How to Handle Termination Payments in Odoo

Processing an employee termination involves more than just running a final pay run. You need to calculate outstanding leave, determine what constitutes an Employment Termination Payment (ETP), apply the correct PAYG withholding rates, and lodge the STP finalisation. Getting this wrong can lead to ATO penalties and Fair Work claims. This guide walks through the entire process in Odoo.

Types of termination

The type of termination affects what payments are due and how they're taxed:

• Resignation — Employee quits. Pay notice period (if worked), accrued leave.
• Termination by employer — Pay notice period (or payment in lieu), accrued leave. Must follow Fair Work dismissal process.
• Genuine redundancy — Pay notice, redundancy pay (NES minimum), accrued leave. Part of the redundancy payment may be tax-free.
• End of fixed-term contract — Pay accrued leave. No redundancy unless the contract has been renewed multiple times.
• Summary dismissal (serious misconduct) — Final pay only for hours worked and accrued leave. No notice payment required.

Step 1: Calculate the final pay components

The final pay typically includes:

• Wages — Pay for hours/days worked in the final pay period up to the termination date
• Accrued annual leave — All untaken annual leave, paid at the employee's base rate. Leave loading (17.5%) may apply depending on the award.
• Accrued long service leave — If the employee has reached the pro-rata entitlement threshold (state-dependent, typically 7 years)
• Notice period — Either work the notice period or receive payment in lieu. NES minimum notice: 1 week (≤1 year service), 2 weeks (1–3 years), 3 weeks (3–5 years), 4 weeks (5+ years). Add 1 week if the employee is over 45 and has 2+ years service.
• Redundancy pay — NES minimum for genuine redundancy: 4 weeks (1–2 years), up to 16 weeks (9–10 years). Check the specific award for any additional entitlements.
• Superannuation — On ordinary payments and leave payouts. Not on genuine redundancy tax-free portion.

Step 2: Process the termination in Odoo

• Update the employee record: set End Date on their contract
• Set the departure reason on the employee record (Resigned, Fired, Retired, etc.)
• Odoo will calculate accrued leave balances as of the end date
• Create the final payslip with the termination date as the period end
• Add additional lines for: payment in lieu of notice (if applicable), redundancy pay (if applicable), any outstanding expense reimbursements

Step 3: Understand Employment Termination Payments (ETPs)

ETPs are payments made because of termination of employment. They have special tax treatment:

• What IS an ETP: Gratuity, severance payment, payment in lieu of notice (lump sum), golden handshake, compensation for loss of job, non-genuine redundancy amounts (above the tax-free limit)
• What is NOT an ETP: Normal salary/wages for the final period, accrued annual leave, accrued long service leave, accrued sick leave, genuine redundancy amounts (within the tax-free limit), super contributions

Step 4: Apply correct PAYG withholding

Different components of the final pay are taxed differently:

• Final wages — Normal marginal rates (Schedule 1)
• Unused annual leave — Normal marginal rates for leave accrued since 17 August 1993. If pre-1993 service applies, a maximum rate of 32% on the pre-1993 portion.
• Unused long service leave — Normal marginal rates for leave accrued since 16 August 1978. Pre-1978: 5% of the payment.
• ETPs (under preservation age) — Up to the ETP cap ($245,000 for 2025-26): 32% tax + 2% Medicare. Above the cap: 47%.
• ETPs (at or above preservation age) — Up to the ETP cap: 17% tax + 2% Medicare. Above the cap: 47%.
• Genuine redundancy (tax-free component) — Base limit ($12,524 for 2025-26) plus $6,261 for each complete year of service. The amount within this limit is tax-free.
• Genuine redundancy (above tax-free limit) — The excess is treated as an ETP and taxed per ETP rules.

In Odoo, configure separate salary rules for each termination component with the correct PAYG withholding calculation.

Step 5: Process superannuation

• Super (12% SG) is payable on: final wages, payment in lieu of notice, accrued annual leave, accrued long service leave
• Super is NOT payable on: genuine redundancy tax-free component, ETPs like gratuities or golden handshakes
• Calculate and include the final super payment in your next super clearing house submission
• Don't wait until the quarterly deadline — pay the final super promptly

Step 6: Lodge STP finalisation

When an employee terminates, you must submit an STP finalisation event:

• Process the final payslip in Odoo
• Go to Payroll → Reporting → STP Submission
• Submit the final pay run data with the employee's finalisation indicator set
• The STP report should include the ETP type code if applicable: R (redundancy/early retirement), O (other termination), S (invalidity), D (death benefit)
• Finalisation should be submitted within 14 days of the termination date
• The employee can then see their final Income Statement on myGov

Step 7: Provide required documentation

• Final payslip — Must be provided within 1 business day of payment
• Certificate of Service — Not legally required but good practice. Shows dates of employment, position, and duties.
• PAYG Payment Summary - ETP — If an ETP was paid, the employee needs this for their tax return. Under STP, this is available via myGov.
• Super fund notification — Not formally required, but notify the super fund of the termination so they can update their records
• Separation Certificate — Required if the employee is claiming Centrelink. Must be provided within 14 days of request.

Step 8: Archive the employee in Odoo

• Once all final payments are processed and STP is finalised, archive the employee record
• Go to the employee record and click Archive
• The employee's data is retained (needed for 7-year record-keeping obligations) but won't appear in active lists
• Their payslips, leave records, and STP history remain accessible
• Do not delete employee records — you need them for ATO audits and Fair Work record-keeping requirements

Termination checklist

• ☐ End date set on contract
• ☐ Departure reason recorded
• ☐ Final pay calculated (wages + leave + notice + redundancy if applicable)
• ☐ PAYG withholding applied correctly per payment type
• ☐ Super calculated on eligible components
• ☐ Final payslip confirmed and sent
• ☐ ABA file generated and payment made
• ☐ STP finalisation submitted to ATO
• ☐ Super paid to clearing house
• ☐ Separation certificate provided (if requested)
• ☐ Employee archived in Odoo
• ☐ IT access revoked (separate process)