Improved transparency of PAYG calculations in a termination pay: Australia

Improved transparency of PAYG calculations in a termination pay

It's safe to say that processing a termination pay is not one of the most positive of payroll tasks. Our existing termination wizard, however,  definitely simplifies the process. In addition to that, we now provide users greater transparency in how the PAYG for termination pay is calculated!

How does KeyPay calculate PAYG on a non-ETP termination pay?

PAYG on unused leave is calculated using the ATO's marginal rate calculation method. In the pay run, when you click on the "?" icon in the employee's PAYG field, the following context panel will be displayed:

Improved transparency of PAYG calculations in a termination pay

This panel details each step of the calculation and how the PAYG amount has been determined. Clicking the blue "?" icon on the right of each step will provide an explanation of how each amount has been calculated:

Improved transparency of PAYG calculations in a termination pay

How does KeyPay calculate 'Normal Gross Earnings'?

A big component of a termination pay is calculating the employee's 'normal gross earnings'. Due to the varied nature of how employees are paid in KeyPay, we apply the average earnings method. Specifically, we calculate the employee's average gross taxable earnings for the financial year to date over the number of pays they have received.

If a user applies a different method, they can override the system calculated normal gross earnings. This will, in turn, automatically recalculate the PAYG for the termination pay.

Using the example above, the system calculated normal gross earnings are $546.84. I, however, want to change the employee's normal gross earnings to $750:

Once saved, re-opening the context panel will display the updated calculations:

Improved transparency of PAYG calculations in a termination pay

Processing a termination pay can already be quite a daunting experience and so we aim to simplify this process as much as possible. Providing users with this transparency ultimately removes any uncertainty as to how the PAYG on a termination pay is calculated. Additionally, users are afforded the flexibility to override the system calculation with their own interpretation.

Dimitra Karas

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