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Reckon Payroll: Pay unused leave on employee termination using Schedule 7 – Tax table for unused leave payments on termination of employment

When an employee is terminated you will use Schedule 7 – Tax table for unused leave payments on termination of employment to calculate the tax withholding for unused leave balances accrued before 17 August 1993. The amount withheld and how it needs to be reported will be impacted by the type of termination. For more information visit ATO articles Schedule 7 – Tax table for unused leave payments on termination of employment and Withholding from unused leave payments on termination of employment.

Leave accrued post 17 August 1993 for normal terminations (other than for genuine redundancy, invalidity or early retirement) will be taxed at the marginal rate and be reported as Gross.

If the employee is a Working Holiday Maker, any unused leave will be paid out using the Tax table for working holiday makers.

For step-by-step instructions on terminating an employee see Terminate an employee and complete final pay.

Lump sum A - R

Lump sum A - R is used for all unused annual leave or annual leave loading, and that component of long service leave that accrued from 16/08/1978, that is paid out on termination only for genuine redundancy, invalidity or early retirement scheme reasons. Relevant Cessation types are Redundancy (R) or Ill health (I).

To enter Lump sum A - R leave:

  1. Select an employee who was terminated for genuine redundancy, invalidity, or early retirement scheme
  2. Tap Edit
  3. Any Leave item configured as Pay on termination will have the balance pre-populated.
  4. Tap on the Leave item
  5. Set STP reporting category to Lump sum A - R
  6. Tap Done
  7. Toadd additional Leave items tap Add item in the Earnings and leave section
  8. Select the Leave item
  9. Tap Done
  10. Enter the Rate, Quantity (hours), and set STP reporting category to Lump sum A - R
  11. Tap Done
  12. To update the Tax withheld, tap Tax withheld
  13. Toggle on Enter custom tax withheld amount
  14. Enter the Custom tax withheld amount
    This will be the total tax withheld for all pay items
  15. Tap Done
  16. Process the pay.

Lump sum A - T

Lump sum A - T is used for unused annual leave or annual leave loading that accrued before 17/08/1993, and long service leave accrued between 16/08/1978 and 17/08/1993, that is paid out on termination for normal termination (other than for a genuine redundancy, invalidity or early retirement scheme reason). Relevant Cessation types are Voluntary Cessation (V), Dismissal (F), Contract Cessation (C) or Transfer (T).

To enter Lump sum A - R leave:

  1. Select an employee who was terminated for reasons other than genuine redundancy, invalidity, or early retirement scheme
  2. Tap Edit
  3. Any Leave item configured as Pay on termination will have the balance pre-populated.
  4. To add additional Leave items tap Add item in the Earnings and leave section
  5. Select the Leave item
  6. Tap Done
  7. Enter the Rate, Quantity (hours) that are to be paid as Unused leave on termination, and set STP reporting category to Unused leave on termination
  8. Tap Done
  9. Select any Earnings & leave items that have the hours pre-populated (in this example Annual leave)
  10. For annual leave update the hours so it is only for those accrued after 16/08/1978, for long service leave update the hours so it is only for those accrued after 17/08/1993 (for hours accrued before 16/08/1978 see section on Lump sum B), and set STP reporting category to Unused leave on termination
  11. Tap Done
  12. In Earnings & leave tap Add item
  13. Tap Earning item
  14. Select the Leave item
  15. Tap Done
  16. Enter the Rate, Quantity (hours) (for Annual leave enter the hours so it is only for those accrued before 16/08/1978; for long service leave enter the hours accrued between 16/08/1978 and 17/08/1993.
  17. Tap Done
  18. Repeat for any further leave that will be reported as Lump sum A - T
  19. To update the Tax withheld, tap Tax withheld
  20. Toggle on Enter custom tax withheld amount
  21. Enter the Custom tax withheld amount
    This will be the total tax withheld for all pay items
  22. Tap Done
  23. Process the pay.

Lump sum B

Lump sum B is used for Long service leave that accrued prior to 16/08/1978 that is paid out on termination, no matter the cessation reason. Only 5% of this reported amount is subject to withholding.

To enter Lump sum B leave:

  1. Select an employee who was terminated and has Long service leave accrued prior to 16/08/1978
  2. Tap Edit
  3. Any Leave item configured as Pay on termination will have the balance pre-populated.
  4. Select the Long service leave Earnings & leave pay item
  5. Update Rate if required and the Quantity (hours) to be only those subject to the marginal tax rate (in this example the employee is voluntary cessation, so the Quantity (hours) will be the Post 17 August 1978 component).
  6. Tap Done
  7. In Earnings & leave tap Add item
  8. Tap Earning item
  9. Select the Leave item
  10. Tap Done
  11. Enter the Rate, Quantity (hours) that will be reported as Lump sum B, and set STP reporting Category to Lump sum B.
  12. Tap Done
  13. Enter in any other unused leave leave balances that will be paid with the termination
  14. To update the Tax withheld, tap Tax withheld
  15. Toggle on Enter custom tax withheld amount
  16. Enter the Custom tax withheld amount
    This will be the total tax withheld for all pay items
  17. Tap Done
  18. Process the pay.

Need more help? Reach out to us on the Reckon Community: https://community.reckon.com/

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