Under the Australian Taxation Office (ATO) rules, employers must make compulsory income taxation withholding from each employee as and when they are paid. This is referred to as PAYG and the withholding rates are subject to the relevant Weekly/Fortnight/Monthly ‘tax tables’. As an employer, they must calculate the gross taxable income and apply the relevant withholding amount each pay run. This total PAYG is then paid to the ATO in due course via the accounting/reporting documentation cycles as directed by the ATO (individual to each business, but usually monthly via the Business Activity Statement or Instalment Activity Statement. These functions generally fall to an applicable company accountant/finance team, but Easy Payroll can provide options here as well if you aren’t sure). Payroll’s function here is to calculate the relevant gross taxable earnings, apply the relevant tax rate (as indicated by an employee’s Tax File Declaration) and then document this accordingly via an approved payroll software or similar. There are a myriad of tax scales and variables within each Tax File Declaration that a payroll professional will decipher and apply in each case. See https://www.ato.gov.au/Business/PAYG-withholding/ to try your hand yourself, or get in touch with Easy Payroll for assistance.
Taxing Termination Payments is arguably the most complex of all payroll calculations. The mountain of red tape legislating the varying types of termination components is the stuff of nightmares. However whether it be a standard resignation or termination, genuine redundancy or not, the payment in lieu of notice, severance pay and any other termination items need to be calculated and shown appropriately on the End Of Financial Year ATO Payment summary. Determining whether items are attracting PAYG tax, superannuation and leave accruals should be managed clearly by a payroll professional and documented accordingly.