Processing unused leave payments

When an employee leaves your business, whether through resignation or termination for cause, the termination can be processed immediately in your platform. The first part of the process is completed from the employee’s profile, usually by someone in the HR or People & Culture team.

During the termination workflow, several key details are set to help automate payroll. It’s important to understand what each of these does, as they can directly affect how final payments are processed. 

These include:

• Marking the employee as terminating or terminated by setting a termination date

• Setting an archive date for record-keeping purposes

• Managing the payment of leave entitlements

Reviewing and discussing these with the HR team ensures the termination process and final payments are accurate and processed smoothly.
 

Termination and archive dates

Setting the termination and archive dates is a key part of the termination process. These dates record the employee’s final day of employment and provide a window to complete any payroll actions. 

Each date has a specific purpose within your platform, as outlined below:

• Termination date

  • This date marks the cessation date for your employee. 

  • This is the date reported to the ATO as their final day of employment.

  • Once set, the employee will show a status of ‘Termination in xx days’ if the date is in the future, or ‘Terminated’ if the date has passed.

  • Terminating employees remain part of the Approved People menu and function like any other approved employee, so you can still roster, approve leave, and process payments.

• Archive date

  • The date the employee’s profile automatically moves to the Archived People menu.

  • Must be set after the termination date.

  • All payroll actions, including final leave payments, must be completed before this date.

  • Archiving cancels any upcoming leave applications, deductions, and positions.

  • Archived employees cannot be rostered or paid. Any additional payments will require reactivation of the profile.

Correctly setting termination and archive dates ensures accurate record-keeping and smooth processing of final payments.
 

Managing leave types

Managing leave types correctly allows your platform to automatically create payslips to pay them out. This can happen on a final payslip, either when terminating an employee or when ending a permanent position before transitioning them to casual employment.

Select the correct option from the tabs below for more information:

Once your HR or People & Culture team has completed the termination workflow in the employee’s profile, the next step is to pay out the relevant leave entitlements. Completing the termination process first allows payroll to automate unused leave and ensures it is paid correctly.

  If the employee’s profile has not yet been terminated, refer to the Terminate and offboard an employee article before continuing.

When processing final payments, extra care is required. This is the last payment the employee will receive, meaning there are no future payments to recover any outstanding amounts.

For this reason, we recommend reviewing the following items before generating the final payslips, as payslip edits may be required to recover funds. 

Key checks include:

• Leave entitlements with negative balances. Apply a deduction to the draft payslip to recoup funds, then set the leave balance to 0.

• Instalment deductions, which automatically end once an employee is archived. You may need to edit an existing deduction or create a new one to collect any remaining balance.

• Reimbursements, such as returning a uniform deposit, need to be applied before final pay is processed.

  Warning: Any amounts still owed after the final pay is processed and the employee's profile is Archived must be managed outside the platform.
 

Blocked payslips

As part of the termination process in an employee’s profile, you’ll need to choose whether each leave type should be paid out on termination. When a leave type is set to be paid, this is automatically applied to a payslip to process the leave payout.

In most cases, this amount is applied to the employee's payslip for the final pay period, once it is created. However, if the employee is also redeeming leave in the same pay period, these payments must be handled separately. 

This is because only one leave method can be used per leave type on a payslip (e.g. if Annual Leave is redeemed via a leave application, it cannot also be paid using the termination method on the same payslip).

As a result, there will be 2 payslips for the final period of the employee’s permanent position:

• First payslip – Regular earnings and redeemed leave

  • Covers any hours approved and any redeemed leave

  • These payslips, along with any draft payslips from other pay periods, must be actioned first

  • They can either be generated or deleted before continuing

• Second payslip – Final leave payout

  • Pays out leave entitlements

  • This must be the last payslip generated

To protect the accuracy of the final payslip, it may be Blocked, preventing it from being generated. This can also occur if the employee has a negative leave balance. In either case, you’ll need to resolve the issue causing the block before generating pay.
 

To manage a blocked payslip:

1. Locate the blocked payslip and select the Blocked button to the right.

   

2. This will give you a reason as to why the payslip is being Blocked, this can include:

   • Negative leave balance - To resolve, select Edit payslip and apply the changes.

   • Leave redemption conflict - To resolve, process the payslip with the leave redemption first.

   • Unpaid payslips from previous pay period - To resolve, select View payslips and continue to step 3 below. 

   

3. After selecting, the Draft Payslips page will be filtered to show all draft payslips blocking the termination payment. These payslips are automatically selected, making it easy to select an action from the taskbar and bulk action. From the taskbar, you can choose to:

   • Delete - Delete all draft payslips selected

   • Generate - This will process all payslips selected

     

4. Once this is resolved, reprocess the blocked payslip so it can then be generated.

If you do not have permission to terminate the employee’s profile (the preferred way to process a termination), you can process termination leave payments manually on payslips.

When processing final payments, extra care is required. This is the employee’s last payment, meaning there are no future payslips to recover any outstanding amounts.

For this reason, we recommend reviewing the following items before generating the final payslip, as edits may be required to recover funds:

Key checks include:

• Leave entitlements with negative balances – Apply a deduction to the draft payslip to recoup funds, then set the leave balance to 0.

• Instalment deductions – These automatically stop once an employee is archived. You may need to edit an existing deduction or create a new one to collect any remaining balance.

• Reimbursements – Ensure any reimbursements (e.g. uniform deposits) are applied before the final pay is processed.

  Warning: Any amounts still owed after the final pay is processed and the employee's profile is Archived must be managed outside the platform.
 

Manual terminations and leave redemption

When processing terminations manually, you must determine whether the employee is also redeeming leave in the same pay period, as the process differs depending on the situation:

• If no leave is being redeemed – You can edit the existing payslip to include the termination payment.

• If leave has been redeemed – As only one payout method can be applied per leave type on a payslip, you will need to first generate the payslip with the leave redeemed, then create a manual payslip to pay out the leave on termination. 

  • For example, if Annual Leave is redeemed via a leave application, it cannot also be paid using the termination method. 

  • The termination method is the only way to pay out leave that has accrued in the same pay period.

  After processing the termination payments, contact your HR team to terminate the employee’s profile. This ensures all compliance and record-keeping obligations are met.
 

To manually pay out an employee's leave entitlements:

1. Navigate to Payroll > Pay > Draft payslips. 
2. Locate the employee’s draft payslip and check for leave redemption, indicated by the leave icon:
   • If no leave is being redeemed - Select Edit from the dropdown menu. 

   • If leave has been redeemed - Generate the payslip with the leave redemption. Then, create a  manual payslip and add the position details so the remaining leave balance can be paid. 

     

3. On the Create/ Edit Payslip page, locate the Pay Items section, then navigate to Entitlements and select Add entitlement and complete the following fields:
   • Type - Select the relevant leave entitlement (e.g Annual Leave)

   • Method - Select Termination. This will automatically populate the hours field with all remaining leave balance, including any hours they have accrued in the current pay period. 

     
     
       Please note: Leave terminations are automatically taxed as regular gross. You may wish to calculate a different withholding amount and override the tax on this payslip. Find out more here. 

4. Upon selecting Termination, you will be prompted to select the appropriate STP reportable label:

   • Lump Sum A Redundancy
   • Lump Sum A Termination
   • Lump Sum B
   • Unused Leave on Termination

     If you are unsure which label to choose, please refer to the ATO guidelines here.

   

5. Upon finalising any further edits, select Preview Payslip. You will see the entitlement hours, along with any relevant loadings, in the Entitlements Paid section. 
6. Once you’ve reviewed the payslip, select Update Payslip and add a comment. Then you’re ready to generate the payslip.

  For more information on editing payslips, please see our help guide article here!

For some employees, termination may involve processing an Employment Termination Payment (ETP), a lump-sum payment handled separately from regular pay because it is taxed differently from standard termination or leave payouts.

Common reasons for an ETP include:

• Payment for unused sick leave or RDOs

• Payment for unused TOIL

• Payment in lieu of notice

• A gratuity or “golden handshake”

• Invalidity payments (permanent disability, excluding personal injury compensation)

• Compensation for job loss or wrongful dismissal

• Genuine redundancy payments

• Early retirement payments exceeding the tax-free limit

ETPs are processed using a separate payslip from unused leave payouts. When managing terminations, you can choose to process either the ETP or the termination payslip first, but both must be completed before the employee’s profile is archived.

  For step-by-step guidance on creating and processing Employment Termination Payments, please refer to our full guide here. 

Once unused leave has been paid, and the payroll part of the termination is complete, the next steps are straightforward and follow the usual process. 

However, there are a few key differences to be aware of:

• Single Touch Payroll (STP)

  • As part of the termination process, both when terminating the employee’s profile and processing final payments, information is sent to the ATO via STP. This includes key details such as:

    • Termination date

    • Termination reason

    • Termination payments (e.g. unused leave payouts)

    • Year-to-date balances are sent as per usual pay events

  • This can be submitted as an update event (common for casuals with no unused leave) or a pay event (when leave is processed).

  • Terminated employees are marked with a 'T' next to their name in the STP submission.
    
    
     

  • You can expand entries on the STP page to view the leave payout category. If two payslips (e.g., leave redemption and termination) are processed on the same day, both will appear in a single STP submission.

    
     

  • You do not have to do their end-of-year finalisation until EOFY.

• Superannuation

  • Superannuation payments can be processed as normal once the employee has been terminated.

  • For employees on temporary visas or Working Holiday Maker (WHM) visas, it’s recommended to process superannuation payments promptly in case any issues arise after they leave the country.

For your post-payroll needs, there are 2 reports that you can refer to in order to see your termination payments. However, each report has its specific use. These reports are:

• Advanced Payroll Activity Report - This report will display all leave and ETPs paid in your platform. However, it will not filter specifically for leave paid on termination.
• Standard Payroll Activity Report - This report can be used to filter for payslips with Leave Terminations, see below for more details. 
   

To use the Standard Payroll Activity Report for termination payments:

1. Navigate to Reports > Financial > Standard.
2. Set the required date range > add your groupings (recommended groupings would be Employee ID, Payslip and Period End).
3. In Extra Filters, select 'Payslips with Leave Terminations'.
4. Select any other search criteria or reporting options you need then Submit.

  You can read more about the Standard Payroll Activity Report here. If you are looking to learn more about reporting on Terminations for HR purposes, please read here.

Why does my employee have 2 payslips, and why can’t I add unused leave to the same payslip?

When processing an employee’s final payments, leave redemption and unused leave payouts cannot be included on the same payslip.

This is because redeemed leave is processed using the Redeem method, while unused leave is paid using the Termination method, and only one leave method can be applied per payslip. 

This is key because the Termination method must be used; it will pay out all leave accruals—including any accrued during the current pay period.

If this occurs where you 2 payslips, the payslip with the unused leave payment will be blocked to ensure it is processed last. First, process the payslip that includes the leave redemption, then process the blocked payslip with the termination leave payout. 

For more information, refer to the Blocked payslips and Processing final pays section above.

Where is the unused leave on termination costed?

Unused leave is costed to the same cost code as the employee’s primary position, consistent with how leave is costed when redeemed via a leave application.

If required, you can edit the payslip and update the cost code to allocate the cost elsewhere.

We terminated an employee and paid out entitlements, but later realised that we needed to pay them for an additional week. They have been archived. What should I do?

Yes. You can make edits or adjustments to the final payslip, including correcting underpayments, as long as the employee is still listed in the Approved People menu.

Once an employee has been archived and moved to the Archived People menu, they can no longer be paid. If further payments are required, the employee must be reactivated before the payslip can be processed.

The employee has a negative leave balance. Why can’t I process their final pay?

Employees with a negative leave balance will have their payslip blocked. This acts as a helpful reminder to recover any outstanding funds before processing the final pay.

To resolve this, apply a deduction to recoup the amount owed, then update the employee’s leave balance to 0.

How do I recoup funds for a terminating employee, and can I add a deduction after their final pay has been processed?

When managing termination payments, always check the employee’s profile before processing final pay for:

• Negative leave balances

• Incomplete installment deductions

If any amounts are outstanding, recoup your funds by applying a deduction before finalising the payslip.

Once an employee’s final pay has been processed and the ABA submitted, it is not recommended to apply a deduction through the platform. Since the employee is no longer receiving income, there are no future earnings to deduct from. Any remaining amounts will need to be recovered outside of the platform.