Tax and termination payments paid to employees - the intricacies and complexities
This session is hosted by TaxEd and presented in conjunction with Webb Martin Consulting.
There are a number of different reasons that may result in an employee termination - whether an amicable resignation or a redundancy - and many of these result in an employer paying the exiting employee a termination package. Such packages may only include obvious components such as unused annual leave, but may be more complex involving items such as golden handshakes, genuine redundancy payments, transfer of property, etc.
Determining the tax implications of termination payments for both employer and employee is often far more complex than it may initially seem due to hidden intricacies in the law, as well as the fact that the employer/payroll manager may only need to consider the relevant rules sporadically. The questions that need to be asked depend heavily on the facts and circumstances of each termination.
Some of the questions that employers/employees need to be asking (but may not be) include:
- It may be called a “redundancy payment”, but is it a genuine redundancy payment for tax purposes? Why does it matter?
- Does it matter how long after termination the package is paid out?
- How will the age of the employee affect the tax outcome?
- What are the caps? How do they work? Which one should be used?
- What if the employer makes a payment after the employee dies?
- What are the implications if an asset forms part of the package?
- How do different parts of the termination package get reported in a payment summary?
What will the session cover?
This session will look at the tax implications for different types of termination payments such as:
- unused leave payments;
- gratuities or golden handshakes;
- redundancy payments;
- payments in lieu of notice;
- transfers of property, etc.
In particular, this session will consider the different tax treatments for:
- Employment Termination Payments (ETPs), differentiating between life ETPs and death ETPs and providing insight into how the caps work;
- Genuine Redundancy Payments and Early Retirement Schemes;
- Unused annual and long service leave.
As many of the taxation implications that arise are specific to particular facts, the session will take a practical approach using examples and case studies to tease out specific issues and reflect on how a specific fact can change the tax outcome.
Who should attend?
Accountants and advisers, payroll managers, HR managers, employers, employees
While the rule regarding the taxation of termination payments may not initially appear complex, it is very easy to get it wrong, leading to penalty exposures for employers and unexpected tax liabilities for employees.
This session is intended to be an aid for affected persons, by highlighting some of the traps and intricacies that they may not be aware of, even where they have encountered these rules many times before.
CPD Points: 1.5