AU: Marginal Tax On Normal Termination Not Calculating Correct Average Earnings
(Doc ID 1476698.1)
Last updated on FEBRUARY 05, 2024
Applies to:
Oracle HRMS (Australia) - Version 12.1.3 and laterInformation in this document applies to any platform.
This note provides a brief overview of
Symptoms
Problem Statement:
There is a problem with how Oracle is calculating 'Average' pay when an employee is terminated. It looks like Oracle is taking the earnings (excluding termination elements) from all pays (including the period the employee terminates in) & is dividing by the number of whole periods the employee has worked in the financial year (excluding the final period).
According to ATO NAT 3351 (Tax Table for unused leave payments on termination of employment) "Normal gross earnings are all payments, except those relating to termination payments, received in the LAST FULL PERIOD of employment. This includes taxable allowances, overtime and bonuses. Therefore, your payee¿s normal gross earnings should be taken to be the earnings relating to the LAST FULL PAY PERIOD WORKED."
Prior to the application of AU.18, termination calculations appear to be correct, however with the application of AU.18 it looks like Oracle is including all earnings (except the termination elements) including earnings from the period the employee terminates & is using this figure as the basis for Average Earnings. It is then dividing these earnings by the number of full periods the employee has worked, less the period in which the employee terminates.
Period 1 (17¿30 Jun 12, pay date 3 Jul 12) ¿
Gross earnings =$2,615.40. Tax = $566
Period 2 (1¿14 Jul 12, pay date 17 Jul 12) ¿
Gross earnings =$2,615.40. Tax = $566
Period 3 (15¿28 Jul 12, pay date 31 Jul 12) ¿
Gross earnings =$653.85. Tax = $0.00
The employee terminates on 16 Jul 12 (period 3), it is a Normal Termination & he receives $18,605.29 as Annual Leave on Termination.
Oracle has calculated Termination Leave Deduction of $6968
I think Oracle is including the current period earnings
Period 1 + 2 + 3 = $2,615.40 + $2,615.40 + $653.85 = $5,884.65 / 2 (periods)
= $2,942.33
The tax on this amount is $678
Annual Leave = $18,605.29 / 26 (periods in a year) = $715.59
Add this value to the average earnings $2,942.33 + $715.59 = $3,657.92
The tax on $3,657.92 = $946
The difference in tax is $946 - $678 = $268 x 26 = $6,968
Cause
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In this Document
| Symptoms |
| Cause |
| Solution |
| References |