How does the system 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:
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:
How does the system calculate ‘Normal Gross Earnings’?
Employees with earnings in the financial year
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, 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:
Employees without earnings in the financial year
If an employee has not been paid in the financial year, the normal gross earnings are determined differently to the average earnings method. In this scenario, we calculate the employee's hourly pay rate x their normal weekly hours x pay frequency.
Again, if a user wants to apply a different method, they can override the system calculated normal gross earnings.
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