Withholding from unused leave payments on termination of employment

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments.

Payments when no tax file number (TFN) is quoted

Special rules for withholding apply to payments made to an employee who has not given you a valid TFN, where you withhold tax at a higher rate.

Payments made after death

You do not withhold tax from unused leave payments made after the death of an employee and you do not show these payments on their payment summary.

Unused annual leave

You need to withhold tax from payments of unused annual leave on termination of employment. To calculate the correct amount to be withheld from a payment of unused annual leave, you need to know what the payment is for, why it was accrued or paid and, in some cases when it was accrued.

Unused long service leave

You need to withhold tax from payments of unused long service leave on termination of employment. The amount to be withheld from a payment of unused long service leave depends on a number of factors, including key dates, and whether the employee accrued the leave during full-time or part-time service.

Definitions

This section explains commonly used terms.