If you need to pay a lump sum payment on termination, e.g.
an In Lieu of Notice for a resignation or dismissal.
Golden Handshake.
Use the Bonus Calc function in Manual calculation to pay the lump sum amount.
Bonus Calc uses Annual Earnings to calculate the tax. In the Manual Calculation this is based the employee's PAYE income received over the last four weeks.
When you pay out a termination, the Annual Earnings is usually calculated for employees attached to a primary tax code (M, ME, M SL, or ME SL), by adding:
The annualised grossed-up value is based on the terminated employee's PAYE income for their last two paid pay periods before the termination being paid.
Termination Component Amounts - including unused Leave and Lump Sum payments.
You may need to manually calculate and override the Annual Earnings. To calculate the value, multiply the employee's last 2 pays by half the number of periods in a year e.g. by 6 if the employee is paid monthly. For more information on calculating the Annual Earnings, see Calculate PAYE for a lump sum payment at end of employment
If one doesn't already exist, create an addition by going to Payroll, Maintenance, General, Additions and Deductions.
Click Add.
Enter Code, Shortcut Key and Description.
Select Addition Before Tax as the Category and Amount as the Type.
Leave Amount blank.
Make any other required selections.
Click OK to save.
Next, go to Payroll, Transactions, Processing, Manual Calculation.
Select the Employee.
Click the Add radio button.
Tick Generate Payment to include the Net Pay in the bank file.
Select Adds Before Tax.
Click Add and select the bonus or commission addition.
Enter the Value.
Click Bonus Calc in the bottom right-hand corner to open the Bonus Tax Calculator.
Select Lump Sum Payment and click OK.
In the Lump Sum Tax Calculator, review the Annual Earnings and override if required. Bonus Amount will auto-populated with the Value.
Tax Rate will default to Auto, you can specify a rate if appropriate.
Click Calculate Tax. This will calculate the Tax Withheld.
Then click OK. This will insert the Tax Withheld value into Tax (Incl Adjustment).
Click Process.