The reporting of payments of leave is being broken down for Services Australia (via ATO) to inform the assessment of income tested payments which may be affected by leave payments received while still employed, or by accrued leave payments and termination payments received upon cessation of employment.
Additionally, itemising these components of paid leave better informs the ATO on minimum legal obligations for ordinary time earnings (OTE).
Paid leave includes both an absence from work where the entitlement to that absence is remunerated by the payer to the payee, and the payment of the leave entitlement without the absence from the workplace: either in service or upon termination.
This represents the YTD amount of ordinary time earnings leave entitlements that have been paid out in lieu of the payee taking the absence from work. This option represents Fair Work entitlements as defined in an award, enterprise agreement or contract of employment (for award and agreement free employees). When leave is cashed out, it reduces the balance of the entitlement, as occurs if the absence was taken, but on the date of payment rather than over the duration of the absence.
Cash out of leave in service may include, but is not limited to, the following types of leave:
Annual Leave – holiday or recreation leave for full time and part time workers. Use the pay element, ALPAY for cashing out Annual Leave in CloudPayroll.
Leave Loading – a bonus payment, usually a percentage of the leave balance, when leave is taken, or at a specified date other than upon absence. This would be considered cashed out if the loading was paid without benefit of the qualifying absence being taken, or if the qualifying absence was cashed out that results in the corresponding cash out of the loading. However, if the loading is demonstrably referable to a notional loss of opportunity to work overtime, cash out of that leave loading would be classified as Overtime, rather than as Cash out of leave in service. This will report correctly in CloudPayroll if you use the pay elements LL17.5 for non-overtime or LL17.5NS for overtime leave loading.
All cash out of leave in service is for leave that is classified as ordinary time earnings. If there are other entitlements to leave that are deemed ordinary time earnings, then also report those cash-out payments as Cash out of leave in service. However, if the cash out of leave in service is for leave whose absence is not ordinary time earnings, do not report those payments under this Payment Type. Report them as the applicable Payment Type.
In addition to the leave loading exception referenced above, another example of cash out of leave in service that is not ordinary time earnings is Time Off in Lieu (TOIL). TOIL is provided in some awards and registered agreements to allow an employee to take paid time off work instead of being paid overtime pay. The absence may be granted at the overtime single time equivalent (STE) hours or actual worked hours. An example of the STE method is, if the worker would have worked 2 hours at time and a half, this would equate to 3 STE hours. The absence entitlement of 3 hours, if not taken within the specified time permitted under the industrial instrument, would be paid out as the original overtime penalty hours: 2 hours at time and a half. This type of cash out of "leave" is not ordinary time earnings, therefore not Cash out in service, but instead, should be reported as Overtime.
Some types of leave balances are paid out upon the termination of employment, in accordance with the industrial instruments that define the entitlement to leave. Of the leave balances paid out upon termination, some are considered part of the:
Lump Sums – reported as payment type Lump Sum Payment Amount
Employment Termination Payment (ETP) – reported as payment type in the Termination Payments Amount
Unused leave on termination is comprised of the post-17 August 1993 component of annual leave, leave loading and long service leave for termination reasons other than genuine redundancy, invalidity or early retirement scheme.
The types of leave balances that are ordinary time earnings when the absence is taken are not ordinary time earnings when paid out on termination. The unused leave paid on termination is comprised of the post-17 August 1993 component of the following leave types, only for normal terminations (other than for genuine redundancy, invalidity or early retirement schemes):
Leave Loading - a bonus payment, usually a percentage of the leave balance.
Long Service Leave - granted to reward a specified period of continuous employment for full time, part time and casual workers.
The other accrual-date components of these leave types are paid and reported as Lump Sum Payments.
Previously, in STP Phase 1 and Payment Summaries, the post-17 August 1993 component of leave paid on termination was reported as Grossand marginally taxed, but not OTE and not included in the calculation of the superannuation liability. The tax treatment has not changed, but the reporting of these amounts is now discretely identified as Unused leave on termination and is not ordinary time earnings.
Paid Parental Leave
After at least 12 months of service, employees can get parental leave, paid or unpaid, when an employee gives birth, an employee’s spouse or de facto partner gives birth or an employee adopts a child under 16 years of age. Some employers offer paid parental leave and the Government Paid Parental Leave (GPPL) Scheme offers eligible employees, who are the primary carer of a newborn or adopted child, up to 18 weeks’ leave, paid at the national minimum wage. Generally, GPPL is paid by Services Australia to the employer to pay the employee, but both types of paid parental leave may be paid at the same time.
Paid parental leave from the employer and GPPL must be reported as Paid Parental Leave. Use Pay Element PPL for this in CloudPayroll.
If bonuses are paid as an inducement for an employee to return to work after a parental leave absence, that bonus must not be reported as Paid Parental Leave, but must be reported as Bonuses and Commissions, even if the purpose for the payment is due to parental leave.
Tax treatment for the paid absences are as per standard tax tables for salary and wages or lump sums in arrears, depending on the payment frequency. Paid parental leave is not ordinary time earnings or salary or wages for superannuation guarantee purposes.
Workers’ Compensation
Any workers’ compensation payments received by an injured employee for the hours not worked (or not attending work as required) or if the employment has been terminated.
The initial period of workers’ compensation absence and any remaining paid approved workers’ compensation absence paid by the employer to the employee, even if on behalf of the insurer, is not ordinary time earnings (and not salary or wages) and must be reported as Workers’ Compensation.
Because the insurer pays the workers’ compensation absence at a rate typically lower than the current normal pay, many employees request a “top-up” or “make-up” payment from their employer, to achieve their normal pay amount, by accessing other entitlements. Some awards have entitlements to accident pay for employees on workers’ compensation. Accident pay is the difference between what an employee would normally get paid and the amount they get paid from workers’ compensation. These approved workers’ compensation absence amounts are not ordinary time earnings (and not salary or wages) and should also be reported as Workers’ Compensation.
Workers’ compensation payments may be required to continue to be paid, even after the employee is terminated, in accordance with insurer requirements. The workers’ compensation payment to terminated employees may continue for many years. Although no longer technically an employee absence, these payments should be reported as Workers’ Compensation.
Workers’ compensation payments where the employee is required to work is salary or wages for superannuation guarantee purposes and must not be reported as Workers’ Compensation but should be reported as Gross(Ordinary Time) as this is an attendance type, not an absence type.
Tax treatment for the paid absences are as per standard tax tables for salary and wages or lump sums in arrears, depending on the payment frequency.
Ancillary and Defence Leave
Paid leave for absences such as for Australian Defence Force, Emergency Leave, eligible Community Service and Jury Service.
There are a range of leave types that are collectively referenced as “ancillary” leave for full time, part time and casual workers:
Community service leave – such as for voluntary emergency management activities for bodies such as the State Emergency Service, Country Fire Authority and the RSPCA.
Jury duty leave – including attendance for jury selection. Full time and part time employees have to be paid “make-up pay” for the first 10 days of jury selection and jury duty.
Defence reserve leave applies to volunteers of the Australian Defence Forces to undertake defence services. Employers may access financial assistance to offset the costs of releasing employees for Defence service through the Employer Support Payment Scheme.
Employers may offer paid or unpaid absences for all these types of leave. All paid absences, including "make-up pay"” for ancillary and defence leave are to be reported as Ancillary and Defence Leave. These types of absences are not ordinary time earnings or salary or wages for superannuation guarantee purposes.
Any other types of paid absences that are not OTE are to be reported under this category.
Tax treatment for the paid absences are as per standard tax tables for salary and wages or lump sums in arrears, depending on the payment frequency.
Other Paid Leave
All other paid absences, regardless of rate of pay (full, half, reduced rate) are ordinary time earnings and must be reported as this payment type. It includes, but is not limited to:
Rostered Day Off (RDO) – a paid entitlement to absence, accrued due to additional ordinary time hours worked in a roster period, that an employee doesn’t have to work. Note that some RDOs are set out in an award or registered agreement to be unpaid.
Time Off In Lieu (TOIL) – a paid absence, provided in some awards and registered agreements, to allow an employee to take paid time off work during the ordinary span of hours at their ordinary rate of pay (not penalty rates) instead of being paid overtime pay.
Other Leave – any other forms of paid leave that are not identified above that represent ordinary time earnings, including, but not limited to:
Compassionate and bereavement leave – full time and part time employees receive paid compassionate leave
Family and domestic violence leave – some employers may provide payment for this entitlement.
Special Paid Leave – some employers may respond to specific social, health, legal or economic circumstances by offering paid leave. For example, indefinite paid leave during an investigation of an employment matter (“gardening” leave) or special paid leave during COVID-19.
If an employee and employer have agreed to flexible working arrangements, where the ordinary hours of work are varied, the additional ordinary hours worked to accumulate flexible time off during otherwise ordinary hours of work may be recorded in the timesheet, but not defined as a paid absence during ordinary hours of work. This is due to the variation of the ordinary hours of work to accommodate the flexible working arrangements. Those types of unworked hours are not “paid absences”: that would require absence during the ordinary hours of work, that this category of Paid Leave is designed to capture. The flexible working arrangement payment would be part of the normal salary and wages that would be reported as Gross(Ordinary Time).
Tax treatment for the paid absences are as per standard tax tables for salary and wages or lump sums in arrears, depending on the payment frequency.
Set up in CloudPayroll
Go to Setup > Pay Elements
Go to Leave
Go to Add > Add Leave Taken
Complete the fields
Basic Details
Leave Taken Code: The Leave Code appears in the drop-down list when you add transactions to a timesheet. You should use a short, easy to type, code that you can remember easily. (If you are used to another payroll system that has Leave codes or numbers, you may like to use those for your leave code).
Description: Enter a description that will clearly describe to a person what this leave is for. This is displayed on the person's timesheets and payslips.
Note: If you include %rate% in your description, it will be replaced by the transaction's rate on the person's payslip.
Multiplier: Generally you will enter 1.0. The amount calculated is multiplied by this multiplier, and it will be 1.0 for most leave.
Leave Type
Liable Earnings: Tick all that apply to this payment type.
Accumulates into Employment Termination Payments(ETP): Tick if this payment is to be included in a person's ETP where Lump D should be calculated on Redundancy, Invalidity and Early Retirement. This should generally be unticked.
Accumulates into Casual Loading Liable Earnings: Tick if this payment is to be included in a person's Casual Loading Liable Earnings. This is important if you have a Payment that has a Rate Type of '% of Accumulated Value - Casual Loading Liable', and you want this payment to be included in the calculation.
LeaveType: Select the category that best describes this leave.
Note: If this is an 'Other Leave' type, you can select the appropriate leave balance type to update from the Balance drop-down list.
Tax as bonus: This should be selected for cash out in service.
Cash out of leave in service setup
Liable Earnings:
Accumulates into Superable Earnings: This should be ticked unless the cash out of leave in service is relating to overtime, e.g. Lieu leave.
Accumulates into Holiday Pay Liable Earnings: For cashing out of leave this is generally unticked.
Accumulates into Unused Leave Payments on Termination: For cashing out of leave this is generally unticked.
Accumulates into Employment Termination Payments(ETP)-No Lump D: For cashing out of leave this is generally unticked.
Accumulates into LSL Liable Earnings: For cashing out of leave this is generally ticked.
Payable on Termination Pay: For cashing out of leave this should be unticked.
Cash out in service: For cashing out of leave this should be ticked.
Available for Leave Request: For cashing out of leave this is generally unticked.
Tax Type:
Taxable: For cashing out of leave this shouldn't be selected.
Tax as bonus: For cashing out of leave this should be selected.
Unused Leave on Termination setup
Liable Earnings:
Accumulates into Superable Earnings: This should generally be unticked if Leave Type is Annual Leave or Long Service Leave. Otherwise this is an ETP and should be ticked.
Accumulates into Holiday Pay Liable Earnings: For unused leave on termination this is generally unticked.
Accumulates into Unused Leave Payments on Termination: This should generally be ticked if Leave Type is Annual Leave or Long Service Leave. Otherwise this should be unticked.
Accumulates into Employment Termination Payments(ETP)-No Lump D: This should generally be unticked if Leave Type is Annual Leave or Long Service Leave. Otherwise this is an ETP and should be ticked.
Accumulates into LSL Liable Earnings: For unused leave on termination this is generally ticked.
Payable on Termination Pay: For unused leave on termination this should be ticked.
Cash out in service: For unused leave on termination this should be unticked.
Available for Leave Request: For unused leave on termination this is generally unticked.
Tax Type: Select the one that best describes this payment type.
Taxable: This should be selected for unused leave on termination.
Tax as bonus: This shouldn't be selected for unused leave on termination.
Paid Parental Leave, Workers' Compensation, Ancillary and Defence Leave and Other Paid Leave
Liable Earnings:
Accumulates into RDO's Liable Earnings: This will depend on the award or agreement.
Accumulates into Superable Earnings: This should generally be unticked if leave is Paid Parental Leave, Workers' Compensation, Ancillary and Defence Leave. It should be ticked for all other leave.
Accumulates into Holiday Pay Liable Earnings: This should generally be unticked if leave is Paid Parental Leave, Workers' Compensation, Ancillary and Defence Leave. It should be ticked for all other leave.
Accumulates into Unused Leave Payments on Termination: This should be unticked.
Accumulates into Employment Termination Payments(ETP)-No Lump D: This should generally be unticked.
Accumulates into LSL Liable Earnings: For most leave types this is generally ticked.
LeaveType: Select the relevant leave type.
Payable on Termination Pay: This is generally unticked.
Cash out in service: For these leave types this should be unticked.
Available for Leave Request: For these leave types (with the exception of Annual, Sick, Long Service, Lieu and RDO leave) this will be unticked.
Tax Type: Select the one that best describes this payment type.
Taxable: This should be selected for these leave types.
Tax as bonus: This shouldn't be selected for these leave types.