Have you considered the hidden costs when an employees position is made redundant?
Most employers would assume it’s as simple as calculating an employees entitlements, withholding some tax and Bob's your uncle. Of course we wouldn’t expect the ATO to make it that easy for you.
There are some underlying matters that need to be considered, ask yourself these questions:
- Do I need to pay superannuation?
- Do I have to report these payments to WorkCover?
- Do I have to pay payroll tax on these amounts?
Struggling for answers??? Here’s a brief overview to get you started.
- If the ATO classifies any part of the payment as Ordinary Times Earnings (OTE), then superannuation will be payable.
- Payments in lieu of notice given to employees must have superannuation paid on top of this amount. However, redundancy payments, including amounts of unused annual or long service leave do not require super be paid.
- If a gratuity or golden handshake is paid, this amount will generally be free from any superannuation obligations; however there are some specific guidelines that need to be considered.
Termination payments are generally not included as part of your rateable remuneration, however all wages, allowances, bonuses, commissions, fringe benefits & super contributions earned by a employee up to the date of termination must be include as rateable remuneration.
***Have you accidentally included these amounts as part of previous years’ remunerations?***
The tax free component of bonafide redundancy payments are exempt from Payroll Tax. Amounts over this threshold, along with payments in lieu of notice and annual/long-service leave paid on termination are all taxable.
Given the complexity of the various legislation and its ability to be interpreted, remember your HTA Business Advisor is on the other end of the line to assist.