On termination, an employee may be paid a lump sum payment referred to as an employment termination payment (ETP).
What are ETPs?
The following payments are examples of ETPs;
- Payment for accrued or unused sick leave;
- Payment for accrued or unused rostered days off and time in lieu;
- Pay in lieu of notice; and
- Ex-gratia payments
ETPs and taxation
The taxation of ETPs depends on an employee’s preservation age for the financial year in which they are terminated.
Under the preservation age
If under the preservation age, ETPs are taxed at 32% up to $210,000 and 47% on amounts over $210,000.
Over the preservation age
If an employee is over the preservation age, they will be taxed at only 17% up to the $210,000 mark and 47% on amounts over $210,000.
The initial rates up to $210,000 may increase to 47% in both above cases if subject to the whole of income cap.
For more information on ETP withholding rates, visit the ATO website.
ETPs and preservation age
The ATO uses the following date of birth ranges to work out the preservation age of an employee for an ETP.
Important note: The above is not to be confused with the age pension qualifying age for redundancy.