Eventually, every employment relationship comes to an end, and this overview will help you deal with the usual scenarios (anything else probably needs discussion with a skilled employment lawyer).
In general
After completing any current pay entries, choose:
- the Terminate tool in Payrun, or
- Payrun..Leave taken..[+] to add an entry and select and confirm Terminate Employee
The employee's final entitlements will be calculated and added to the current pay, and the employee will be automatically terminated at the end of the payrun.
Sick leave is NOT normally paid out on termination (in case you were wondering).
Australian users need to identify the type of termination, and whether long service leave is to be paid out. This determines the taxable nature of the unused leave.
WARNING: NZ Public Holidays on termination
If your employee has any unused leave entitlement (the balance remaining from their annual accruals), then any Public Holidays that fall within that period must be paid to the employee (if they would normally have worked those days).
For example: Joe has 2 weeks remaining unused and his last day is 23 December and he normally works 5 days per week. He's entitled to be paid for 4 Public Holidays in addition to his unused leave, and the 8% termination calculation is then performed after that.
The termination process warns if the employee has an unused leave entitlement to remind you to add those entries if necessary (then redo the Terminate action)
Casual staff
The same method should be used for casual staff, assuming they have current pay data or have any unused leave liability (Lieu/TOIL, Alternative days (NZ), Long Service Leave (Aus), etc.)
If the employee has no current pay due and has no unused leave entitlements, then you can simply set the Terminated flag in their Contract settings.
Final pay is NEGATIVE?
In some cases an employee will leave without providing requisite notice - and if you deduct say 2 weeks in lieu of notice (assuming you have this right in their contract) then you may end up with a net pay that is negative.
You can't pay an employee a negative amount (and you can't do negative tax or super either).
However you have a couple of choices depending on how you want to handle the negative value and payslip data:
- Top up the employee's pay with a non-taxable allowance to offset the net pay. This serves to retain the pay information intact in the employee's history, however it may also require payment of any other authorised deductions that may have affected the employee's net pay (fines, child support etc.), or
- Print the payslip for your records then manually terminate the employee in their Contract tab.
Things people do...
We very often find users making terminations harder than they need to be, or costing the employer more than is necessary (or underpaying the employee by paying out the leave balance rather than using the termination tools).
- paying leave each period until all used, then doing a termination
- DON'T do this. This inevitably pays out more than the employee would have been entitled to.
- In Australia, leave accrues on leave paid out, so you'd just be building up more leave unnecessarily.
- In NZ, an 8% liability accrues on leave paid out - and you might even cross the next anniversary where their annual accrual of 4 weeks accrues.
- DON'T do this. This inevitably pays out more than the employee would have been entitled to.
- Adding leave entries to the last pay, then choosing the Termination tool
- DON'T do this. The leave entries you added will be automatically deleted and replaced with the final entitlements.
- Adding leave balance and NOT using the Termination tool
- This will usually result in an incorrect payout, and will not cause the employee to be terminated at the end of the payrun.
- You would still be liable for any accrual and termination payout due to the employee
Further reading
- Transferring employees to a new company (NZ)
- Termination Payments (AUS)
- Superannuation on termination payments (AUS)
- Redundancy (NZ)