You may need to withhold tax if you make advance payments of annual leave, long service leave and leave loading to employees who are continuing in your employment.
Annual or long service leave payments
If you are paying an employee annual leave or long service leave for a period greater than one pay period, you can use the online tax calculator or appropriate tax table to calculate the PAYG withholding amount.
The amount to withhold from an advanced leave payment is based on the amount of leave taken.
Leave loading
Any leave loading attracted by annual leave in an advance leave payment is to be added to the total leave payment when calculating the withholding.
Example: leave in advance with leave loading
Your employee:
- is paid weekly
- claims the tax-free threshold
- earns $1,410 a week, and
- is taking eight weeks leave – four weeks annual leave and four weeks long service leave.
They will receive a leave payment of $11,280 for the eight weeks leave.
The annual leave attracts leave loading at the rate of 17.5% per day, which increases the total leave payment by $987 to $12,267.
Step 1: Divide the total leave payment by the number of weeks leave to give the average weekly earnings: $12,267 ÷ 8 = $1,533
Step 2: Calculate the amount of withholding from the average weekly earnings, ensuring the calculation takes into account the tax-free threshold. The withholding amount for the average weekly earnings of $1,533 is $367.00.
Step 3: Multiply the withholding amount by the number of weeks leave: $367 × 8 = $2,936.00
The total amount to withhold from the full leave payment of $12,267 is $2,936.00
End of exampleThis example uses the weekly tax table for payments made on or after 1 October 2016. Ensure that you use the tax table that applies to that employee's normal earnings when calculating the amount to withhold.
If a continuing employee receives a payment for unused leave, with or without leave loading, use Tax table for back payments, commissions, bonuses and similar payments.
If an employee ceases working for you, use Tax table for unused leave payments on termination of employment.
See also:
- Tax tables
- Tax table for back payments, commissions, bonuses and similar payments
- Tax table for unused leave payments on termination of employment
- Tax withheld calculators