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Taxation of employment termination payments (ETPs)

Posted on June 29, 2016 by admin

Redundancies, whether forced or elective, can become complex as there are many taxation issues to consider when receiving a payout.

The most common form of payment an employee will receive is an employment termination payment. Employment termination payments (ETPs) include payments for unused rostered days off or for unused sick leave; payments in lieu of notice; payments due to redundancy or early retirement that exceeds the tax-free amount, or payments due to invalidity.

Mistakes in employment termination payments (ETPs) are common as it is up to the employer to work out how much is owed to the employee and how much tax needs to be withheld from the various components that make up an ETP. Errors are generally made around how much leave is owed, whether the payment includes the correct tax-free amount and if the correct tax rate is used.

ETPs are made up of two components, the tax-free component and the taxable component. The tax treatment of the components will vary depending on the type of redundancy, whether it is an early retirement scheme; genuine redundancy; invalidity or compensation for personal injury, unfair dismissal, harassment and discrimination.

The ATO classifies a redundancy as “genuine” if the employer has made a decision that the job no longer exists and employment is to be terminated. A genuine redundancy has special tax treatment where an amount paid up to a limit is tax-free. To qualify for tax concessions the employee must be dismissed before the day they turn 65 and there must be no arrangement at the time of termination to re-employ the dismissed person.

Employees being offered a redundancy payment should check the right tax is applied to the right component. A genuine redundancy payment is tax-free up to a limit based on a formula which includes the base amount determined by the ATO. This is added to a service amount multiplied by the years of service. The base rate for 2015-16 is $9780 and the rate for each completed year of service is $4891. The formula depends on completed years.

Tax will be withheld by the employer where there is unused long service leave, rostered days off, pay in notice of lieu or golden handshakes. The tax withheld on long service leave would be either 17 per cent or 32 per cent (including Medicare) depending on the age of when redundancy occurred. For those over the preservation age (usually 55 and over) you will pay 15 per cent tax when you take redundancy and for those younger, 30 per cent tax will be payable, excluding Medicare.

Amounts that exceed the tax-free limit will be taxed based on your preservation age at the date of the redundancy and individual marginal tax rate. There is an ETP cap, which for the 2015-16 year is $195,000. When the cap is reached, the individual’s marginal tax rate is applied, plus the Medicare levy.

Employees receiving a redundancy payout need to ensure they understand how the calculations have been done and seek professional advice to confirm they are accurate.

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Tips for incorporating career mentoring into your business

Posted on February 28, 2020 by admin

A career mentorship program involves partnerships between employees to develop professional skills and gain industry knowledge. Due to their requirement for a collaborative effort, career mentoring programs are often seen as powerful development tools for cultivating both leaders and employees within a business.

Whether you are a small business owner or a multinational corporate leader, the implementation of a mentorship program will always be profitable for businesses as not only does it create a harmonious workplace culture, it also helps to attract and retain employees.

As straight-forward as career mentoring sounds, there are a few key tips to keep in mind when building a mentorship program for your business:

Make sure your mentoring program is clearly defined:
To create a successful mentoring program, both mentors and mentees should have a concise understanding of their roles and what they would like to gain from the mentorship. By succinctly outlining the purpose of the mentoring program, mentors and mentees are more likely to keep organised and communicate respectfully with the guarantee of mutual rewards.

There should also be short-term and long-term goals established for all parties involved, including the business. These goals could be the narrowing of particular skill gaps or creating a more open workplace culture. By having these goals set in stone, both mentors and mentees and have a clear direction to work towards.

Personalise the match-making process:
Often times, businesses will match a mentor and mentee together depending on their skill-set and position within the company. While on paper, this may appear to be an efficient process, but the lack of chemistry between a mentor and mentee may prove to be devastating for the workplace environment.

As a result, be sure to involve both mentors and mentees in the match-making process and take into account personality traits. You could do this by asking employees to take a personality test to ensure compatibility in career goals, personal interests and preferred communication methods.

Be involved as a third-party:
Lastly, it is the responsibility of the business to check-in on the progress of mentorship programs in order to understand how mentors and mentees can grow together and what improvements can be made to the program. Remember to always refer back to the long-term goals established and consider the feedback provided by mentors and mentees from the program.

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