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jjun6636(Newbie)Newbie
12 Jan 2023

Hi,


Could you kindly advise me whether the unused annual leave payment on termination have to be made at once with final wage or not.


I have been asked to advise whether unused annual leave payment on termination can be splitted into several payroll periods or not.

Last day of the employment will be 31/01/2023 but in order to minimise the tax, the employee asks us to split the unused annual leave into 3 additional payroll periods after the final payslip.


For example,

Employee Fortnight wage: $2,500

Total unused annual leave: $ 7500

Final Wage: 2,500 (without unused annual leave) - payroll period 31/01/2023

Additional 1: 2,500

Additional 2: 2,500

Additional 3: 2,500


Thank you!


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4,709 views
1 replies

Most helpful response

Most helpful reply

PayrollDeanne(Taxicorn)Taxicorn
12 Jan 2023

Hiya @jjun6636

I assume you're the employer? Then there are a range of obligations you must meet:

  • Fair Work - the Award that covers your employee dictates WHEN you must pay out the leave and other entitlements upon termination. It may be on their last day of service, or within 3 days, or 7 days. Each award has specific timeframes, so you need to check it out.
  • ATO - the tax table for paying unused leave on termination defines the rates of tax to apply the the various leave types for different reasons for the termination. Those tax rates are based upon, per type of termination, when the leave balance was accrued in relation to the legislative changes (pre-78, pre-93, post-93). If the leave that you would pay out for your employee is marginally taxed, then spreading out the payment to try to deliberately reduce the tax not only contravenes the Fair Work requirements above, but will have little/no impact, as that's not how marginal tax works.

I hope that helps - Deanne

All replies

Most helpful reply

PayrollDeanne(Taxicorn)Taxicorn
12 Jan 2023

Hiya @jjun6636

I assume you're the employer? Then there are a range of obligations you must meet:

  • Fair Work - the Award that covers your employee dictates WHEN you must pay out the leave and other entitlements upon termination. It may be on their last day of service, or within 3 days, or 7 days. Each award has specific timeframes, so you need to check it out.
  • ATO - the tax table for paying unused leave on termination defines the rates of tax to apply the the various leave types for different reasons for the termination. Those tax rates are based upon, per type of termination, when the leave balance was accrued in relation to the legislative changes (pre-78, pre-93, post-93). If the leave that you would pay out for your employee is marginally taxed, then spreading out the payment to try to deliberately reduce the tax not only contravenes the Fair Work requirements above, but will have little/no impact, as that's not how marginal tax works.

I hope that helps - Deanne

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Does Unused annual leave on termination have to be payout at once? | ATO Community