• Leaving employment for other reasons

    There are payments of unused annual leave made on termination of employment that occur for other reasons such as:

    • voluntary resignation
    • termination due to inefficiency
    • retirement.

    You need to:

    Calculate the pre-18 August 1993 payment component

    Any part of a payment for unused annual leave that accrued before 18 August 1993 has different withholding requirements to payments of unused annual leave accrued on or after this date. You need to calculate the portion (if any) of the payment relating to service before 18 August 1993 using the following formula:

    Unused Annual Leave Payment   

    x

    Number of days that accrued before 18 August 1993

    Number of days in total period of service

    The number of days in the total period of service is the number of whole days over which the unused annual leave accrued; assuming that this leave accrued in accordance with the employee's ordinary conditions of employment.

    Example 2: Resignation with annual leave accrued before and after 18 August 1993

    Helen resigns from her job on 17 September 2014 after 22 years of service and receives a payment of $85,000 for 56 weeks of unused annual leave. Under the conditions of her employment, Helen is entitled to four weeks of annual leave for each year of service.

    The total number of days in the accrual period of Helen's unused annual leave is 8,035 days (the period from 18 September 1992 to 17 September 2014).

    The number of days in the accrual period that occurred before 18 August 1993 is 334 (from 18 September 1992 to 17 August 1993). Therefore, the component of Helen's payment which accrued before 18 August 1993 is:

    $85,000 x (334/8,035) = $3,533 (disregarding cents).

    The component of payment for service on or after 18 August 1993 is:

    $85,000 - $3,533 = $81,467.

    The amount to be withheld would then be calculated according to the tables.

    Example 3: Resignation with annual leave accrued after 18 August 1993

    Debbie resigns from her job on 31 October 2014 after 34 years of service and receives a payment of $2,000 for four weeks of unused annual leave. Under the conditions of her employment Debbie is entitled to four weeks annual leave for each year of service. As Debbie has already used most of her annual leave throughout her employment the remaining balance of four weeks annual leave means that the accrual period of Debbie's annual leave is 1 November 2013 to 31 October 2014.

    As the whole period is after 18 August 1993, all of Debbie's payment of $2,000 is for service on or after 18 August 1993.

    End of example

    Calculate the amount to be withheld

    'Leaving employment for other reasons' means that an individual's employment is not being terminated because:

    • of genuine redundancy
    • of invalidity
    • they have accepted an offer under an early retirement scheme.

    Use tables 2 and 3 to work out how much tax to withhold for employees who are leaving for other reasons.

    Table 2: Withholding rate for amount accrued before 18 August 1993

    Payment type

    Withholding rate

    Annual leave

    32% of the total amount, disregarding any cents.

    Leave loading

    32% of the total amount, disregarding any cents.

    Table 3: Withholding rate for amount accrued on or after 18 August 1993

    Payment type

    Marginal rates calculations

    Annual leave

    Step A

    Add any leave loading to the annual leave amount.

    Step B

    If the total of unused annual leave in respect of service on or after 18 August 1993 is less than $300, withhold 32% of the total amount, disregarding any cents.

    If the total of unused annual leave is $300 or more:

    1. using the relevant PAYG withholding tax tables, work out the amount to withhold from the employee's normal gross earnings for a regular pay period (for example, weekly, fortnightly or monthly)
    2. divide the post-17 August 1993 leave amount by the number of normal pay periods in 12 months (for example, 12 monthly payments, 26 fortnightly payments or 52 weekly payments)
    3. disregard any cents for the amount calculated at step 2.
    4. add the amount at step 3. to the normal gross earnings for a single pay period
    5. use the PAYG withholding tax tables used at step 1. to work out the amount to withhold from the amount calculated at step 4.
    6. subtract the amount calculated at step 1. from the amount calculated at step 5. and
    7. multiply the result from step 6. by the number of normal pay periods in 12 months to obtain the amount to withhold from the unused annual leave amount.

     

    Leave loading

    Add any leave loading to the annual leave amount for calculation of the amount to be withheld.

     

    Example 4: Resignation

    Mark, who resigned on 24 July 2014, is to be paid a lump sum of $4,000 for four weeks of unused annual leave.

    Under the conditions of his employment, Mark is entitled to four weeks annual leave per year of service. Mark's normal gross earnings are $1,000 per week.

    Mark is not leaving because of genuine redundancy, invalidity, or under an early retirement scheme.

    No unused annual leave accrued before 18 August 1993.

    The total amount that accrued on or after 18 August 1993 is $4,000. Withholding is calculated using marginal rates as outlined in the following steps:

    Step

    Instruction

    Result

    1

    Using the Weekly tax table work out amount to be withheld from normal gross earnings for a single pay period ($1,000.00 per week).

    $183

    2

    Divide $4,000.00 by the 52 normal pay periods in one year ($4,000.00/52).

    $76.92

    3

    Disregard cents in the result.

    $76

    4

    Add amount at step 3 to normal gross earnings for a single pay period ($1,000.00 + $76.00).

    $1,076

    5

    Using the Weekly tax table calculate the amount to be withheld from the result at step 4.

    $209

    6

    Subtract the amount withheld from normal gross earnings from the amount at step 5 ($209.00 - $183.00).

    $26

    7

    Multiply the amount at step 6 by the number of normal pay periods in one year ($26.00 x 52).

    $1,352

    The amount to be withheld from Mark's payment of $4,000 of unused annual leave is $1,352.

    End of example

    Complete the payment summary

    When you are making a payment of unused annual leave and leave loading on termination of employment, the amount that accrued before 18 August 1993 is shown on the employee's payment summary at 'Lump Sum A’.

    Any amounts of unused annual leave and leave loading that accrued on or after 18 August 1993 are included at 'Gross payments' along with any other amounts.

    All the amounts that are being withheld are included with other withheld amounts at 'Total tax withheld'.

      Last modified: 23 Sep 2014QC 19081