Processing Termination Pay

Termination payments are calculated in the payroll and not as a separate process. The final payment to an employee must include all money due to that employee. This compensation includes the regular salary, extra periods, unused vacation days, and unpaid overtime. The final payment must also consider any outstanding loans and advances, nonfulfilled preadvise days, severance pay, and litigation salary.

To calculate termination pay, the payroll process calculates:

• The regular earnings and deductions that are due for the month of termination.

• The compensation for the unused paid vacation days.

  To do this, the system multiples the daily rate (FNQ FM VAL D VAC) by the number of remaining paid vacation days.

• The unpaid extra period earnings.

  Employees must be paid for the extra pay periods to which they contributed during the year. To calculate the compensation amount, the system multiplies the daily rate by the number of days accrued until the termination date. The system calculates the daily rate by taking into account the definition of the extra period. If an extra period has been paid in advance, the system generates an extra period earning with a negative value to deduct the amount paid for which the employee is not eligible.

• The amount owed for loans and advances, independent of each other.

  This amount is automatically deducted from the last payslip.

• The amount for nonfulfilled preadvise days, severance pay, and litigation salary.

For PeopleSoft Global Payroll for Spain, the payroll process generates termination payments based on the last day that an employee works, which is one day prior to the termination date. The termination date is equal to the effective date of the TER (termination) action on the employee's JOB_DATA record (Job Data component). The system also populates the Contract End Date field with that date, which PeopleSoft Global Payroll for Spain uses for processing.

When you enter a TER action, the system can invoke the JOB retro trigger to process the employee's termination pay. To ensure that the payroll process uses the date one day prior to the termination date for termination payment processing, the delivered JOB retro trigger for terminations offsets the termination date by –1 for actions that equal TER. This can be set by the Offset Days field value on the Trigger Definitions – Field Values page.

The system processes extra period pay in two ways when a termination occurs in a month that corresponds to an extra period payment:

• The system calculates the extra period for the terminated employee during the calculation of the extra period itself.

  Later, the regular payroll process calculates termination pay (including loans, advances, vacations, and so on).

• The system calculates the amount corresponding to the extra period during regular payroll processing as part of termination processing.

  The corresponding amount for extra periods is paid through the LIQ PXTR XXX earnings as part of the regular payroll calculation. You exclude the terminated employee from extra period calculation.

To allow for a flexible setup, PeopleSoft Global Payroll for Spain provides the CLI VR FNQ P PXTRA variable (pay extra period in termination), with the default value of N (don't execute the extra period). This means that, by default, terminated employees will not be included in the extra period calculation during a payment month that is an extra period. The system also provides an informational message stating that the employee was not included in the extra period calculation because he or she is terminated in such a period. Values for the CLI VR FNQ P PXTRA are Y (pay the extra period payment) and N (don't pay the extra period payment).

In the case that an extra period is paid in advance (extra periods with a payment date earlier than the extra period time frame end date) and in the case of the termination pay calculation, different situations may arise:

• The extra period was not paid, so pending extra periods are paid as part of the current period compensation, deducting the absence days affecting the extra period payment during the termination calculation.

• The extra period was already paid and the termination date is later than the extra period payment date but earlier than the extra period time frame end date.

  The extra period is paid but now those days paid in advance but not worked need to be discounted. The amount to be discounted can be calculated within the current compensation at termination time, or within the compensation paid at such an extra period.

  This is designed to be open, setting the value of the variable CLI VR PD VLR PXTR (compensation paid to pay extra period). Values for this variable are PAGADO (paid extra period compensation) and ACTUAL (current period compensation). The default value is PAGADO. Thus, the system calculates this deduction value using the previously paid daily price.

• The extra period was already paid, but absence days pending are to be discounted (absence days that occurred after the payment date but before the extra period end date).

  Those days will be discounted in the following extra period calculation (if you have it set up like this). Due to the termination, the absence days will be discounted in the termination pay.

Beginning in 2003, Social Security requires new treatment for vacations owed to terminated employees. The pending vacation days that the employee has at the time of termination must be distributed as part of the termination pay.

The vacation balance is calculated depending on the type of vacation days agreed upon in the employee's contract data. The most common types of vacation days are natural days and work days. Natural days includes all days in a month, including weekends and holidays. Working days are the days that the employee actually works and don't include weekends and holidays. The vacation balance calculation is different for each vacation days type.

The payroll process uses the following equation to calculate the amount for preadvised days nonfulfilled:

This amount is added or deducted from the employee's termination payment as applicable.

The system contains all of the logic to determine the severance pay amount based on the legal rules for seniority days to pay per year of service. The payroll process calculates the amount to pay the employee in indemnity through the following equation:

The payroll process determines the number of days to pay by taking the lesser value of either (a) the multiplication of days by year of service by number of worked years, or (b) the maximum number of periods by 30. The resulting values vary depending on contract type and termination reason. Note that the Days by Year value is prorated if the year is not complete.

If the employee is in probation period when he is terminated, the employee does not receive severance pay. The system uses the value in the Probation Period field on the employee's labor agreement to make this determination.

The system calculates job litigation salaries as part of the regular payroll process. The payroll process differentiates between whether an employee is in a regular period or period for job litigation salary. When the system makes this differentiation, it determines which elements the payroll process needs to resolve. When calculating job litigation salary, the payroll process calculates payroll for the periods affected by job litigation, considering only the earnings elements that are defined for job litigation salary. To calculate job litigation salary, the payroll process uses the following equation:

Calculation of job litigation salary is the same as normal workdays except for the calculation of daily salary. The system calculates daily salary in one of two ways:

• If the employee and employer come to an agreement during litigation, the system calculates the daily salary for job litigation through the following method:

  1. When a termination occurs, the system stores the job litigation daily salary in the termination results table through an accumulator. This accumulator determines which earnings contribute to the job litigation salary.

  2. When the system calculates job litigation salary, it retrieves the value from the previously mentioned accumulator using a historical rule, and then the system multiples this value by the number of days to pay in the litigation period.

• If the judge imposes an amount for job litigation salary, the system divides this amount across the number of days that are considered part of the job litigation period to obtain the daily job litigation salary.

  If this is the case, you can overwrite the amount that the system obtains from the relevant accumulator by entering the amount imposed by the judge on the Termination Management ESP page. The sentence amount imposed by the judge overrides any amount the payroll process calculates. The system divides the amount imposed by the sentence across each month affected by the job litigation salary to correctly calculate the social security contributions and taxations.

Job litigation salary earnings are applicable to both social security contributions and IRPF taxation. Employers must therefore report litigation salary to social security. When you run the payroll process for the employee during the month of the job litigation sentence, the system calculates all job litigation salary as retroactive pay (if the salary corresponds to past periods) for all payroll periods that are part of the job litigation period, including prorated extra periods, and applies the related social security contributions and taxations to each affected month. Social security contributions corresponding to litigation salaries are reported under a specific code (L02) in the TC2 report.

If the judge determines that the employee was wrongfully terminated and that the employer must rehire the employee, the readmitted employee must return the payment amount received for severance pay to the company, and must return the unemployment benefits received for the period affected by job litigation directly to the national employment institute (Instituto Nacional de Empleo [INEM]). The process considers the readmitted employee's salary for the period affected by job litigation as normal worked days.