Answer
No, splitting a termination payment across multiple pays to try and minimise tax does not work the way some employers or employees might assume.
Regardless of how a termination is processed — whether it's done all at once or spread over several pays — the employee will still be taxed based on their total earnings and termination amounts for the financial year. Attempting to split a termination is likely to result in either:
- under-withheld tax at the time of payment, which the employee may have to pay back at tax time, or
- additional superannuation and leave liabilities if the person remains technically employed during that period
Terminations in Lightning Payroll are a one-time event. You cannot partially terminate an employee, then finish the termination later. If an employee is still active in the system and receiving regular payments or leave, they are not yet terminated.
If you're considering allowing someone to take leave before terminating them, be aware that:
- The person is still employed during that leave period
- Normal super and entitlements will continue to apply
- You must not process the termination until their final day of employment
Trying to manipulate termination timing or payment structure to avoid tax is not only ineffective — it can also lead to compliance issues. We recommend following ATO guidelines and ensuring termination payments are processed correctly and promptly.
For a breakdown of how termination tax is calculated in Lightning Payroll, please see our related FAQ:
How Are Termination Tax Amounts Calculated?
