I need to pay general damages (due to emotional distress) to an employee. As per my understanding after a thorough google search, this is not taxable and does not need to be reported through STP. Is it still recommended to pay this through payroll or can this amount be paid outside payroll? My current payroll system does not have the option to select general damages as a pay element.
HHi @AZ_,
Generally, STP is used to report employee pay, such as:
Because general damages are not normal pay and are not paid for work the employee has done, they sit outside payroll and STP reporting.
This includes payments made as:
This means you can pay the amount outside your payroll system.
If the payment is made under a settlement agreement, court order, or structured settlement, and it is clearly for personal injury or emotional distress (and not for lost wages), these payments are non‑assessable income for the employee.
As long as the payment is clearly recorded as general damages, there’s no need to create a payroll pay item for it.
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