Are Redundancy or Leave Payouts Taxable for Payroll Tax?
- johnry8
- Sep 11
- 1 min read
When an employee leaves your business, you may need to pay out unused leave or redundancy entitlements. Many business owners are unsure whether these payments need to be included in payroll tax.
Redundancy Payments and Payroll Tax
In Queensland, genuine redundancy payments are generally not taxable for payroll tax. These payments are designed to support employees who lose their job due to organisational changes and are specifically excluded from payroll tax obligations.
However, if part of a redundancy package is considered an incentive or additional benefit outside the standard entitlements, it may fall under taxable wages.
Leave Payouts and Payroll Tax
Leave payouts work differently. Payments for unused annual leave, sick leave or long service leave are considered taxable wages and must be included when calculating payroll tax.
This includes:
Annual leave paid out when an employee resigns
Sick leave or long service leave cashed out on termination
Any accrued leave entitlements that form part of the final payment
Best Practices for Compliance
Identify payment types clearly: Separate redundancy entitlements from leave payouts in your payroll system
Keep accurate records: Maintain contracts, termination letters, and payout calculations for each employee
Check definitions carefully: Make sure the payment qualifies as a genuine redundancy before excluding it
Seek professional advice: Complex terminations may involve multiple payment categories, so getting advice helps avoid costly errors
Unsure how to handle payroll tax on redundancy or leave payouts?