Understanding Termination Processing

When payees are terminated, made redundant, or retired, you update their job data by using the Work Location page. The PeopleSoft termination process uses the termination date that you enter to calculate termination pay. The effective date of a termination is the day that the payee no longer works for the company, that is, the day after the payee's last day of work.

PeopleSoft Global Payroll for Malaysia delivers a set of rules for termination processing that takes into account all statutory requirements. When you terminate a payee's employment, regardless of the reason, the employer is obliged to make certain payments to the employee depending on the circumstances of the termination. The termination process involves:

• Payment of unused leave balances.

  General Ledger calculations must be performed on termination, even if the event occurs before the last period of the month. The system generates an earning that is equal to the total value of the outstanding leave balance. By using the General Ledger Interface, this earning closes out the total amount of accrued annual leave.

• Payment of prorated earnings and deductions.

  The system can prorate earnings and deductions that depend on active status, removes the maximum limits for deduction calculations, and pays allowances that are normally paid only in the last period of the month.

• Reconciliation of taxes, Employee Provident fund (EPF), Social Security Organization (SOCSO), and Festive Advance recovery.

  Normal deduction limits do not apply to these calculations.

• Calculation of short notification periods.

  The payroll system also enables you to make payments or take deductions because of a shortened notification period.

• Freezing net payments for the Inland Revenue Board.

  You can freeze the payment of net pay that is awaiting tax reconciliation.

When a payee's employment is terminated, either by the employee or the payee, the period between the date that the notification occurs and the effective date of the termination determines if the system calculates payments or deductions in lieu of notice. The law prescribes a minimum period length for notice; it is the same for both employers and payees.

In the absence of written terms to the contrary, the minimum period of notice is:

• Four weeks if employed for less than two years.

• Six weeks if employed for two years or more, but less than five years.

• Eight weeks if employed for five years or more.

If the notice period is less than the minimum period prescribed by law, the system will calculate either a deduction, if the notice is given by the payee, or a payment, if the notice is given by the employer. In either case, you should verify these results and modify or override them as necessary because the payment or deduction may be waived for various reasons. For example, if the notice is given by the payee, the employer may waive the deduction, and if the notice is given by the employer, reasons may exist, such as dismissal for misconduct, that permit a shorter notice.

The calculation rule for the payment or deduction in lieu of notice is:

(minimum calendar days of notice – actual calendar days of notice) * monthly salary / calendar days in the month of termination

If a payee terminates employment due to retirement or if the employee plans to leave Malaysia after termination, the Inland Revenue Board (IRB) requires that the payments of the last allowances be frozen until the IRB completes an actual yearly tax calculation. When the IRB completes the final tax reconciliation calculation, the employer is given a value that it must deduct or add to the frozen amount.

The system provides sections for processing termination of employment. These sections ensure that all legal obligations are met, and that you can make changes to suit your business practices.