A Termination Type is selected when terminating an employee. There are ten pre-defined Termination Types available to assign when terminating an employee; these are:
Resignation
Dismissal
Death Other
Death Spouse
Death Trustee
Non Genuine Redundancy
Retirement
Approved Early Retirement
Redundancy
invalidity
These Termination Types cover the range of termination scenarios recognised by the Australian Taxation Office (ATO). The first seven reasons describe what the ATO considers ‘normal’ reasons for termination. The final three, Approved Early Retirement, (genuine) Redundancy, and Invalidity, relate to terminations that fall outside normal reasons and may require specific tax treatment for some or all of the employee’s termination pay. Termination Types cannot be edited, but can be associated with Termination Reasons.
When terminating an employee, the selected Termination Type, along with other employee information such as hire date and length of service, determines how tax is calculated on different termination pay items. Changing the Termination Type can change the tax calculation applied to the termination pay. The selected Termination Type can also affect how these pay items are reported to the ATO.
For example:
When Termination Type is (genuine) Redundancy, Invalidity or Approved Early Retirement, unused annual leave accrued after 17 August 1993 is taxed at a flat rate (currently 32%) and is reported as Lump Sum A. For any other Termination Type, the unused leave accrued after that date is taxed at the employee’s marginal rate and is reported as unused leave paid on termination (Paid Leave Type U).
When Termination Type is (genuine) Redundancy or Approved Early Retirement, lump sums that would otherwise be treated as an Employment Termination Payments (ETPs) are tax free up to a specified limit. ETP amounts over this limit may be entitled to concessional tax treatment up to the ETP Cap amount, with anything above the cap taxed at the highest marginal rate. For any other Termination Type, no ETP tax free limit applies. The ETP receives concessional tax treatment up to the ETP Cap amount, with the remainder taxed at the highest marginal rate.
Associating Termination Types and Termination Reasons
One or more Termination Reasons can be associated with a Termination Type, to provide a list of Termination Reasons that you can select from when a Termination Type is chosen for the employee.
Go to the left hand menu and select Configuration, then Termination Type.
Select the Edit button or click anywhere in the list of Termination Types to enable editing.
Click on the Associated Termination Reason field next to a Termination Type to display a drop down list.
Select a Termination Reason from the list.
If required, repeat steps 3 and 4 to associate other reasons with the Termination Type.
Click Save.