Xero – How to Pay Out Annual Leave After Termination

Author: Mark Cunningham

Published: March 18, 2018

Categories: Payroll

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If an employee has left your business and you did not pay out their annual leave right away, you can pay it out later in Xero. If you need to, you can pay out part of their annual leave now and pay out more at a later date.

In this tutorial, we will use Xero’s demo company to pay out the annual leave of an employee after their date of termination and presumably after they have received their final regular pay.

Set Employee’s Termination Date

The first thing we need to do is set the termination date for your employee. If you have already done this for your employee you do not need to do it again, but for this exercise we need to set the date as it has not yet been done:

  1. Go to Payroll → Employees in the main menu.
  2. Choose Odette Garrison.
  3. Click on the Employment tab.
  4. Click on the Options button at the top right hand side of your screen.
  5. Choose Set termination date from the drop down menu. Using the calendar in the Termination date field, choose your employee’s last working day. For the purposes of this tutorial, choose a date about four days ahead of the current date. I have entered 17-July-2018.
  6. Press Save when ready.

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Set Leave to be Paid Out on Termination

Next, we need to set up Odette’s employee profile so her annual leave will be paid out on termination:

  1. Click on the Leave tab.
  2. Click on the number of Annual Leave hours accrued.

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  1. In the popup box, go to the On termination unused balance is: field and choose Paid Out.
  2. Click on Save when finished.

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Add a Leave Request

Now we need to add a leave request for the number of hours to pay out. If you like, you can pay out part of the annual leave balance now and pay the rest later if need be. For this exercise, we will pay out the entire annual leave balance accrued:

  1. In the Leave tab click on New Leave Request.
  2. Populate the fields in the popup box as follows:
    • Type of request: choose Annual Leave
    • Description: type in Cash Out
    • Start Date: select a date within the time the employee was still working for you. I have selected 16-July-2018.
    • End Date: make this the same date as the Start Date
    • Hours (the bottom field): type in 27.0574
  3. Press Approve when ready.

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Choose the Pay Run

Now we need to process the pay run that will include Odette’s annual leave pay out:

  1. Go to Payroll → Pay Employees in the main menu.
  2. Click on + Add Pay Run.
  3. Choose Unscheduled pay run.
  4. Choose the Weekly calendar.
  5. Select the pay period Weekly Calendar: Week ending 21 Jul 2018.
  6. Press Next when ready.

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Set up the Pay Template

Once you have started the pay run you must remove anything from Odette’s pay template that is not her annual leave pay out. This is because we are assuming she received her final pay in an earlier pay run:

  1. Enable Odette’s pay template by clicking on the Grey Circle under the Included drop down box on the right hand side. A green tick should appear.
  2. Click on Odette Garrison to go into her pay template.
  3. Remove anything that is not Odette’s annual leave pay out:
    • Delete the Ordinary Hours line.
    • Delete any leave accruals in the Leave Type section.
    • Delete any lines in the Superannuation Fund section.
    • Click on + Add Superannuation Line and choose Statutory Rate for the Calculation Type. The pay template will then include a line for superannuation but the amount will be nil.

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Odette should now be left with only her annual leave pay out and the PAYG tax payable on the pay out.

Post the Pay Run

Once you have adjusted and checked Odette’s numbers, save the pay template and post the pay run. Odette’s annual leave pay out should now be complete and her annual leave balance should be nil.

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