How do you enter a payment decide by fairwork after a dismissal

Lyndag

We have had an employee got to fairwork for a dispute in a dismissal pay and they have given us a gross amount to pay less the tax. Do you enter this as a unscheduled payroll payment

Kris_Williams

Yes, correct. ……………

Lyndag

Thanks Kris and do you know which tax table I use?

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Kris_Williams

In the employee’s details you should have selected his tax situation - tax free threshold claimed or not. Or if they have given you the tax amount you can just enter it in

Acctd4

Hi @Lyndag

You need to set up a new Payroll Item for this as it needs to be reported as an Employment Termination Payment (ETP)

It will need to be mapped to "Post June 1983 Untaxed Element (R)" (or the " ... Low Rate Threshold" version if employee is above preservation age)

It will be a code R & you will need to enter the tax amount manually as - depending on the employee's age - it should be taxed at either 17% or 32% (assuming it doesn't put them over the ETP income cap threshold, in which case it would be taxed at 47%)

Kris_Williams

I’m sorry Lyndag I should have left it to Shaz to answer, she’s the guru

zaighamlilani

Thank you Shaz for the guidance. I was able to create a payroll item ("Post June 1983 Untaxed Element (R) Low Rate Threshold) for one of our employees who was above preservation age. Since it was a non-genuine redundancy, Unused ETP AL and ALL items were set up as well (Lump Sum A (T)).

When I did the STP, the gross amount was showing the correct amount (Unused AL, ALL and ETP); however, the ETP section is blank (not showing the redundancy amount of ~ $21K). The Gross Pay till date doesn't present/add this number either. Can you please assist why the Redundancy payment is not showing up in the summary section; however, is included in the Total Gross section on the top? Thank you.

Acctd4

Hi @zaighamlilani

You need to determine exactly what the payment is as this effects how it's mapped & how it's taxed ....

A non-genuine redundancy should be coded as (O) however, you've mentioned it not showing the "Redundancy amount" - If it's a genuine redundancy OR if it's compensation (for unfair dismissal), this should actually be coded as (R). It sounds like you've already coded it as (R) - which sounds correct, if it's a Fair Work direction - but many of these codes don't have their own summary column on the initial STP summary screen in GovConnect so that's why you're not seeing it there. If you drill down into it though, you should be able to see it (see below)

If you click on the Detail link for the STP file:

... you can drill down further on any specific employee line Detail link, to see how it is actually reporting, including the code.

This example is quite old (& is pre-STP2!) but you can see even in the first STP phase, this still gives you the full breakdown:

I believe tax-free amounts may not be displayed in the main "Gross ..." figure amount, as - for their tax return - these do not contribute to the calculation of the employee's overall tax liability.

NOTE: The unused leave components are only classed as Lump Sums if:

• The employee has been employed with the employer for several decades (pre-Aug 1993), or
• In the case of a genuine redundancy (which would then be coded as (R) not (T) )

... Otherwise, the unused leave & LL should be mapped to Unused Leave on Termination (U) & are just taxed at the employee's normal, marginal rate 😊

zaighamlilani

Morning Shaz and thank you for your prompt reply.

There is no Fairwork direction involved in this case. It was just a redundancy case for an employee who is above preservation age; therefore, a non-genuine redundancy I understand and forms part of and is taxed as an employee’s employment termination payment (ETP). 

For his end of settlement, I had following items:

1) Normal Salary (entered as ordinary hours worked)

2) Unused Annual Leave and Annual Leave Loading (entered under payroll item Lump Sum A (T)).

3) Unused Long Service Leave (entered under payroll item Lump Sum A (T)).

4) Redundancy pay of 14 weeks (entered under payroll item "Post June 1983 Untaxed Element (R) Low Rate Threshold) 

When I did the STP, the gross amount was showing the correct amount (Unused AL, ALL and ETP); however, the ETP section is blank (not showing the redundancy amount (Item 4 above) of ~ $21K). The Gross Pay till date doesn't present/add this number either. Can you please assist why the Redundancy payment is not showing up in the summary section; however, is included in the Total Gross section on the top?

This is what I see when I click the Details box:

Please advise.

Regards,

Zaigham

Acctd4

Hi Zaigham

From your screenshot, you’ve not got the ETP one mapped incorrectly as it should be showing in a separate section, with this heading.

Note: It should also be “T” not “R”.

Has the employee been with this employer for over 30 years ? If not, the unused leave should be mapped to Unused Leave on Termination (U)

zaighamlilani

Hi Shaz - thank you. When I was researching the ATO website and then Reckon community forums, I understood that Lump Sum A type code T is used for unused annual leave or annual leave loading and is paid out on termination for reasons other than genuine redundancy, invalidity or an early retirement scheme.

https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/single-touch-payroll/in-detail/single-touch-payroll-phase-2-employer-reporting-guidelines/when-an-employee-transfers-or-leaves#LumpSumA

Please advise if there are other payroll items that need to be corrected.

Regards,

Zaigham

Acctd4

Hi Zaigham

As per my previous advice, the Lump Sums are only used for either redundancy OR when an employee has extended service longevity (as also shown on the ATO page you’ve linked, here):

(Note: It states unused AL/LL accrued BEFORE 17/08/93 & LSL accrued BETWEEN 16/08/78 & 17/08/93 … for Lump Sum A.

Unless the employee has been employed since the above mentioned date, if you scroll up just prior, it shows that it should be categorised as Unused Leave on Termination (U)

☺️