Payments for unused long service leave on termination of employment are subject to PAYG withholding.
An employee does not normally become entitled to long service leave until the end of an initial period of service. Additional long service leave can then accrue over the term of employment. The period of time over which long service leave has accrued is known as the 'eligible service period'.
The amount to be withheld from a payment of unused long service leave depends on a number of factors. These include:
- the date that the eligible service period started
- whether any long service leave has already been taken
- whether the employee accrued the leave during full-time or part-time service.
The key factor in working out withholding for payment of unused long service leave is the reason why the employee is leaving – whether it is because of genuine redundancy, invalidity or through an early retirement scheme, or for another reason.
To calculate the correct amount to be withheld from a payment of unused long service leave, you follow a three-step process of working out when leave was accrued, what payment relates to each period and, finally, how much to withhold.
How you complete your employee's payment summary depends on whether they are leaving because of genuine redundancy, invalidity or through an early retirement scheme, or for another reason.
We provide examples covering genuine redundancy and retirement in scenarios with differing amounts of long service leave used and different periods of service.