Other points to note regarding employment termination payments
Can employees salary sacrifice termination payments?
In most cases, ETPs must be taken in cash. As they are not officially classified as salary and wages by the ATO, they cannot be contributed to a superannuation fund. They can also not be salary sacrificed.
The only exception to this rule is if employers paid “transitional termination employment” to an employee before 1 July 2012. These payments were made as a result of an entitlement that existed before 10 May 2006. In this case, employees could work out a transitional arrangement where the ETP can be directed into their super fund.
Is super paid on termination pay?
This is determined by the Fair Work Act 2009 and the federal superannuation law. Payments that are not part of ordinary time earnings (OTE), such as redundancy pay, are not subject to the superannuation guarantee.
However, if an employer chooses to provide an employee with payment in lieu of notice, this ETP should include super contributions. Any payment in lieu of notice is subject to the 9.5% superannuation guarantee.
Does an employer need to provide an employment separation certificate?
An employment separation certificate is provided to a former employee if they wish to claim a Centrelink payment. This form includes basic information about their employment, the reason for termination and any employment termination payments they received.
Employers do not need to give employees an employment separation certificate as part of an ETP payment summary. However, if an employee requests it, you must provide this to them. The form can be downloaded from the Department of Human Services website.
If you’re paying termination pay, it’s best to seek legal advice before moving forward. This is to ensure you meet all the timelines and are compliant with legislation. This is where Australian Business Lawyers & Advisors (ABLA) come in.
It can be challenging for employers to distinguish between different types of ETPs and understand the obligations around termination pay.