Guide for employers

Employment termination payments (ETP)

An employment termination payment (ETP) is a lump sum payment you make to an employee when they stop working for you. ETPs are taxed at different rates depending on your employee's age and length of employment.

An ETP must generally be made within 12 months of your employee's termination in order to qualify for lower rates of tax. There is a limit on the amount of an ETP that qualifies for a lower rate of tax. This limit is called a cap. For ETPs made after 1 July 2012, two different ETP caps can apply:

• The whole of income cap is a non-indexed cap that applies to some ETP and works in conjunction with the ETP cap.
• The ETP cap that applies to all ETP and has a threshold that is indexed each year.

For more information about the caps, refer to Taxation of termination payments - ETP caps.

An ETP may include:

• payment in lieu of notice
• a gratuity or 'golden handshake'
• compensation for the loss of a job
• compensation for wrongful dismissal, provided it is paid within 12 months of the actual termination of employment
• payments arising from your employee's termination because of ill health (invalidity), other than compensation for personal injury
• payments you made for genuine redundancy or under an early retirement scheme that exceed the tax-free part
• unused rostered days off
• unused sick leave
• certain payments after the death of an employee.

An ETP does not include:

• payments for unused annual leave or leave loading
• payments for unused long service leave
• salary, wages, allowances, bonuses and incentives you owe the employee for work done or leave already taken
• compensation for personal injury
• payment for restraint of trade
• foreign termination payments
• employee share scheme payments
• an advance or loan
• payments you made for genuine redundancy or under an early retirement scheme that are within the tax-free limit.

What you need to do

If you pay your employee an ETP, you must:

• Calculate the amount to be withheld from the ETP
• provide a completed PAYG payment summary - employment termination payment (NAT 70868) to the employee within 14 days of the ETP being paid to the employee
• include the ETP payment summary information in your PAYG payment summary statement, and
• keep the necessary ETP records.

	For more information on ETP, refer to: Taxation of termination payments Tax table for employment termination payments schedule 32 (NAT 70980).
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Sections within Worker's last day

• Pay as you go (PAYG) withholding
• Employment termination payments (ETP)