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Taxation – Employment termination payments

Last updated December 2023

This chapter explains how to calculate tax on the payments you make to departing employees, including payments upon dismissal, retirement and retrenchment.

Taxation of payments to departing employees

The taxation of payments you make to departing employees will depend on what the payment is and whether the employee is leaving your employment due to:

  • voluntary resignation, dismissal or retirement;
  • voluntary resignation under an early retirement scheme; or
  • retrenchment.

What payments are made upon voluntary resignation, dismissal or retirement?

When an employee leaves due to voluntary resignation, dismissal or retirement, you must pay the employee:

  • unused annual leave entitlements they have accrued, including leave loading; and
  • unused long service leave to which they are entitled.

You may also be required to, or can choose to, pay:

  • an employment termination payment;
  • a restraint of trade payment; and
  • a pain and suffering payment.