Terminations. Presented by Ross Gibson C.P.S. The Association for Payroll Specialists

Transcription

1 Terminations Presented by Ross Gibson C.P.S. The Association for Payroll Specialists

2 TAPS Helpline How to Tax Annual Leave & LSL ITEM DATES RESIGNATION, RETIREMENT, DISMISSAL REDUNDANCY, APPROVED EARLY RETIREMENT, INVALIDITY Annual Leave Post 8/93 Marginal rates 32% Pre 15/8/78 5% at marginal rates Long Service Leave 16/8/78 to 17/8/93 32% 32% Post 8/93 Marginal rates 32% 2

3 I ve had enough. I resign! 3

4 Scenario MARGINAL RATES CALCULATION Average Pay $2,200 Claiming tax-free threshold $10,200 Unused annual leave Weekly paid employee Average Pay: $ 2,200 Gross amount to be taxed: $ 10,200 Plus 5% Lump Sum B: + $ 0 Taxable Termination Pay : = $ 10,200 Average Termination Pay (Divide Term Pay/52): $ 196 Average Pay + Average Termination Pay: $ 2,396 Tax: $ 698 Average Pay: $ 2,200 Tax: $ 621 Difference in Tax: $ 77 TOTAL TAX PAYABLE (Multiply the difference x 52): $ 4,004 (39.2%) 4

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6 ETP Non-Excluded ETP (Type O) Excluded ETP (Type R) 6

7 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 7

8 An ETP may include: Payments in lieu of notice Compensation for wrongful dismissal Gratuity or golden handshake The excess amount of the lump sum D tax free amount Unused personal carers leave Unused RDOs Payments made on death of an employee 8

9 Non-Excluded ETP Everything else!! (Type O) Excluded ETP (Type R) Excess over Lump Sum D Settlement payments* Unfair dismissal Discrimination Harassment Personal injury Invalidity *Not for Pain & Suffering 9

10 WHOLE OF INCOME CAP 10

11 Pre 1/7/83 Post 1/7/83 Employee is at or over the preservation age Employee is under the preservation age WHOLE OF INCOME CAP EMPLOYMENT TERMINATION PAYMENTS Tax Free 17% up to the threshold and 47% thereafter 32% up to the threshold and 47% thereafter PRESERVATION AGE Before 1 July July June July June July June July June From 1 July

12 WHOLE OF INCOME CAP Scenario: Lex is a 62yo wealthy, power-mad business magnate that has been dismissed for poor performance after 5 years of service. As part of his termination pay he will be receiving: $50,000 Ex-gratia payment $25,000 Payment in lieu of notice Remember! The 1 st Step: Is there any Pre 1/7/83 service? 12

13 ADDITIONAL INFORMATION ETP $75,000 Date of Birth: 1 st April 1956 Employee s age at the End of the Financial Year: 62 Employee s Preservation Age: 55 Is the employee Over or Under their Preservation Age? Over Year to Date Income: $130,000 Unused leave paid on termination $20,000 DATE OF BIRTH PRESERVATION AGE Before 1 July July June July June July June July June After 1 July

14 WHOLE OF INCOME CAP: $ 180,000 Less Year To Date Income: $130,000 Less Taxable Value of any AL, LL & LSL: $ 20,000 Individual Threshold Amount: $ 30,000 $75,000 ETP payment 47% 17% $30,000 threshold 14

15 $75,000 ETP payment 47% 17% $30,000 threshold ETP $75,000 ETP PAYMENT $75,000 Tax the 1 st 17%: $ 5,100 Tax : Excess 47%: $ 21,150 Total Tax on ETP: $26,250 15

16 Hey Robin, One of us has been made redundant and it s not me Is it me? 16

17 REDUNDANCY PAYMENTS GENUINE REDUNDANCY AND EARLY RETIREMENT SCHEME PAYMENTS: (not applicable for Invalidity Payments) Up to a limit of $10,155 + $5,078 per completed year of service COMPLETED YRS BASE RATE + SERVICE RATE TAX-FREE PORTION 1 $10,155 (1 x $5,078) $15,233 2 $10,155 (2 x $5,078) $20,311 3 $10,155 (3 x $,5,078) $25,389 4 $10,155 (4 x $5,078) $30,467 17

18 A payment can only go into Lump Sum D if they are only receiving the payment because they are being made redundant. RESIGNATION REDUNDANCY Include in Lump Sum D? Sales Manager PILON PILON No Receptionist Work notice period PILON Yes 18

19 INDEXED FIGURE The ETP cap for is $200,000. Your ETP is taxed at a lower rate up to $200,000. ETP amounts above the caps are taxed at the top marginal tax rate. 19

20 PAY ITEMS $ Severance Pay (12 weeks): 46,905 Payment in Lieu of Notice (4 weeks): 16,030 Ex-gratia payment: 20,000 Total payments due to redundancy: 82,935 Lump Sum D: [(5,078 x 10) + $10,155] 60,935 Excess (Excluded ETP Type R): 22,000 $200,000 Indexed threshold 32% $22,000 ETP payment 20

21 $200,000 Indexed threshold 32% $22,000 ETP payment PAY ITEMS $ Date of birth: 5 th July 1985 Employee s age at the end of the financial year: 32 Employee Preservation Age: 60 Employee is Over or Under the Preservation Age: Under Excess (Excluded ETP Type R): 22,000 Tax the ETP 32% 7,040 21

22 SPLITTING ETP S OVER FINANCIAL YEARS Scenario: Thor Odinson is a 34yo storm-weather god of sky and thunder whose position has been made redundant. As part of his termination pay he will be receiving a $300,000 ex-gratia payment. Due to cash-flow issues, Thor agreed with the company to be paid by 2 instalments of $150,000. Payment #1: 20 th June 2017 Payment #2: 20 th July

23 PAYMENT #1 - June 2017 $150,000 $150,000 Lump Sum D : (10 x $4,969) + $9,936: $ 59,626 Excess (Excluded ETP Type R): $ 90,374 Total Tax on 32%: $ 28,920 PAYMENT #2 - July 2017 $150,000 $150,000 Lump Sum D: Current Financial Year: (10 x $5,078) + $10,155: Less Previous Financial Year ATO limit: $ 60,935 $ 59,626 $ 1,309 Excess (Excluded ETP Type R): $148,691 ETP 32% on 1 st $200,000 ($200,000 - $90,374 = $109,626): $ 35,080 ETP 47% on $39,065: $ 18,361 Total Tax on ETP: $ 53,441 23

24 SUMMARY PAYMENT #1 PAYMENT #2 TOTAL Gross: $150,000 $150,000 $300,000 Tax: $ 28,920 $ 53,441 $ 82,361 Net: $121,080 $ 96,559 $217,639 DESCRIPTION TOTAL $ Gross: $300,000 Lump Sum D: $ 60,935 Taxable Component: $239,065 Tax: $ 82,361 24

25 SETTLEMENT PAYMENTS Scenario: Peter Parker resigned from the Daly Bugle two months ago. After resigning, he went to Fair Work with claims that he was unfairly treated by Editor-in Chief, Jameson. The court investigated the claims and has awarded Peter a settlement payment of $210,

26 ADDITIONAL INFORMATION Date of Birth: 25 th May 1990 Employee s age at the End of the Financial Year: 28 Employee s Preservation Age: 60 Is the employee Over or Under their Preservation Age? Under $210,000 ETP payment 47% 32% $200,000 Indexed threshold 26

27 INDEXED FIGURE: $200,000 ETP PAYMENT $210,000 Tax the 1 st 32%: $ 64,000 Tax : Excess 47%: $ 4,700 Summary: ETP Type (R) ETP Payment: $210,000 Total Tax on ETP: $68,700 27

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29 TAPS Helpline Bonus paid on termination Question: We have employee whose position was made redundant and needs to be paid a Short Term Incentive Bonus, which they earned in 2016/17. This bonus is related to completing a project during employment. Is the bonus to be taxed as: Redundancy pay? Marginal rates? or An ETP? 29

30 TAPS Helpline Bonus paid on termination Answer: The bonus will be taxed at marginal rates. This is because the bonus is due to the project completing. It does not form part of an ETP. The bonus has its very own tax table: Schedule 5 Tax table for back payments, commissions, bonuses and similar payments NAT

31 TAPS Helpline Bonus paid on termination MARGINAL RATES Bonus for work-related performance Short Term Incentive Bonus Sign-on Bonus Referral Bonus BONUS PAID LUMP SUM D Retention Bonus Non-qualifying Bonuses but given as an Ex-gratia payment 31

32 TAPS Helpline Genuine Redundancy Question: We have a full-time Food & Beverage Manager position which has been made redundant due to cost-cutting measures. The employee was successful in obtaining a position as a casual house-keeper with the same company. Is this a genuine redundancy since they secured an alternative role? 32

33 TAPS Helpline Genuine redundancy Answer: Redundancy: the state of being no longer employed because there is no more work available. TWO Criteria the job you are doing no longer exists; and your employment is to be terminated 33

34 The Full-time Food & Beverage Manager has 2 choices Accept redundancy - Severance pay - Lump Sum D Accept the offer of Casual House-keeper - No termination - Service date continues - Entitlements paid - Bonus at marginal rates

35 ATO Genuine Redundancy (TR2009/2) Conditions for a genuine redundancy payment (section 33) The basic requirement for a genuine redundancy include: there is no arrangement entered into between the employer and the employee (or the employer and another entity) to employ the dismissed employee after the termination the dismissed employee is not older than specified age limits

36 TAPS Helpline Company property not returned Question: Can the employer withhold the employee s final pay (in part or full) whilst awaiting the return of company property? The employment contract states: Upon termination of the employment relationship, you are required to return all property in you possession or control belonging to the employer. If all property is not returned upon conclusion of your employment, final wages may be withheld until such time all property is returned. 36

37 TAPS Helpline Company property not returned Answer: The contract does not: quantify the value of the property provide a reasonable period to returned The FWO requires an employee to be paid their final pay on their last day or in the next pay period Some modern awards permit an employer to withhold the value of unworked notice. Other than that, payment must be made in full. 37

38 TAPS Helpline Salary Sacrifice Termination Pay Is an employee allowed to sacrifice all of their termination pay into their superannuation fund? 38

39 Salary Sacrifice Arrangements - ATO TR2001/10 Item ETP Rule No. Employees have not been able to roll-over ETPs since Lump Sum D Unused Leave Why would you want to? Tax on Lump Sum D = nil Tax on employer super = 15% Employees must comply with TR2001/10 39

40 Salary Sacrifice Arrangements - ATO TR2001/10 Effective SSA an effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages. 40

41 Sacrificing Leave on Termination An employee who had the foresight to put a salary sacrifice arrangement for unused leave on termination in place years ago would be able to sacrifice that portion of their termination pay. Not many employees think to do this, even if they are aware of the regulations. Starting 19 October 2016, I would like to sacrifice 100% of all future annual leave accruals that will be paid out to me on termination of employment. 41

42 TAPS Helpline Failure to give notice Question: What happens if the employee does not give sufficient notice or if they just do not want to work out their notice? Answer: An employee may request that the notice period be waived. This can be mutually agreed between the employee and employer and the employee would go off on their happy way. 42

43 TAPS Helpline Failure to give notice Answer: Some Awards, Enterprise Agreement or contracts may allow the employer to deduct monies from the employee s final pay, equivalent to the notice not given. Example: Banking, Finance and Insurance Award 2010: 11.2 Notice of termination by an employee If an employee fails to give the required notice the employer may withhold from any monies due to the employee on termination under this award or the NES 43

44 TAPS Helpline Failure to give notice Answer: Net Termination pay: $ *Less Gross Notice: $ Final termination Pay: $ *This follows the same rules as an overpayment This is a debt owing to the business. The ATO is missing out on the PAYG 44

45 TAPS Helpline Termination and Public Holidays Question: We have an employee who resigned on 28 th March 2017 and gave 4 weeks notice taking her last day to 25 th April 2017 (Anzac Day). Should the employee get paid for the public holiday or only pay the employee up to 24 th April 2017? 45

46 TAPS Helpline Termination and Public Holidays Answer: The employee is entitled to the public holiday as per the Fair Work Act s116. The public holiday forms part of the notice period and is included in the payment (even though they will only be physically working until 24 th April

47 TAPS Helpline Purchased Leave on Termination Question: We have an employee that has purchased additional annual leave throughout the year. At what rate do we tax the unused purchased annual leave on termination? 47

48 TAPS Helpline Purchased Leave on Termination Answer: Any unused balance of purchased annual leave on termination is treated the same as annual leave: Resignation: marginal rates (as a lump sum) Redundancy: Points to consider: Does the employee need to use the purchased leave first and then the other annual leave? What happens if the employee receives a salary increase during the year? 48

49 TAPS Helpline Purchased Leave on Termination Trainer s Leave Scenario: Trainer s receive 1 week additional leave due to their travel commitments. Conditions: The leave needs to be taken within 12mths or is lost. 49

50 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 50

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