Employment Termination Payment (ETP)

Employment Termination Payment (ETP).

Employment Termination Payment (ETP)

An Employment Termination Payment (ETP) is a payment received by an employee because their employment was terminated. Not every terminated employee receives an ETP - it depends on what the termination pay is made up of and whether any of those payment types fall into the ETP classification. A list of what is destined as an ETP can be accessed  here . ETP's are broken down into 'codes' and treated differently for tax purposes. A list of each ETP codes can be accessed   here .

Step 1. Setup an ETP Pay Type:

  • Click on  Payroll  toolbar option
  • Click on the  Setup Lists  tab
  • Click on the  Employment Termination Payments  tab
  • Click on the  Add  button
 

Step 2. In the  Add A New Employment Termination Payment  window:

  • Enter a  Name  in the text box.  e.g. ETP/Redundancy
  • In the  Optional Cashbook Account  box select either:
    • Include with wages
    • Allocate to  (another account code)
  • Select an  ETP Category  from the drop-down menu.  e.g.  R   ( payments due to an early retirement scheme, a genuine redundancy, invalidity or compensation (personal injury, unfair dismissal, harassment or discrimination)  
    NOTE: You will need to ask your accountant which category is most applicable to your situation
  • Click  OK  to save
 
  • Click on the  Close  button to exit.

 

Step 3. Add the ETP pay type to the employee's final pay:

  • Click on  Payroll  toolbar icon
  • Click on the  Employee  tab
  • Click on the employee (e.g. Cynthia Grazing) to highlight
  • Click on  Select Employee . (or simply double click on the employee)
  • Click on the  Add Pay  button
  • Tick the  Has Employment Termination Payments?  box
  • This will bring up a new tab called  Employment Termination Payments  
 
  • Add your employees pay as per normal
  • If there is any Annual Leave to be paid, include as a separate dissection
 
  • Click on the  Employment Termination Payment  tab
  • Select the  Employment Termination Payment  pay type you have just created from the dropdown list.  e.g. ETP/Redundancy
  • This should auto-fill the  Code .  e.g.  R
  • Fill in the amounts for  Tax-fee Component ,  Taxable Component  and  Total Tax Withheld . as per your accountants' advice
  • Click on the  Summary  tab
 
  • IF  the  Tax  or  Employer Super Amount  needs to be adjusted, tick on the  Manual Tax/Super  box and manually adjust in the respective text boxes
E.g.  According to the ATO, lump sum  termination payments for  unused  annual leave , unused long service  leave  and unused sick  leave  are not part of an employee's Ordinary Time Earnings (OTE) . Therefore, none of these  termination payments  would attract  super  contributions
 
  • Or simply click the  OK  button to save
  • Click  Yes  to the Information message: 'Do you want to add this pay into your cashbook?'
An example of the pay slip:
 
  • Finally, complete the pay and STP submission to the ATO


Article ID 1542