Understanding Termination Payment Management

This chapter discusses:

• Termination processing.

• Termination earning elements.

• The termination section.

• The offset days for retroactive termination triggers.

• Delivered termination earnings.

• Calculation of hourly and daily rates.

• Resolution of termination earnings.

Note. The PeopleSoft system delivers a query that you can run to view the names of all delivered elements designed for Australia. Instructions for running the query are provided in the PeopleSoft Enterprise Global Payroll PeopleBook.

See Also

Understanding How to View Delivered Elements

Termination Processing

When an employee's services are terminated, regardless of the reason, the employer must make mandatory payments to the employee, depending on the circumstances. Payments can consist of:

• Final wages.

• Unused leave entitlements.

• Redundancy and retrenchment payments.

• Early retirement.

• Invalidity and disability payments.

• Pay in lieu of notice (considered an ETP).

• Ex gratia payments (considered an ETP).

The calculation of these payments can vary from organization to organization depending on the reason for termination.

Termination Earning Elements

The Termination section comprises a formula, 21 earning elements, and a single deduction. They ensure that all legal obligations are met and that you have the flexibility to make changes to suit your business practices. You need to maintain only a few of the formulas upon which the earnings are based. You also have to set the values of some of the variables that the formulas use.

The Termination Section

The Termination section contains a conditional formula, TER FM TERM CHECK, to check if there is either a termination date in the pay period or a termination action date in the period. The formula checks for both to accommodate a situation in which you may have not entered the termination until the pay period after the period in which the termination occurred. If the check is only on the termination date, the section is not processed, because that date is outside the current pay period begin and end dates.

This diagram shows the process of checking for a termination date or termination action date:

Checking for a termination date or termination action date

The check shows that the Termination section should be processed even though the termination date was in the previous pay period.

Offset Days for Retroactive Termination Triggers

When you define retro triggers on the Trigger Definitions-Field Values page, you can enter a positive or negative number in the Offset Days field to increase or decrease the retro trigger effective date in relation to the date of a field value change. For example, if you enter -1 in the Offset Days field for one of the values listed in the Field Values group box, and you retroactively enter that value into the database with an effective date of January 1, 2000, the system automatically adjusts the trigger effective date to December 31, 1999 (one day earlier). The system then processes pay periods going back to December 1999 rather than January 2000.

Global Payroll for Australia uses the offset days feature to define the triggers for retroactive terminations entered in the JOB record using the Action field:

Note that the offset for the termination actions TER, RET, RWP, TWP, and TWB is -1.

The reason for this offset is that the PeopleSoft system considers the effective date of a termination entered in the Action field in JOB to be the first day that a payee is no longer working (in other words, the day before the termination is the last day the payee is considered active); however, the effective date of the trigger generated in response to this termination is identical to the termination date. This can create problems when the termination date in the JOB record is equal to the pay period begin date (meaning, the last day worked is the last day of the prior pay period). For example, assume that you enter a termination in JOB on February 1 after processing and closing the January calendar. In this situation, the system generates a trigger with an effective date of February 1, which is within the current period—a period in which the payee is "inactive" and is not picked up for processing. Because there is no trigger in the prior, closed period (January), this period will not be recalculated and any rules set up to generate termination payments will not be processed. To avoid this problem, Global Payroll for Australia sets the offset days for the TER (termination), RET (retirement), RWP (Retirement with Pay), TWP (termination with pay), and TWB (termination with benefits) action values in the JOB record equal to -1.

Important! If you define additional action values to trigger retroactive termination payments, you should set the offset days to -1.

Delivered Termination Earnings

This table lists the earning elements resolved in the Termination section and each earning calculation rule. Individual elements are later discussed in sufficient detail for you to understand how they are correctly resolved. The code (gc) in the first column indicates that the earning has a generation control:

Calculation of Hourly and Daily Rates

All the rates are either hourly or daily. For both, we have allowed for the situation in which employees have salary packages and need to have their hourly or daily rate calculated from their total package value.

Calculating the Hourly Rate

To calculate the hourly rate, use the formula TER FM HOURLY RATE to:

1. Determine if the employee is salary-packaged by checking for a value for rate code AUTVP.

   If there is no value for AUTVP, the system uses the employee's hourly rate.

2. Retrieve the employee's standard hours frequency from the Job record in the Work Period field and passes it to AUS VR TEMP FREQUENCY.

3. Use the variable to get the annualized factor AUS VR ANNL FCTR from the array AUS AR FREQUENCY.

4. Divide AUTPV by the annualized factor, then divides by the employee's standard hours.

   (AUTVP ÷ AUS VR ANNL FCTR) ÷ STD HOURS = Hourly rate for packaged employee

Calculating the Daily Rate

To calculate the daily rate, formula TER FM DAILY RATE:

1. Determines if the employee is salary-packaged by checking for a value for rate code AUTVP.

   If there is no value for AUTVP, the system uses the employee's daily rate.

2. Divides AUTVP by the annualized factor for the daily frequency specified on the Additional Info - AUS page in the pay group component.

   AUTVP ÷ AUS DY FACTOR = Daily rate for packaged employee

Note. The system uses the system element DAILY RT as the daily rate for non-packaged employees. The daily rate is currently based on weekly rate ÷ 5. To calculate the daily rate differently, revise this formula.

Resolution of Termination Earnings

This section discusses each of the earning elements in the Termination section and shows how they are resolved.

Calculating Annual Leave Marginal Tax and Lump Sum A—Hours

The calculation rule for both AL MARGINAL and AL LUMP A is Unit × Rate, where:

Unit = TER FM AL BAL HRS

Rate = TER FM HOURLY RATE

The unit formula sums accumulators ANN ENTHRS_BAL and ANN ENTHPH_BAL.

Generation controls attached to each earning determine which of the two earnings to use to pay the hours.

For Annual Leave Marginal (hours), generation control TER GC TERM NORMAL uses TER FM NORM TERM to determine if the employee's status is Retired with Pay, Retired, Terminated, or Terminated with Pay. If it is and the action reason is not Staff Reduction, Early Retirement or Partial or Total Disability, then the system pays the hours value as AL MARGINAL.

For Lump Sum A, generation control TER GC TERM REDUN uses TER FM REDUN TERM to determine if the employee's status is Retired with Pay, Retired, Terminated, or Terminated with Pay. If it is and the action reason is Staff Reduction, Early Retirement, or Partial or Total Disability, then the system pays the hours value as AL LUMP A.

Note. The system does not provide for annual leave accrued prior to 1993, so the payout for annual leave on resignation, retirement, or dismissal is all to AL MARGINAL and is taxed at the marginal rate.

Calculating Annual Leave Marginal Tax and Lump Sum A—Days

The calculation rule for both AL MARGIN DY and AL LUMPA DY is Unit × Rate, where:

Unit = TER FM AL BAL DYS

Rate = TER FM DAILY RATE

The unit formula sums accumulators ANN ENTDYS_BAL and ANN PRODYS_BAL.

The same two generation controls used with AL MARGINAL and AL LUMP A - Hours are attached to these two earnings, respectively. They do the same job, but this time the system pays the days value to either AL MARGIN DY or AL LUMPA DY.

See Also

Calculating Annual Leave Marginal Tax and Lump Sum A—Hours

Calculating Annual Leave Loading Marginal Tax and Lump Sum A—Hours

The calculation rule for both LL MARGINAL and LL LUMP A is Unit × Rate × Percent, where:

Unit = TER FM LL BAL HRS

Rate = TER FM HOURLY RATE

Percent = 17.5

The unit formula sums accumulators ANN ENTHPH_BAL and ANN ENTHRS_BAL.

The same two generation controls used with AL MARGINAL and AL LUMP A are attached to these two earnings, respectively. They do the same job, but this time the system pays the hours value to either LL MARGIN or LL LUMP A.

Calculating Annual Leave Loading Marginal Tax and Lump Sum A—Days

The calculation rule for both LL MARGIN DY and LL LUMPA DY is Unit × Rate × %, where:

Unit = TER FM LL BAL DYS

Rate = TER FM DAILY RATE

% = 17.5

The unit formula is accumulator ANN ENTDYS_BAL.

The same two generation controls used with AL MARGINAL and AL LUMP A are attached to these two earnings, respectively. They do the same job, but this the system time pays the days value to either LL MARGIN DY or LL LUMPA DY.

Calculating Long Service Leave—Marginal Tax and Lump Sums A and B

Long service leave (LSL) payment calculations are affected by legislation that requires different tax rates to apply to the different periods during which the employee accrued the leave. We supply three LSL earnings: LSL MARGINAL, LSL LUMP A, and LSL LUMP B.

To calculate these earnings, you use the PeopleSoft-maintained formula TER FM LSL CALC. This formula is invoked by the formula TER FM PRE PROCESS, which is the first element in the Termination section. As soon as the Termination section's conditional formula TER FM TERM CHECK returns True, TER FM PRE PROCESS is invoked, which in turn invokes TER FM LSL CALC.

Note. TER FM PRE PROCESS also invokes TER FM LSL PRE90, which is used to calculate LSL payments that are exempt from State Payroll Tax in NSW.

The formula first determines if the termination was for redundancy, early retirement, or partial or total disability (referred to as Redundancy in the following table).

Formula TER FM LSL CALC returns values for variables TER VR LS LUMPA, TER VR LS LUMPB and, if the termination was not redundancy, TER VR LS MARGINAL. These three variables are the units in the Unit × Rate calculation rules for the three LSL earnings. (The rate for all three earnings is TER FM DAILY RATE.)

This table shows how LSL may be paid according to the Action Reason of the termination:

Formula TER FM LSL CALC then uses other formulas that in turn use durations and system-generated accumulators based on the absence entitlements and take elements setup.

Note. TER FM LSL CALC uses formulas that in turn use system-generated accumulators, the current members of which are customary data. If you create new absence entitlement or take elements, you must adjust the formulas to use the accumulators that the system generates for those elements. You may have to adjust the following formulas: TER FM LSL TKES, TER FM LSTKE PST78, TER FM LSTKE PST93, and TER FM LSL BAL. The first three of those four formulas use variables of which you need to set the values. They are, respectively: TER VR LSTKW TOTAL or TER VR LSTKM TOTAL, TER VR LSTKW PST78 or TER VR LSTKM PST78, and TER VR LSTKW PST93 or TER VR LSTKM PST93, depending on the frequency of the take (weekly or monthly). In the formulas and variables tables in this chapter, these elements appear in bold to indicate that you may need to adjust them.

Calculating Lump Sum D

Lump Sum D payments, which are not taxed, are for redundancy and approved early retirement payments, but they have a limit. Whatever you pay over that limit is paid as a Lump Sum C eligible termination payment (ETP), which may or may not be taxed. The resolution of Lump Sum C payments depends on the prior resolution of Lump Sum D.

The calculation rule for TERM LUMP D earning is Amount, where the amount is formula TERM FM LUMP D.

This is how the formula resolves:

1. It first uses Australian Tax Office (ATO)-supplied, PeopleSoft-maintained, variable values, and a duration that determines an employee's complete years of service to arrive at a figure—called the calculated amount in this chapter.

   The calculated amount is the limit that can be paid as Lump Sum D. The variables are TER VR LUMPD YRLY (yearly amount) and TER VR LUMPD INIT (initial amount), and the duration is TER DR TOTAL DAYS. The formula multiplies the yearly amount by the years of service, then adds the initial amount. This is the calculated amount or limit.

2. The formula then compares the calculated amount with the balance of accumulator TER AC RED/AER (Redundancy/Approved Early Retirement).

Note. The members of accumulator TER AC RED/AER are only ever REDUNDANCY (which is supplied) or [EARLY RETIREMENT] (which is not supplied). Both of these earnings are also members of accumulator TER AC ETP. The redundancy and early retirement earnings are not paid as such; they do not add to accumulator AUS GROSS. They exist so that you can enter their amounts as positive input and add to accumulators. The actual payment of redundancy or retirement amounts is as earning TERM LUMP D or a combination of TERM LUMP D and ETPTAX/ETP NON TAX.

Based on the results of the formula calculation, one of the following events occurs:

• If the calculated amount is greater than the accumulator amount, the payments do not exceed the limit and the full accumulator amount becomes the Lump Sum D payment.

• If the calculated amount is less than the accumulator amount, the payments exceed the limit, so only the calculated amount (the limit) becomes the Lump Sum D payment.

  The balance becomes the basis of ETP calculations.

The balance becomes ETP (taxed or nontaxed—to be calculated) because the redundancy and retirement amounts also add to TER AC ETP, and whatever is paid as Lump Sum D by earning TERM LUMP D subtracts from TER AC ETP. If the redundancy and retirement accumulator was less than the calculated amount, and was therefore paid as Lump Sum D in full, then the balance of redundancy and retirement in the ETP accumulator is nil.

RED/RET = TERM LUMP D so

RED/RET − TERM LUMP D = Nil

If the redundancy and retirement accumulator was more than the calculated amount, only the calculated amount would be Lump Sum D, so there would be a positive balance of redundancy and retirement payment in the ETP accumulator.

RED/RET > TERM LUMP D so

RED/RET − TERM LUMP D = +ve Bal of RED/RET

Calculating Lump Sum C-Eligible Termination Payment

ETP payments may or may not be taxed.

The system has to determine which part of the ETP earning is taxable and which part isn't.

Payments such as payment in lieu (of notice), ex gratia, invalidity, and, sometimes, the balance of redundancy and retirement payments are included in the ETP payments.

Note. Earnings for payment in lieu (of notice), ex gratia, and invalidity are, like redundancy and retirement earnings, not resolved and paid as such; the amounts that you enter for them as positive input do not add to accumulator AUS GROSS. They do, however, add to accumulator TER AC ETP, and formulas use that accumulator to determine if the payments are to be ETP-taxed or ETP-nontaxed. Invalidity payments have additional processing.

Calculating Nontaxable Transitional ETP

The calculation rule for ETP TRA NTX is Amount, and the amount is TER FM ETP PRE83.

Calculating Taxable Transitional ETP

The calculation rule for ETP TRA TAX is Amount, and the amount is TER FM ETP PST83.

The formula checks that accumulator TAX AC TRLUMPC TAX has a balance.

If it does, then the formula calculates the tax and resolves the LUMPC TAX TR deduction element .

Calculating Nontaxable ETP

The calculation rule for ETP NONTAX is Amount, and the amount is TER FM ETP PRE83.

The formula checks that accumulator TER AC ETP has a balance.

If it does, it multiplies the accumulator balance by the duration TER DR PRE JULY, which calculates the employee's service days from hire (or rehire) to June 30, 1983. It then divides by duration TER DR ELIG SERV, which calculates the employee's total eligible service days.

Accumulator balance × Days from hire (or rehire) to June 30, 1983 / Days from service date to termination date = TER FM ETP PRE83 = Amount of earning ETP NONTAX.

The start date for duration TER DR PRE JULY is formula TER FM DUR START, which returns the rehire date if the hire date is earlier than the rehire date.

Calculating Taxable ETP

The calculation rule for ETP TAX is Amount, and the amount is TER FM ETP PST83.

The formula checks that accumulator TER AC ETP has a balance.

If it does, it subtracts the previously calculated value of TER FM ETP PRE83 (ETP NONTAX amount) from the accumulator and resolves it to be the amount value of the ETP TAX earning.

Accumulator balance − TER FM ETP PRE83 = TER FM ETP PST83 = Amount of earning ETPTAX.

Note. Deduction ETP R/OVER, entered a payee level, subtracts from TER AC ETP because it is to be excluded from the ETP tax or nontaxed calculation since it is not being taken as an earning.

Calculating Invalidity and Invalidity Post 94 Payments

The calculation rule for earning INVALIDITY is Amount, and the amount is Payee Level. It is another earning for which you enter the value by positive input and that does not add to AUS gross. It does, however, add to the accumulator TER AC ETP. It also adds to its own accumulator TER AC INVALIDITY.

The calculation rule for earning INV POST 94 is Amount, and the amount is formula TER FM INV POST94.

Note. Despite its name, the calculation of post 94 invalidity earning does not involve any durations based on the year 1994.

The formula multiplies the amount of accumulator TER AC INVALIDITY (added to by your positive input) by duration TER DR TERM RETIRE, which calculates the days from the employee's termination date to his or her normal retirement date. It then divides by duration TER DR HIRE RETIRE, which calculates the days from the employee's hire or rehire date to normal retirement date.

Accumulator amount × days from term to norm retirement / days from hire (or rehire) to norm retirement = TER FM INV POST94 = earning INV POST 94

The start date for duration TER DR HIRE RETIRE is formula TER FM DUR START, which returns the rehire date if the hire date is earlier than the rehire date.

Because the positive input for earning INVALIDITY adds to TER AC ETP, and earning INV POST 94 subtracts from it, the balance of INVALIDITY is processed as any other ETP payment.

See Also

Calculating Lump Sum C-Eligible Termination Payment

Entering Final Hours

For employees who accrue annual leave-in hours based on hours worked, you must enter their final hours in the variable TER VR FINAL HRS on the Supporting Elements Override page (select Global Payroll & Absence Mgmt, Payee Data, Create Overrides, Supporting Elements) when they are terminated. Those hours grant the correct accrual during the resolution of section ABS ENTHPHG in the GEN ABSENCE process list for payment by the AUS PAYROLL process. The section resolves only if its conditional formula returns that the employee has been terminated. Employees who accrue hours based on hours and who are not terminated have their accrual processed through the HRLY ACCRUED process list, which is run after AUS PAYROLL when the hours on which to base the accrual are known.