Deceased Employees

The termination pay process for a deceased employee is quite different to that for a normal termination and this is due to different requirements specified by the ATO.

All outstanding payments owed to the deceased employee at the time of their death must be paid to a trustee or beneficiary, along with any death benefits, and nothing is to be paid directly to the deceased employee.

The "Final" amounts reported to the ATO for the deceased employee must be the year to date amounts as reported to the ATO by the last payrun before their death (i.e. they must not include payments made after death of any outstanding amounts or death benefits).

Payments of most amounts owed to the deceased employee are not taxable upon payment to the trustee or beneficiary and not all of them are reportable to the ATO.

Follow the process below and Marlin HR will take care of the required reporting for the deceased employee and the trustee or beneficiary.

For more information please refer to the ATO website.

Review Employee's Leave Types & Balances

Go into the Leave Entry screen and open the employee.

Review the balances at the bottom of screen in the Hours column (ignore the Days column).

If the balances in any of the leave types that will be paid out on the termination pay are incorrect, enter a Leave Balance Adjustment to correct them.

If the employee is entitled to a Long Service Leave payout but this leave type is not currently set up (i.e. does not appear at the bottom of screen), go into the Entitlements tab in Employee Maintenance and add the Long Service Leave entitlement now.

You will then need to come back here and enter a Leave Balance Adjustment to enter the number of hours payable as at the date of death.

When you perform the Termination Pay, the Termination Options window will display the current leave balances for A/L and LSL and display a checkbox beside each one.

If you tick the checkbox the termination pay will automatically payout the current balance and apply the appropriate STP-2 code on the payout. If you don't tick the checkbox, that leave type balance will not be paid out.

Either way, the system will automatically clear the balances against the employee and remove the value of the balances from the Provision For Leave liability in the General Ledger (if accruals are turned on for those leave types).

So, regardless of whether you will or will not be paying out the A/L or LSL balances, do not enter Leave Balance Adjustments to clear the balances or leave entries to pay them out.

Personal Leave is not typically paid out upon termination and when it is it must be entered on the termination pay as an allowance type with a special ETP code.

If you are going to pay out the Personal Leave balance, take note of the current balance (for use on the termination pay later) and perform Leave Balance Adjustment to clear the balance now.

If the deceased employee took some leave (A/L, LSL or Personal Leave) between his last pay and his death, you should enter a Leave Entry for those dates/hors as you normally would.

These leave entries will be picked up by the Termination Pay.

Change Employee Status to Deceased

Immediately after being notified of the employee's death and completing Review Employee's Leave Types & Balances above, you should set their Status to Deceased.

This will still allow them to be included on a termination pay but not on other payruns that could change their leave accruals and would set their Last Paid To Date to a date beyond the date of their death.

It will also ensure that the correct "Final" amounts are reported to the ATO for the deceased employee (i.e. only those amounts paid before the employee's death).

All outstanding amounts, as well as unused leave etc must be paid to a trustee or beneficiary.

In Employee Maintenance, open the employees and go to the General tab.

Change the value in the Status field to 'Deceased' and click on the Save icon.

Respond "Yes" when the Deceased Warning pops up to confirm that you wish to change the employee's status to Deceased.

You will be prompted to enter the date of the employee's death. Enter this and then click on Save.

Preparation for Termination Pay

Seek expert advice on appropriate Termination Payments

Before processing a Termination Pay it is crucial that you consult your Employer association, Tax Accountant or the ATO to ensure that you have complete and detailed information on all termination payments that you are required to pay.

A complete list of all payments to be made (including appropriate details).

For example:

• Unpaid work hours (Standard, Time & Half, Double Time),
• Unpaid allowances or commissions,
• Unused annual leave,
• Unused long service leave,
• Any lump sum payments or death benefits (Payment Amount and Tax Amount to withhold from it) and the required ATO codes for STP reporting,
• Any other applicable ETP payments (Payment Amount and Tax Amount to withhold from it) and the required ETP Code for STP reporting,
• Any other information pertinent to the processing of this termination.

Check all required Earnings Types and Allowances are available in Marlin HR

To check Earnings types, select System > Earnings from the Marlin HR menu.

If there isn't a required earnings type available for a payment (and you have checked that it is not meant to be an Allowance type), click on the Add icon to create one to suit your requirements.

To check Allowance types, select System > Allowances from the Marlin HR menu, then click on the Refresh icon and respond Yes to the confirmation prompt.

This will add/update a number of pre-configured allowances, including many termination related allowances.

If a suitable Allowance does not appear in the list, click on the Add icon to create one to suit your requirements (see Allowances).

Set up Trustee or Beneficiary

Once you have been informed in writing of the details of the authorized Trustee or Beneficiary, you will need to create them in Marlin HR so that they can be selected on the Termination Pay for the deceased employee.

Select Main > Beneficiary Maintenance from the Marlin HR menu.

Enter all of the required details and Save.

The TFN for the trustee or beneficiary must be a valid unique TFN. The special TFNs provided by the ATO for employees in certain circumstances (e.g. 000000000, 111111111 etc) are not allowed to be used for trustees or beneficiaries.

Select payment method as EFT to Bank Account or Cheque according to what is required by the trustee or beneficiary (you may be asked to issue a cheque made out as advised so that only the authorised trustee can bank it).

Set Document Delivery to Email if you will email the Pay Advice from the Termination Pay to this beneficiary (remember that you will need to provide them with the password).

The password is the Beneficiary Code followed by the first 4 digits in the Date Of Birth, so in the example below the password would be BRAELE1305

Process the Termination Payrun

Initializing the Termination Payrun

Open the Pay Run screen.

Select Termination Pay in the Pay Type field.

Tick the Show Inactive, Termination and Deceassed Employees checkbox below the employee list to make the deceased employee available for selection (you will see a red Deceased in the Status column).

Enter the Termination Date (the employee's date of death).

Enter the Date Paid (this is the date on which you will issue payment).

In the Termination column, click on the Options button to access the termination options for the employee.

The Termination Date will be locked down as the Date of Death that you entered in Employee Maintenance when you set the employee's Status to Deceased.

The Cessation Type of Deceased and the Deceased Date are automatically entered as you previously set these in Employee Maintenance.

Click on the Beneficiary field and select the authorized trustee or beneficiary that you previously created in Beneficiary Maintenance.

A default comment will appear in the Individual Message field and be printed on the Pay Advice, you can edit or replace this if necessary.

Unused Leave Payout

The balances for Annual Leave and Long Service Leave will be displayed (if those leave types were set up for the employee in Employee Maintenance).

If a leave balance to be paid out is wrong or missing, click on Cancel and go back to STEP 1 above to fix it.

If the employee had worked some standard hours since his last pay, you will enter those Standard Hours onto the Termination Pay and the system will automatically calculate and add pro rata leave accrual to the leave balances displayed on the Termination Options window, as well as any employer superannuation contribution.

If the displayed unused Annual Leave balance is to be paid out, tick the check box.

If the employee is entitled to Leave Loading on that leave payout then tick that checkbox as well.

If the displayed unused Long Service Leave balance is to be paid out, tick the check box.

Once all selections have been made, click on the OK button to save your selections and return to the Pay Run screen.

There will now be a tick beside the Options button for this employee, indicating that they have been selected for this Termination Pay and that you have selected their termination options.

Click on the Initialize button to initialize the Termination Payrun.

Review/Enter Termination Payment Details

On the initialised termination payrun you will see 2 people, the authorized trustee or beneficiary and the deceased employee.

This is required so that the system can:

• Bring in the unused leave balances from the deceased employee and transfer them to the beneficiary
• Send an STP submission to the ATO for the deceased employee with amounts flagged as "Final" (these will be the same year-to-date figures submitted for the employee on their previous payrun but will also flag them as Terminated with a Termination Reason of Deceased).
• Send an STP submission to the ATO for the beneficiary (payments of all unused leave, outstanding payments, death benefits, superannuation etc will be reported against the beneficiary's TFN and will be flagged as "Final")

All amounts shown on the deceased employee will be zero and greyed out as no payments are to be made to an employee after death.

All payments must be entered on the beneficiary and most will not be taxable.

No defaults are brought into a Termination Pay from Employee Maintenance (i.e. earnings, allowances, deductions) as these are for use on Normal payruns only.

Deductions cannot be made on a Termination Pay for a deceased employee.

The amount of any superannuation calculated on the Termination Payrun will be entered as a payment to the beneficiary and included in the Net Pay figure to be paid to the beneficiary by EFT or Cheque.

Double-click on the trustee or beneficiary to view the details screen and enter the required payments and payouts. Do not enter any amounts against the deceased employee.

Viewing the Unused Leave Payout

Click on the Unused Leave Payout field in the "This" column to view the payout of unused leave (as per your selections on the Termination Options window before initializing the termination pay).

Accruing Leave on a Termination Pay

Any hours worked or leave taken since their last Normal Pay must be entered onto the deceased employee's Termination Pay and they are entitled to accrue leave on a pro rata basis for any of those hours that are specified as Ordinary Time Earnings (OTE) by the ATO.

Generally this only includes Standard Hours, Annual Leave, Personal Leave and Long Service Leave. The Termination Pay will calculate and pay it out automatically if you ticked the Payout Unused Annual Leave or Payout Unused Long Service Leave check box on the Termination Options window before initializing the Termination Pay.

For example, if an employee's last Normal Pay pays him up to Wednesday but he worked until his death at the end of Friday (i.e. he either worked the Thursday and Friday or took them off as paid leave days), then he is entitled to accrue some leave for those two days.

If his normal working week was 40 hours (i.e. 8 hours per day) then for each leave type the system will divide the normal weekly accrual figure by 40 (to get an hourly accrual rate) and then multiply this rate by the number of OTE hours entered on the Termination Pay.

These accruals will be visible in the Leave Accrued line and will be automatically added to the Unused Leave (Payout) figure.

Entering outstanding payments & Death Benefits

Click on the Earnings field to enter any unpaid earnings since the employee's last Normal Pay (eg. Standard Hours, Bonus, Commission etc).

Click on the Before Tax Allowance field to enter any unpaid allowances since the employee's last Normal Pay (eg. First Aid, Tool allowance, Height allowance etc) and any Death Benefits.

Finalising the Termination Pay Run

Once you have entered all required payments and thoroughly double-checked everything, click on the Save icon to return to the summary screen.

If appropriate, click on the Print icon to view an Interim Pay Run Analysis Report, print it and have your manager approve it.
Once approved, Finalise the Termination Pay.

Print or Email the Termination Pay Advice for the deceased employee and the trustee or beneficiary and use the ABA bank file to make payment or issue a cheque as required.