Author: KK2024(Newbie)Newbie 19 May 2024
The company I worked for has less than 15 employees, so it is classified as a small company. I worked there full-time for 5 years. I was laid off, as I was told the position was eliminated due to a sales decline.
In the termination letter, the company provided me with a payment of 5 weeks in lieu of notice (PILON), termination payment (severance payment and final payment) of 6 weeks, though it is exempted for a small company.
I have a few questions below:
1) If this layoff was due to position elimination (genuine redundancy), will the PILON of 5 weeks and termination payment be eligible for the tax-free limit?
2) If this layoff was due to position elimination (genuine redundancy), will the termination payment be eligible for the tax-free limit?
However, the company provided me with the payment slip by treating PILON and the termination payment as wages I earned after the date of termination, so it indicated that I'm still working and have to pay salary tax.
3) Should the company treat the payment of PILON and termination payment as a lump sum D under Termination category? Both PILON and Termination payment were payment due to the genuine redundancy and they are not salary earned after the termination.
Appreciate your prompt reply
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4 replies
Hiya @KK2024 👋
Sorry to hear that your job has been eliminated in these tough economic times.
Your termination reason is for genuine redundancy, as the purpose is defined in the Fair Work Act 2009 S119 as: "the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour".
As to the payment, as it is a genuine redundancy, the PILON and ex-gratia payment qualifies for consideration of the tax-free component of a genuine redundancy (Lump Sum D).
There are no circumstances where PILON and an ex-gratia payment may be classified as "salary and wages". If it wasn't a genuine redundancy, those payments would be ETPs, subject to a particular rate of withholding.
Perhaps your small employer is getting confused between the issue of legally mandated redundancy payment, as per the FWA 2009 S119, versus voluntarily choosing to pay the payment. PILON is mandated under S117 of the Act.
It is generous of your small employer to pay redundancy that they are not legally mandated to pay, but classifying the payment correctly is required to meet their tax, super and reporting obligations to the ATO. Note that PILON is OTE and Super is payable on that component only.
Have you looked at your ATO Income Statement to determine how your employer reported these payments to the ATO?
Deanne
Author: KK2024(Newbie)Newbie 20 May 2024
Hi Deanne,
Thank you very much for your reply; it's very helpful. I really appreciate it during this difficult period.
I looked at the ATO income statement. My ETP payment has been treated as salary and wages. Is this incorrectly classified?
My termination letter clearly stated that due to the elimination of the position, a lump sum payment offered to me includes 5 weeks of PILON and 6 weeks of additional payment.
I rejected the classification of my termination payment as salary and requested the accountant appointed by my ex-company to rectify it. The accountant of my ex-company argued, "Since the Company qualifies as a small business and does not need to pay redundancy, you didn't receive a redundancy payment, and therefore no payment is tax-free."
In that case, if the accountant insisted in his classification, what should I do? Should I lodge a complaint with the ATO? I really appreciate your reply.
