Paying out entitlements upon death of an employee in Payroll Premier

Legacy KB ID: 4561

Question

An employee has recently died.  He has entitlements which are tax-free and are not to be included on the Payment Summary.  How can I process this transaction in Payroll Premier?

Answer

Refer to the ATO website for tax treatment of payments to deceased employees:  https://www.ato.gov.au/taxprofessionals/content.aspx?menuid=0&doc=/content/23310.htm&page=4&H4

 

Certain outstanding payments incurred before death of the employee but not yet paid will not be taxed and need not be included on the Payment Summary.  These include:

·         payments for work or services (including retrospective pay and bonus or commission payments) accrued before the death of the worker, but which have not been paid prior to the date of death

·         payments for unused annual and long service leave.

 

Users should refer to their Accountants for guidance in regard to:

·         Super;

·         Payroll Tax;

·         WorkCover;

·         and any other legislation or award conditions that may apply. 

 

Workaround

This workaround is to include the items mentioned above on a pay, charge no tax and exclude the item from the payment Summary.

 

1.    Create one or more 'Allowance' payroll items to pay outstanding amounts at death.  On the General tab:

a.    Lists > Allownaces > New

b.    Name: Payments on Death

c.    Tax Exempt: Yes

d.    Calculate Super...:  As directed by Accountant

e.    Payroll Tax....:  as directed by Accountant

f.     WorkCover....:  as directed by Accountant

g.    Last box:  select Do Not display in Payment Summary

h.    Under the Amounts tab, select Fixed Amount and leave at 0.00

No changes needed on threshold and Amount tabs.

 

2.    Check leave records and manually calculate the value of unused annual leave and long service leave from the Hrs Accrued field of the Leave tab.  Reduce Hrs Accrued to nil by typing in 0.00.

 

3.    Prepare the final pay:

a.    Delete normal pay items from the pay screen;

b.    Add the Death item into the Allowance tab:

                                          i.    Enter 1.00 in the % or Units column;

                                         ii.    Select Items in the Based On column

                                        iii.    Enter your calculated amount in the Amount column

                                       iv.    Process the Pays, being careful to set the Pay Dates correctly.

 

4.    Terminate the employee.

 

How did we do?

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