Create Earnings & Deduction Codes for Annual Leave: Termination Due to Redundancy, Invalidity, or Early Retirement

(Australia only) You must create earnings codes for annual leave payments that you will make to employees for termination due to redundancy, invalidity, or early retirement, along with corresponding leave loading earnings codes and deduction codes for taxation purposes.

To set up the earnings codes and deductions for unused annual leave:
  1. In the PR Earnings Codes form, create an earnings code. When doing so, select LSAR - Leave, Lump Sum A Type R from the ATO Category drop-down on the Addl Info tab. For more detailed instructions, see Set Up Earnings Codes: Australia.
  2. Create an additional earnings code for leave loading. Select LSAR - Leave, Lump Sum A Type R from the ATO Category drop-down on the Addl Info tab. To create an earnings code for leave loading, you will need to create a payroll routine using a rate of gross. For more information, see Earnings Based Routines: Australia.
  3. In the PR Deductions / Liabilities form, create a deduction code for taxation purposes. When creating the code, use the following settings:
    • From the Method field, select G-Rate of gross and enter the current withholding rate in the Rate / Amount #1 field. For the current rate, refer to the ATO website and the NAT 3351 document.
    • From the ATO Category field on the Addl Info tab, select Tax Withheld.
    • On the Basis Codes tab, enter the corresponding earnings code(s), including any earnings codes used for leave loading.
    Important: In order for the ETP deduction to be calculated during payroll processing, you must also enter this deduction code in the DLCode column of the PR Federal Info form (Add'l Federal Based Dedns/Liabs tab).

    For more information, see Create Deduction and Liability Codes.

  4. For the earnings code you set up in step 1, and for the earnings code used for leave loading you set up in step 2, visit the PR Auto Termination Pay Setup form and enter an ETP type record. For more information, see Set Up Automatic Long Service Leave ETPs.
Note: During processing, the system calculates the tax based on all accrual dates that occurred regardless of date using the rate specified for the deduction code.
If the payment amount is under the amount specified in the Leave Flat Rate Limit field (PR Limits and Rates form), the system does not use the rate specified for the deduction code but instead withholds the lesser of:
  • the standard calculated amount or

  • the rate specified in the Leave Flat Rate field (PR Limits and Rates form).