In the event an employee passes, employers should not rush to process any final payments before they identify the correct payments to be made and the recipient of such payments.

Payment Beneficiary

It is important for employers to know that no final payments can be made into the deceased employee's bank account. Employers should first determine the deceased employee's beneficiary, by requesting specific documentation from either an immediate family member or the deceased employee's Legal Representative.

Based on these documents the payments could be made to:

• a Dependant
• a Trustee
• a Non-Dependant

Unlike other Termination Payments, Death Benefits payments are not time-bound. This means an employer can legally hold any unpaid death benefits payments until the correct beneficiary is determined. 

Payment Types

There are two types of payments an employer may need to pay following the death of an employee:

Standard Unpaid Wages                                                 Death Benefits Payments

These payments include:                                                 These payments include:

- Unpaid worked wages;                                                  - Unused Rostered Days Off;

- Unused Annual Leave;                                                   - Unused Personal Leave (if the Employment Agreement requires payment for this entitlement)

- Unused Long Service Leave.                                           - Gratuity Payments.

This User Guide provides instructions on how to process Death Benefits Payments. Refer to our second user Guide on how to process Standard payments (unpaid worked wages and entitlements).

Finally, for more information on the legality of payments following the death of an employee, please refer to the Blog published on our website. 

Death Benefits Payments

The applicable tax and reporting requirements of Death Benefits Payments change based on the beneficiary receiving the payment. The Death Benefit Payment must be made to the Beneficiary.

Reporting Requirements & Applicable Tax

• Dependant > Any Death Benefits Payments under the ETP Cap for the year are paid outside of payroll in the same way as Standard unpaid wages are paid. Any Death Benefits Payments above the ETP Cap must be processed through payroll as an Employment Termination Payment (Death Benefit ETP, Type D) with an applicable tax of 47%.
• Trustee > Any Death Benefits Payments must be processed through payroll as an Employment Termination Payment (Death Benefit ETP, Type T) no tax applies (the Trustee will lodge a separate Tax Return to the ATO as part of the Estate Tax obligations).
• Non-Dependant > Any Death Benefits Payments must be processed through payroll as an Employment Termination Payment (Death Benefit ETP, Type N). Any amounts under the ETP Cap with an applicable tax of 32%, any amounts over the ETP Cap with an applicable tax of 47%.

Set Up the ETP Death Benefit Category

At this stage, Xero does not have the ability to set up Death Benefits ETP Pay Items. Therefore, any ETP Death payments will need to be paid through payroll and then a manual ETP Payment Summary should be completed and sent to the beneficiary.

Create the PAYGW on ETP Liability account

As well as creating the Deceased Employee Wages account and Wages clearing account (refer to our User Guide: how to process Standard payments (unpaid worked wages and entitlements), you will also need to create a Liability account to track the PAYG Withholding Tax calculated on the ETP Death Benefit. 

1. Go to Accounting > Chart of accounts
2. Click on [Add Account]
   
   è  The Add New Account screen
   
   
   
   
3. Select/Enter the following details:
   • Account Type > Select: Current Liability
   • Code > Enter a 3-digit code starting with 8
   • Name > Type: Payroll - PAYGW on Death Benefits ETP 
   • Tax > Select: BAS Excluded
4. Click on [Save]

Create the ETP Death Benefits Journal

In this example, we will pay $10,000 Death Benefits ETP to a Non-Dependant (as $10,000 is under the ETP Cap the applicable tax is 32%).

1. Go to Accounting > Manual journals
2. Click on [New Journal]
   
   è  The New Manual Journal screen opens
   
   
   
   
3. Select/Enter the following details
   • Narration > Type: Unpaid Wages & Unused entitlements #employeename
   • Date > Type the date employee's passing
     Note: if you are not aware of the specific date, any date close to the period will suffice
   • Amounts are > select No Tax
   • Line 1: Accounts > Select the Employees - Wages (Deceased Employee) Expense account and post the total value of the calculated unpaid wages in the Debit column
   • Line 2 Accounts >Select the Payroll - Unpaid Wages (Deceased Employee) liability account and post the equivalent value in the Credit column
4. Click on [Post]

Reconcile the Unpaid Wages Payment

1. Go to the Bank Account Bank Feed Transactions
2. Find the Super Payment and click on the [Create] Tab
   
   è  The Bank Feed Transaction
   
   
   
   
3. Select/Enter the following details:
   • Who > Select/Create: The Beneficiary name
   • What > Select: Payroll - Unpaid Wages (Deceased Employee) liability account
   • Why > Type: Death Benefit ETP #beneficiary name for Deceased Employee #employeename
4. Click on [OK]

Complete the Manual ETP Payment Summary

1. Download the ETP Payment Summary form from the ATO Website
   
   è  The ETP Payment Summary form
   
   
   
   
2. Section A: Payee Details > Complete this section with the details of the Beneficiary (Dependant, Non-dependant or Trustee) details and TFN
3. Section B: Payment Details > Complete this section with the same values entered in the journal in Xero
   Note: when paying ETP Death Benefits to a Dependant, this form must be completed only when the payment is above the ETP Cap and only for the amount above the cap. 
4. Send the completed form to the Deceased Employee's beneficiary.