How is PAYG Calculated on Leave Payouts?

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PAYG amounts are calculated on leave payouts using the guidelines set out by the ATO here: https://www.ato.gov.au/Rates/Schedule-7---Tax-table-for-unused-leave-payments-on-termination-of-employment/

Once you have chosen to terminate an employee from within the pay run the ATO formula will be applied to the leave payout component and be added to the standard PAYG amount that an employee will be required to pay.

To help clarify, here's an example with calculations:

Dean normally works 40 hours per week and gets paid $79.32692 per hour or $3,173.08 Gross per pay.

He currently has the following leave entitlements that will be paid out:
27.69228 hours of Annual Leave
11.0769 hours of RDO

To work out the PAYG withheld:

  1. Work out the normal PAYG amount on $3,173.08 which is $991
  2. Work out the gross leave pay out amount:
    (27.69228 x $79.32692) + (11.0769 x $79.32692) = $3075.44

  3. Use the steps in the ATO guide to work out the PAYG owing on the leave pay out

    1. Work out Standard PAYG Amount: $991
    2. Divide gross payment amount by 52: $3075.43 / 52 = $59.14
    3. Ignore any cents: $59
    4. Add the amount at step 3 to the normal gross earnings: $3,173.08 + $59 = $3229.08
    5. Use the same PAYG withholding tax tables used at step 1 to work out the amount to withhold from the amount at step 4.: $1,013.00
    6. Subtract the amount at step 1 from the amount at step 5. $1013 - $991 = $22
    7. Multiply the amount obtained at step 6 by the number of normal pay periods in 12 months (12 monthly payments, 26 fortnightly payments or 52 weekly payments): $21 x 52 = $1144
  4. Take the normal PAYG amount from Step 1 and add it to the PAYG for the annual leave payout: $1144 + $991 = $2135

You can see this applied in the image below

 

Leave Payments for Genuine Redundancy ETPs

If your leave payouts form part of a genuine redundancy employment termination payment, we will apply a tax rate of 32% to those payments (as per the ATO tax schedule referenced above) as well as allocating them to a pay category that will be reported as a "Lump Sum A" value on the employee's individual non-business payment summary.

If you have any questions or feedback please let us know via support@yourpayroll.com

 

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