Compensation Payment After Termination

Peta Britton
Peta Britton Member Posts: 6

I have an employee that was terminated at the start of the calendar year, all leave entitlements etc were paid out and the employee was terminated through STP.

A dispute was lodged with FWC regarding notice issued and after 10 months an agreement has been reached with a lump sum equivalent to so much notice is to be paid to terminated employee. How do I process this? At the time of employment Tax Free Threshold was claimed etc where I know they are working another job now. Do I reactivate the old employee info or ???

Completely at a loss on how to process this. note: I have a call in to the ATO and contacted Fair work who are no help

Comments

  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited December 2021

    @Peta Britton You will need to remove the current Termination Date in RAH in order to make this payment to the employee via Payroll & it will be an ETP ("Employment Termination Payment"), Code R.

    Create a new Payroll Item specifically for this - You will need to manually edit the PAYG amount calculated.

    The payment amount & the employee's age will determine how it is taxed - Up to the ETP threshold amount there are 2 different rates applicable; 32% if the employee is under preservation age or 17% if over. Any remaining payment amount over the ETP threshold is taxed at a flat 47%.

    I would recommend engaging a professional to ensure you get this correct.

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert

    @Zappy - Their job is advising on Fair Work matters. They will not know how to set it up & process it in Reckon Accounts payroll! 🤦

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Bruce
    Bruce Member Posts: 403 ✭✭✭

    This has already seen a lot of disputation, so probably fair to say that it has the potential to create heaps of trouble for Bookkeepers/BAS Agents if they get things wrong

    I would be:

    • getting a copy of the FWA ruling
    • providing the ruling to a specialist to get advice on how the payment should be taxed
    • only then would I be thinking about how the payment should be processed in Reckon
  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert

    @Bruce I'm interested as to what "Specialist" you feel the ' ... ruling should be provided to for advice on how it should be taxed ...' then, if not a BAS Agent ???

    A Lawyer wouldn't know, most accountants/tax agents have no idea about the complexities of payroll & the ATO also isn't across it (you'll get a different answer depending who you speak to as it's a specialised area)

    Experienced (AND suitably-qualified) BAS Agents are the specialists as we have the necessary industry information, knowledge, training & resources (well, I do) but as with any industry, there are vastly varying levels of knowledge/experience so obviously it's crucial to find someone suitably across this area who can understand the ruling content.

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Bruce
    Bruce Member Posts: 403 ✭✭✭
    edited December 2021

    @Acctd4 , Shaz, I agree with your comments and yes BAS Agents should have the required degree of knowledge to determine the taxation treatment of any payment. I suggested specialist advice because:

    • I also recognise that BAS Agents have varying degrees of skill and experience and some may not feel confident enough to make the call on their own. Others clearly have the requisite skills and experience.
    • not all people on this forum are BAS agents, a number will be employee bookkeepers.
    • I have over 20 years experience and consider myself capable of advising on the taxation of termination payments. However I have only had one case involving a Fairwork decision. Unfortunately, the ruling was quite vague (other than the dollar amount) and I couldn't clearly identify "the components" within the total amount. My client sought specialist advice from a workplace lawyer on how to interpret the ruling (based on precedent). (This was a particularly unpleasant case where the parties involved were "at each other's throats" and the client didn't want any blow back.)

    So I guess my attitude sits between the views expressed by you and @Zappy but as this is a broad based forum I tend to be a little conservative in offering opinions when I do not have all the facts available to me.

  • Bruce
    Bruce Member Posts: 403 ✭✭✭

    Zappy

    I didn't intend to offer the view that BAS Agents can advise on how the tax laws apply to business in general and I am sorry you gained this impression.

    Clearly BAS agents are limited to the provision of BAS services and this includes ascertaining liabilities, obligations or entitlements of an entity that arise, or could arise, under a BAS provision (and this includes PAYG withholding).

    It is my view that Peta's query falls within scope and hence a BAS Agent can advise. However, I would not proffer advice at this point in time because I do not have enough information to provide competent advice.

    Cheers

  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited December 2021

    I don’t know where you’re getting your information @Zappy but I’ve been a long-standing member with ICB for well over a decade & they provide extensive training & information/resources on all things within our scope, INCLUDING ETPs.

    The “tax laws” legislation you specifically referenced for applying to a business, relates to income tax - ETPs are a BAS service because they are related to payroll (as Bruce has tried to explain to you above)

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • cosmic
    cosmic Reckon Developer Partner Posts: 1,047 ✭✭✭

    Peta

    Do you have a engaged Tax AGENT/Accountant ?

    Ask him to refer to you to a Industrial lawyer , if your Accountant is a member of IPA. CPA,ICA , he will access to see the right IR lawyer.

    Your engaged TAX AGENT is covered by his PPC and PI insurance you should seek his advice .

    Cosmic Accounting Group

    Accountants and Tax Agents 22397009

  • Peta Britton
    Peta Britton Member Posts: 6

    Thanks for all of the comments,

    FWC have no advice on the matter - put simply they care about the total not the how, ATO have clarified the % to tax the payment but have said it is a software issue in how to process the payment. Given that the matter spans more than one financial year. They have mentioned that I should be able to add a second termination payment to the employee in question but once again they can give overall advice but they don't understand the actual process involved in achieving the end result.

    This is not a matter for a lawyer etc, everyone has agreed on the result and it is quite clear on gross payment, that it is taxable. It was more a question to see if anyone - especially a bookkeeper/BAS Agent had come across a similar situation and how they handled a payment after termination had been completed prior

  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited December 2021

    @cosmic The legal side of it has already been determined - Peta’s query is how to process it in Reckon.

    NB: BAS Agents are specifically covered for this - we have to have PI insurance also!

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited December 2021

    You might not @Zappy but I do … otherwise I wouldn’t be advising on it 🤦🏻‍♀️

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Acctd4
    Acctd4 Accredited Partner Posts: 2,152 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited December 2021

    @Zappy Did you even read all the detail I posted previously????

    I’ve just recently renewed it & went through it with my insurer to confirm the specifics so I think I’m done with the justification now 🙄😆

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015) * ICB-Certified Bookkeeper * Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    0422 886 003

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)