An employment termination payment (ETP) is a payment received by an employee because their employment was terminated. Not every terminated employee receives an ETP; it depends on what the termination pay is made up of and whether any of those payment types fall into the ETP classification. A list of what is defined as an ETP can be accessed here.

ETPs are broken down into codes and treated differently for tax purposes. A list of each ETP code can be accessed here. The two ETP codes of Type R and Type O are outlined below. This article will discuss Type R & Type O ETPs and specifically:

Processing Type R payments
Processing non-superable or superable Type O payments, such as in lieu of notice; and
Paying out unused leave, such as sick leave and rostered days off.

Processing Type R and Type O payments

To process ETPs Type R and Type O, you need to:

Terminate the employee within a pay run
Create an ETP by ticking the ‘Redundancy/ETP’ checkbox
Add a Type R or Type O lump sum payment
Used and unused Type O leave payments
ETPs as opening balances
Reporting ETPs

The specific steps will be detailed in the sections below.

1. Getting started

1.1 Terminate employee

Once the employee has been added to the pay run, click on the employee within the pay run, then click the 'Actions' button and select 'Terminate employee':

A pop-up will appear as follows, and you can change the termination date and reason as needed:

The employee's record will turn pink as an indicator it is in termination mode and will display calculated earnings and any accrued leave to be paid out as part of the termination pay.

1.2 Create ETP

Once the ‘Terminate employee’ action has been selected, tick the ‘ETP/Redundancy’ checkbox:

This will allow you to enter Type R and Type O amounts, pay out unused Type O leave, and ensures that tax is correctly withheld.

Late termination warning

If the current pay run paid date is more than 12 months after the termination date recorded on the employee file, when the 'Redundancy/ETP' checkbox is ticked a warning will display.

Users can choose to continue by clicking 'OK'. Clicking 'Cancel' will revert to a non-ETP termination. In general, ETPs must be made no more than 12 months after the termination date. However, there are some exceptions which the ATO will accept. It is up to businesses to ensure they fall within the exceptions and have approval from the ATO. You can find out more here.

2. Adding payments

2.1 Type R payments

Once you have commenced the termination process (as explained above), you will see the following details in the employee's pay. Tick the "Redundancy/ETP" checkbox and then you'll see an 'Excluded (Type "R") Payments' field.

Enter any tax free component (see here for more information on working out the tax free component) and the total taxable amount and click ‘Save’. This will then automatically calculate any tax as per the ETP guidelines.

The system will then calculate the tax to withhold on the taxable amount in accordance with the Schedule 11 tax tables and display this under 'Tax withheld'.

If the payment is for a genuine redundancy, the system will calculate the tax free amount to be reported as Lump Sum D on the employee's EOFY income statement. For more information on genuine redundancy, see the ATO guide.

You are able to use the 'amended' checkbox which is used when you need to correct previously recorded (incorrect) data. It allows you to correct the error and mark the payment summary as amended by ticking the checkbox.

The 'override calculations' checkbox gives the ability to manually enter amounts for 'taxable component', 'lump sum D' and 'tax withheld'. These locked fields will change into editable fields when the checkbox is ticked.

2.2 Adding a second Type R line for PILON within a genuine redundancy (pay runs from 1 July 2026)

From 1 July 2026, if a payment in lieu of notice (PILON) forms part of a genuine redundancy package, the PILON component must be reported separately as Lump Sum D and classified as Qualifying Earnings (Code Q) in your STP submission. To achieve this, the PILON amount must be entered on a second Type R line — separate from the primary Type R line used for the genuine redundancy amount (rather than being combined on the same line).

When to use a second Type R line
Use this option when:

The termination involves a genuine redundancy, and
The employee is also entitled to a payment in lieu of notice that is superable and needs to be reported as QE

If the payment in lieu of notice is not part of a genuine redundancy, it should instead be processed as a Type O ETP — see our article How do I process a payment in lieu of notice? for guidance on that scenario.

How to add the second Type R line
Once you have entered the primary Type R amounts for the genuine redundancy component:

Click Actions > Add Type 'R' ETP again. A second Type R row will appear in the ETP section.
On the second Type R line, enter the PILON amounts in the relevant fields.

Note: A maximum of two Type R lines are permitted per termination pay run — the Add Type 'R' ETP option in the Actions menu will be hidden once two Type R lines exist.

Tick the Attracts Super checkbox on the second Type R line.

What Attracts Super does on the second Type R line
Ticking Attracts Super on the second Type R line:

Calculates superannuation guarantee (SG) on any amounts entered on the 2nd line.
Automatically includes these amounts in Qualifying Earnings (Code Q) in your STP submission — no additional step is required.

If Attracts Super is left unchecked, the amounts on the 2nd type R line will not attract super and will not be included in Qualifying Earnings.

Reporting
The Lump Sum D amounts, taxable components, and tax withheld values from both Type R lines are summed and reported as a single Type R ETP tuple in the STP pay event and on the payment summary. Code Q in the STP event includes qualifying earnings from the second Type R line (when Attracts Super is checked) alongside any qualifying earnings from Type O lines.

For full details on processing PILON payments — including the Type O path for non-redundancy scenarios — see How do I process a payment in lieu of notice?.

2.3 Type O payment that is not unused leave

Once you have commenced the termination process (as explained above), you will see the following details in the employee's pay. Tick the "Redundancy/ETP".

Click on 'Actions' > 'Add Type 'O' ETP'. This action will only display if the "Redundancy/ETP" checkbox has been ticked.

Enter the required amounts in the relevant fields and click on 'Save'. This will then automatically calculate any tax as per the ETP guidelines.

Take note of the "Attracts Super" checkbox. Ticking this will calculate SG on the amount entered in this row. If you have multiple Type O payments where some are superable (for eg in lieu of notice) and others are not, you will need to create multiple Type O lines to separate these payments. Additional Type O lines are added by clicking on 'Actions' > 'Add Type 'O' ETP'.

An example of how multiple payments should be separated are as follows:

Any comment entered in each row will appear in the employee's pay slip if the "Show line notes" setting is ticked in the Pay Slips setting screen.

2.4 Type O payment that is unused leave

Any leave categories that have NOT been excluded from termination pay and classified as ETP (ie the "ETP" checkbox in the leave category setting has been ticked) will be paid out as a Type O earning automatically, once you have commenced the terminate employee process. The leave will be paid out as "Other Earnings" and classified as a Type O Unused Leave payment:

The amount will then be taxed in accordance with the ATO's ETP guidelines.

ETPs in opening balances

If you are migrating terminated employees' data across to the platform, you can include ETP data so that you only need to access one system for reporting and payment summary purposes.

Take note of the field 'Generate ETP Payment Summary'. The default value is 'No' - if you leave this option as is, the employee's ETP Payment Summary will not be published and so the employee will not have access to it. If you change the value to 'Yes', the employee's ETP Payment Summary will automatically publish and they will be able to access this via their employee portal.

Users should take care to ensure the payment date entered falls within the financial year assigned for opening balances.

Tax reporting for ETPs

STP reporting

When a pay run containing an ETP is finalised, the corresponding STP pay event will specify:

the total taxable components;
any tax free component
total tax withheld
ETP code

and report to the ATO once lodged.

The employee is automatically marked as 'is final' within the STP pay event.

Employment termination payment summaries

Businesses which are exempt from STP reporting – ie WPN holders – must provide the employee with a 'PAYG payment summary – employment termination payment’ (ETP payment summary) within 14 days of making the payment.

Once the pay run has been finalised an ETP payment summary is generated. The payment summary will display:

the total taxable component;
any tax free component
total tax withheld
ETP code

ETP payment summaries are available on the employee portal under ‘Documents’ > ‘Payment summaries’. Businesses can send a notification to the employee from the employee file under ‘Employee management’ > ‘Payment summaries’ or from Reports > ATO reporting > Payment summaries under the ‘Employment termination payment’ tab.

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