Last pay for terminating employee

This article provides steps on how to process the last pay for an employee.

Pre-requisites

The following pre-requisites are broken into two sections – LawMaster setup and manual calculations.

Parameter Setup

You will need to ensure that you have created the following parameters to allow you to process the unused leave proportion for the final pay.  This will need to be done for any unused leave being paid out e.g. Annual Leave and Long Service Leave. 

The example below is for Unused Annual Leave.

Payroll Leave Types

Create a new leave type for Unused Annual leave as per screenshot below e.g. LU.  Note the Leave Type, needs to commence with an "L", which is then linked to the Payroll Codes - Payments parameter.

Parameters > Set Parameters > Payroll > Payroll Leave Types (Type: LT).

Create the subsequent Payroll Codes - Payments parameter for Unused Annual Leave as per the screenshot below.  The Payroll Code, needs to commence with a "H" and then the two letter code, used in the Leave Type parameter e.g. HLU.

Parameters > Set Parameters > Payroll > Payroll Codes - Payments (Type: PCP).

Untick Ordinary Time Earnings so that superannuation is not calculated. (Unused leave is not considered ordinary times earnings, therefore no superannuation is calculated on this figure).

Reporting Category is Leave and the Reporting Sub Category is Unused Leave on Termination.

Manual Calculations

Additional Annual Leave to Last Day of Employment:

You will need to ensure that you have calculated annual leave to the last day of employment.

To work out how many annual leave hours are accrued per week:

Example: Total additional hours to accrue for unused annual leave to finish date where you need to accrue for an additional 45.6 hours for the fortnight (6 days * 7.6 hours per day).

Total hours to accrue will be 45.6 hours x 0.0769 = 3.51 hours.

Once you have calculated the additional leave, you will need to add this to any other unused annual leave for that employee on their timesheet when processing the pays (Annual leave accrued shows as a negative amount in LawMaster).

As LawMaster calculates the tax based on period of pay and the tax scale, you may need to speak with your Accountant to calculate the tax correctly on the final pay due to the tax calculations for unused leave. Also refer to the below:

https://www.ato.gov.au/Rates/Schedule-7---Tax-table-for-unused-leave-payments-on-termination-of-employment/

Payroll Processing

If the final pay is part of normal payroll processing, generate the pays as you normally would and make any changes as necessary to other employees, otherwise you can manually add a timesheet entry for the exiting employee.

Payroll and Personnel > Payroll Processing > Input and Review Timesheets. Select Bank > right click > Add Timesheet Entry.

Add any ordinary hours that you are paying, Add Another Pay Item for Unused Annual Leave. This will include what leave was already unused and the additional accrued leave calculated above.

Note: You will need to override the tax amount that was calculated manually. Include all tax to be deducted for this pay run including tax on any ordinary hours paid.   To do this, tick the Override Tax? field and enter the amount in the Tax field. 

Process the balance of pays as per normal up to auditing the pays and running pay slips.

Terminating Employee in Payroll

Before auditing the pays, you should terminate the user in payroll.  This will ensure that the Cessation Type is also reported to the ATO via STP Reporting upon the audit of pays. 

Go to the Employee master record and select Terminate.

Enter the Cessation Date and select the Cessation Type.  

Before selecting Ok, you can enter other Remarks in relation to the termination/resignation.

You may then proceed to audit the pays as per normal payroll processing.

Update Employee Record 

Once you have audit the pays, and prior to printing pay advices, you will need to go back to the Employee’s master payroll record to enter a leave journal to zero out any annual leave and sick leave. By doing this prior to issuing a pay slip the leave hours will show as zero.

To to the Employee's master payroll record > Leave Tab.

Right click > Add. Enter a leave transaction (journal) for Annual Leave (LA) and Personal Leave (LS) to zero out the hours. You will see that the annual leave has accrued to what you have paid out at unused annual leave.

Once done, you can then send the pay slips so that leave balances show as zero.

Remember to terminate the user in LawMaster Security.