Understanding Termination Processing
Termination processing is a two-step process. Complete each process to ensure that the system updates the payee records correctly. To complete the termination process:
Update job data.
Process the termination.
This section discusses:
Updating Job Data
Processing the Termination
Applying Payments and Deductions in Lieu of Notice
Freezing Net Pay Payment
Describing Delivered Termination Elements
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.
Note: In addition to the listed sections, the delivered formula element, TER FM NOTIFIC, calculates the notification payments or deductions.
TERMINATION Section
The following table describes elements within the TERMINATION section:
Element Type |
Elements Used for Termination |
Description |
---|---|---|
Formula |
TER FM PAYFREEZE |
This formula references the Payee Termination page to verify whether you have asked for the net payment to be frozen. It then verifies whether the net pay is greater than zero. If yes, it forwards the net pay value to the TER VR FREEZEAMT variable and the tax deduction value to TER VR TAXFREEZE. It also verifies the status of the Inland Revenue Board Balance group box on the Payee Termination page and decides whether the payee owes the IRB or is entitled to a refund from the IRB. |
Earnings |
UNFREEZE PYM |
The calculation rule for this earning is amount, where the amount is variable, TER VR UNFREEZE, which receives its value from the TER FMPAYFREEZE formula. |
Deduction |
UNFREEZE TAX |
The calculation rule for this deduction is amount, where the amount is variable, TER VR TAXUNFREEZE, which receives its value from the TER FMPAYFREEZE formula. |
Earnings |
PAYMT IRB |
The calculation rule for this earning is amount, where the amount is variable, TER VR AMTREIRB, which receives its value from the TER FMPAYFREEZE formula. |
Deduction |
DEDUCT IRB |
The calculation rule for this deduction is amount, where the amount is variable, TER VR AMTPYIRB, which receives its value from the TER FMPAYFREEZE formula. |
Earnings |
FREEZE TAX |
The calculation rule for this earning is amount, where the amount is variable, TER VR TAXFREEZE, which receives its value from the TER FMPAYFREEZE formula. |
Deduction |
FREEZE PYMTS |
The calculation rule for this deduction is amount, where the amount is variable, TER VR FREEZEAMT, which receives its value from the TER FMPAYFREEZE formula. |
EARNINGS - OTHER Section
The following table describes elements within the EARNINGS - OTHER section:
Earnings |
LIEU NOTICE |
The calculation rule for this earning is amount, where the amount is the TER VR NOTIFER variable. |
Deduction |
SHORT NOTICE |
The calculation rule for this deduction is amount, where the amount is the TER VR NOTIFEE variable. |
ABS PAY ELEM Section
The following table describes elements within the ABS PAY ELEM section:
Formula |
LVE FM ENTPROTER |
This formula checks for a termination date. If there is a date and the LVE ENTPROB accumulator is greater than zero, it moves the value from the accumulator into the LVE VR ENTPROTER variable for payment. |
Formula |
ANN FM UNUSEDENT |
This formula calculates the unused entitlement and moves it to the ANN VR UNUSED variable. (This is not used for termination processing but for forfeiting of unused leave) |
Formula |
ANN FM PAYUNUSED |
This formula decides whether the unused entitlement should be paid, if so the system sends the value to ANN VR UNUSEDPD, or it is to be forfeited and sent to ANN VR UNUSEDFO. (This is not used for termination processing but for forfeiting of unused leave) |
Earnings |
ANNLVEUNUSED |
The calculation rule for this earning is unit x rate. The unit is ANN VR UNUSEDPD and the rate is the LVE FM PAYRATE formula. This formula retrieves the monthly rate and divides it by the work days. (This is not used for termination processing but for forfeiting of unused leave) |
Earnings |
ANN LVE LIEU |
The calculation rule for this earning is unit x rate. The unit is accumulator ANN LVE ENT_BAL and the rate is the LVE FM PAYRATE formula. This formula retrieves the monthly rate and divides it by the work days. This earnings pays the outstanding balance on termination. |