually calculated. Example Jhn Cleese has wrked with the Cmpany fr 5 years and is being made redundant. He has 10 days unused Annual Leave and has accrued 4 weeks Lng Service Leave entitlement. He is als being paid a redundancy f $10,000 and under the current frmula is entitled t $1,000 as a tax-free cmpnent. He als did a special prject in a previus incme year when allwances valued at $2,000 were nt paid and will be paid in this payut. His current salary is $52,000 per annum r $1,000 per week. Calculatin f amunts: Annual Leave is 2 weeks x $1000 = $2,000. Leave Lading n Annual Leave at 17.5% = $350. Lng Service Leave is 4 weeks x $1,000 = $4,000 Tax-free Redundancy is $1,000. Arrears payment is $2,000. Calculatin f Tax Lump Sum A is = $6,350 Tax is 31.5%: 6350 x = $ (use $2,000.00) Lump sum D is $2,000 and is tax-free Lump Sum E is $2,000 fllwing ATO directins tax is calculated at $ Ttal Tax is = $2,630. The immediate payment screen will lk like this: 5

6 The PAYG amunt is Overwrite with the calculated tax amunt f $2,630: 6

7 The INB Payment Summary lks like this: (The emplyee has a previus pay that was 100% salary sacrificed, s Grss Payments shws zer and RESC 577). Lump Sum A, D and E shw the amunts f the emplyee s payuts. Ttal Tax Withheld shws the ttal tax n the Lump Sum payments that was manually calculated. Nte that the Lump Sum E payment will als appear in the Allwances and Deductins sectin. INB Payment Summary items are nw cmplete, but there may be ther terminatin payments (ETP) still t prcess. Befre yu cmplete thse yu shuld terminate the emplyee in Accunts Business as that prcess will trigger the ETP payments prcess. Terminate the Emplyee Nw that INB Payment Summary items are cmplete yu can clse ff the emplyee file in Accunts Business. This step will als trigger the final payment screen t prcess any ETP payments. First, in the Emplyee Recrd, replace any accrued leave Annual, Persnal and Other with a zer. These amunts shuld have been paid ut in the last pay. Next, right-click the emplyee in the Emplyee Centre and select Terminate Emplyee. The Emplyee Organizer will pen and yu need t fllw the prmpts t cmplete the details: 7

8 Take Nte: the Release Date (Last Day n Payrll) field must be the last day wrked by the emplyee. This date will appear as the end f emplyment date n the ETP Payment Summary. When yu finish the terminatin prcess yu will end up n the fllwing screen: If there are n further payments invlved with the terminatin yu can click n Clse t end the terminatin prcess. The emplyee recrd is nw marked Terminated. 1. The Emplyee will still be in yur Emplyee List but will nt appear n the Emplyee List fr nrmal pays. 2. T remve the Emplyee frm the List in the Emplyee Centre, right-click his name and select Make Inactive. If yu have ther emplyees t terminate, select Terminate anther emplyee.and repeat the prcess. 8

9 If the emplyee has an Eligible Terminatin Payment, then click n Create final paycheque. In ur example, Jhn Cleese was given a redundancy payment f $10,000 f which nly $1,000, the allwed tax-free amunt, was applied in the previus payment. The remaining $9,000 is an Eligible Terminatin Payment and is nt included with the INB Payment Summary. Tax will be paid n that amunt, but it will be listed n an ETP Payment Summary. Click n paycheque t cntinue. Prcessing Eligible Terminatin Payments ETPs are subject t preferential treatments which may be changed frm time t time. Each individual payment will be unique s users shuld cnsult their Accuntants fr directin and assistance in preparing ETPs. Users shuld make themselves familiar with the fllwing ATO publicatins (and any ther subsequent relevant publicatins): NAT : Eligible terminatin payments guide fr emplyers NAT : Hw t cmplete the PAYG payment summary emplyment terminatin payment Althugh these publicatins may be ld, they prvide a gd guide t the ETP prcess. Users shuld check the ATO website fr updated infrmatin, latest cap levels and prevailing tax rates. A gd start is: Last key changes T ETP were intrduced n 1 July 2012: (n the 1 st f July 2014, the Medicare Levy was increased t 2%, resulting in new ttal tax rates f 17%, 32% and 47% instead f the 16.5%, 31.5% and 46.5% used in examples) Categrisatin f ETP payments as either (R) fr Genuine Redundancy, Early Retirement, Invalidity r cmpensatin fr prscribed circumstances; r, (O) fr all ther types f ETP payments like glden handshakes; in lieu f ntice; unused rstered days ff; etc. Intrductin f a Whle Of Incme Cap f $180,000, in additin t the existing indexed ETP cncessinal cap which fr 2013/14 is als $180,000. The whle f incme refers t ther incme earned in the financial year, including: Nrmal pay frm this jb and any ther current r future jb in 2013/14; Payments fr accrued leave; Nn-excluded ETP payment items (see belw). The tp tax rate f 46.5% (including the Medicare levy) will apply t payments that are abve the lwer f the ETP cncessinal cap and the adjusted Whle f Incme Cap; Sme Eligible Terminatin payment items will impact n the Whle f Incme Cap: 9

10 Excluded items will nt impact n the Whle f Incme Cap; Nn-Excluded items will reduce the Whle f Incme cap. The ATO has mandated the fllwing ETP payment items are excluded frm adjusting the Whle f Incme Cap: Genuine Redundancy; Early Retirement; Invalidity; Cmpensatin fr persnal injury, unfair dismissal, harassment, discriminatin; The ATO has mandated the fllwing ETP payment items are nn-excluded and will adjust the Whle f Incme Cap: Glden Handshakes; Gratuities; In Lieu f Ntice; Unused Persnal Leave; Unused RDOs; Vluntary Redundancy The excluded r nn-excluded status f ther ETP payment items will be determined by the Emplyer, Industrial Agreements r Award. Reckn is unable t help yu determine if a payment is excluded r nn-excluded. The ETP Payment Summary will have ne categry bx t indicate whether this payment summary cnsists f excluded r nn-excluded items: R excluded items; O nn-excluded items. If an ETP Payment Summary cnsists f a mix f excluded and nn-excluded items, then tw ETP Payment Summaries must be issued. Accunts Business 2013 R2 prvides the fllwing Tax Tracking Types fr ETPs: Pre July1983 Cmpnent (R) and (O) - taxed at 0%; Pst June1983 Untaxed Element (R) and (O) - taxed at 46.5% fr abve cap amunt; Pst June1983 Untaxed Element (lw rate threshld) (R) and (O) - fr belw cap amunts, taxed at either: 16.5% fr emplyees lder than their Preservatin Age 31.5%, fr emplyees yunger than their Preservatin Age Pst June1994 Invalidity Cmpnent (R) nly - taxed at 0%. Users will need t determine which ETP payrll items are relevant t their emplyees. Yu must als manually calculate the amunt f tax that will apply. ETP tax rates are utside the PAYG Tax Tables s Accunts Business des nt calculate any tax amunt during the pay run. Hwever, the ETP Payment Summary will calculate the amunt f tax fr the Tax Withheld field. It is therefre imprtant that yu calculate the crrect amunt f tax that will apply and adjust the PAYG Tax amunt accrdingly. Any discrepancy between the amunt yu enter and the amunt calculated by the ETP Payment Summary will be left in the tax withheld field f the INB Payment Summary. 10

11 Because f the cmplexities f the ETP prcess, users shuld fllw the ATO wrksheets t calculate the crrect amunt f tax and cmpare it t the amunt that Accunts Business calculates in the ETP Payment Summary t ensure integrity f the prcess. Current tax rates fr ETP payments can be fund at: Yu will find the ATO Wrksheet fr ETP Payments at: An ETP Tax Calculatr is available at: If necessary, yu can test yur terminatin payment with a dummy pay run with a dummy emplyee. Create and Cnfigure ETP Payrll Items in Accunts Business 1. Lists > Payrll Items List > Payrll Item buttn > New; 2. Payrll Item Type: Additin; 3. Name used in payments and payrll reprts: eg. ETPpre1983; 4. Expense Accunt : eg: Payrll Expenses:ETP; 5. Tax Tracking Type: chices are (R) and (O): a. Pre July 1983 cmpnent b. Pst June 1983 Untaxed Element c. Pst June 1983 Untaxed Element (Lw Rate Threshld) d. Pst June 1994 Invalidity Cmpnent 11

12 6. Taxes: Nne ticked (ETP tax rates are nt included with the PAYG tax rates used in nrmal payrll prcessing)) 7. Calculate based n Quantity: Neither 8. Default Rate and limit: leave blank Nte: yu can create the ETP as a Wages > Other item, but when created, this item will be added t the Super list f items t be used fr super calculatin and may be ticked. Example In ur example, Jhn Cleese is belw his Preservatin Age, and has a further $9,000 t receive as a redundancy payment. Fllwing ATO guidelines we determine that Pst June 1983 Untaxed Element (Lw Rate Threshld) (R) is the crrect payrll item t use. Accunts Business will determine accrding t his date f birth whether he is abve r belw his Preservatin Age and chse a tax rate f either 16.5% r 31.5%. In this case 31.5% is used fr a tax amunt (including the Medicare Levy) f $2,835. When the payrll item is entered nt the Review r Change Payments screen n tax is calculated as the item was created with Taxes set t Nne. Yu must manually verride the PAYG Tax amunt in the emplyee Summary (adjusted) with the amunt calculated. Nte fr Accunts Business 2013 and later: yu must enter the ETP tax amunt as a negative in additin t the natural negative sign present fr the PAYG Tax field. The negative des nt affect the calculatin f Net Pay n the Review r Change Payments screen, but it will adjust the Tax Withheld Register s that the INB and ETP Payment Summaries reflect the crrect respective amunts f tax withheld. 12

13 Nte that the PAYG Tax YTD shws the ttal paid this incme year (2, ,835). The ETP Payment Summary will lk like this: Please nte the Tax free cmpnent field is blank. This field des nt relate t the tax free cmpnent f a genuine redundancy that amunt was listed under Lump Sum D n the INB Payment Summary. This tax free amunt relates t death, invalidity and pre 1978 payments nly. 13

14 Yu shuld check the INB Payment Summary and ensure the Tax Withheld amunt has nt changed. Yur Emplyee Recrd will nw shw the emplyee as terminated: T remve the emplyee frm the Emplyee List, make him inactive. Impact n BAS When ETP payrll items are used, users must include the ETP items in the W1 field. When ETP payrll items are included in W1, the W2 field will autmatically include ETP tax amunts. When the emplyee did nt pay any tax in the financial year the ETP is being prcessed If an emplyee did nt pay tax in the financial year the ETP is being prcessed, then Accunts Business will publish the crrect amunt f tax n bth the ETP Payment Summary and n the INB Payment Summary (where it will shw a Grss Payments amunt f zer). T avid the tax amunt publishing a secnd time n the INB Payment Summary yu must pay yur emplyee 1 cent (0.01) and deduct 1 cent (0.01) PAYG tax. This transactin will frce Accunts Business t prduce an independent INB Payment Summary shwing Tax Withheld as zer and Grss Payments as zer. Yur ETP tax will nw shw nly n the ETP Payment Summary. Any additinal levies will hwever appear n the INB Payment Summary. Yu will nw be able t generate INB and ETP Payment Summaries. Yu must leave this transactin in yur accunts t prduce the electrnic file fr reprting pay details t the ATO (the Empdupe file) at the end f the financial year. 14

15 Yu can remve the impact f this transactin n yur accunts by making a Liability Adjustment. 1. If necessary, reinstate the emplyee thrugh the Emplyee Organiser. 2. Pay the Emplyee a Salary f 1 cent and manually verride the PAYG Tax amunt t 1 cent. The net pay is zer. 3. Create a Liability Adjustment t eliminate the impact f this transactin n yur accunts: a. Emplyee > Payrll Taxes and Liabilities > Adjust Payrll Liabilities; b. Fr Adjustment is fr, click n Emplyee and select the Emplyee; c. Fr Item Name, select PAYG Tax, fr and enter a mem like: Reverse dummy pay; d. Click n Accunts Affected and select Affect liability and expense accunts and select the relevant Payrll Expense accunt and click OK; e. Check Prfit & Lss Reprt and QuickReprts n Payrll Liability PAYG and Payrll Expense accunts t see that the effect f the 0.01 pay has been neutralised. Death Benefits, ther than thse related t payments t Nn-Dependants, cannt be prcessed by the Accunts Business ETP prcess. 15