TERMINATIONS
Can you please explain how to handle final payment in the event of the death of an employee?
On the death of an employee, any unpaid entitlements immediately become the assets of the deceased’s estate.
The following is suggested as a basic outline of the steps that should be taken.
- Shortly after the death, make written contact with the next of kin, advising them of the company’s desire to pay the unpaid entitlements and requesting details of the executor or administrator.
- Once the executor or administrator’s details are known, make written contact and again advise of the company’s desire to pay the unpaid entitlements. It is prudent to request evidence of the executor’s/administrator’s authority.
- Once authority is established, make the payment (as directed) and provide the executor/administrator with full details.When making the payment, it is important to note the following.
- Payment should not be made into a joint account.
- Payment into an account in the sole name of the deceased or in a trust account in the name of the estate of the deceased is generally acceptable.
- Whenever there is doubt, make the payment to “The Estate of the Late….”.
Payments for unused annual leave and unused long service leave made after the death of an employee are not taxed and do not appear on a payment summary/in STP reporting. Include the leave payment information on a letter to whoever you are paying for their information should they need to include this on a tax return for the estate of your former employee.
No tax instalments need to be deducted from the employee’s last pay, covering pay for the period up to the date of death, including back pay and bonus payments. These payments also do not get shown on a payment summary/in STP reporting. Include the wage payment information on a letter to whoever you are paying for their information should they need to include this on a tax return for the estate of your former employee.
Any outstanding wages payment are still superable (not the unused leave). However, if the former employee’s fund has already been advised about their passing, then the fund may not accept the super amounts you need to pay (so check with them before sending it). If the super fund won’t accept payment, you can make your super payment to the person handling your employee’s estate. Doing this will meet your SG obligation (according to Clause 9A Section 23 of the Superannuation Guarantee (Administration) Act 1992).
Any ETP (e.g. outstanding RDO's, sick leave etc) is taxed (or not taxed) according to who it goes to, and may or may not be required to appear on an ETP Payment Summary/in STP reporting.
The ATO has published the following pay guide for payments made to a deceased worker:
Step | Action |
1 | Prepare a payment summary for payments for work or services made to the worker in the current financial year, showing gross payments and amounts withheld before the date of death of the worker. |
2 | Prepare the worker's entitlement including:
DO NOT:
|
3 | You may wish to prepare a letter or statement for the estate, trustee or executor of the deceased worker explaining the details of the payment made. |
4 | You may wish to seek professional advice about the person to whom payments made after the death of the worker must be made. There may be legislation or award conditions that apply. |
https://www.ato.gov.au/business/payg-withholding/when-a-worker-leaves/#Deathofanemployee
We have an ex-gratia payment to make to a terminating employee – how is this taxed and do we need to pay super?
An ex-gratia payment is a non-excluded ETP and are not OTE and therefore not subject to superannuation. The tax, up to the Whole of Income cap, is either 17% or 32% (depending on the age of the employee), and any amount over the Whole of Income cap is taxed at 47%
Life benefit ETP - txable component Payment is:
|
Under preservation age | Up to the relevant cap amount | 32% | Smallest of ETP ccap and whole-of-income-cap |
Preservation age or over | Up to the relevant cap amount | 17% | Smallest of ETP cap and whole-of-income-cap | |
All ages | Amount above the relevant cap amount | 47% | Smallest of ETP cap and whole-of-income cap |
https://www.ato.gov.au/Rates/Schedule-11---Tax-table-for-employment-termination-payments/?page=5
To calculate the whole of income cap you need to deduct the employees YTD earnings (including any leave paid on termination) from $180,000. Examples on how to calculate the whole of income cap can be found here https://www.ato.gov.au/Rates/Schedule-11---Tax-table-for-employment-termination-payments/#How_to_work_out_the_withholding_amount
Please note that the payment and tax will need to be reported as an ETP for Payment Summary/STP purposes, Code O.
One of our employees is moving from FT to Casual – do we need to pay out their leave entitlements?
You will need to terminate the employee and rehire them as a casual in order to pay out their unused annual leave entitlements. Please be aware though that their existing hire date will remain for the purposes of Long Service Leave.