Paid leave and redundancy payments (advised before 19 April 2010) 108-07010090

The change to the assessment method for leave or redundancy payments came into effect on 19 April 2010, but was backdated to 20 September 2009. Therefore, any payments advised by customers prior to 19 April 2010 are assessed under the pre 20 September 2009 rules.

Leave and termination payments paid by an employer for a period beginning after 20 September 2009 and advised after 19 April 2010 are assessed differently.

Leave and redundancy payments can include:

• Annual leave
• Sick leave
• Personal leave
• Carers leave
• Long service leave
• Leave loading
• Maternity leave
• Rostered days off
• Redundancy payment
• Payment in lieu of notice
• Gratuity or 'Golden handshake'
• Other payments received on termination of employment

Note: only redundancy payments received on or after 20 September 2006 are included in the Income Maintenance Period (IMP).

The treatment of leave payments depends on the Centrelink payment the customer is claiming or receiving and whether the employment to which the payment relates is ongoing or has been terminated.

In all cases, assessment is based on the Income Test and Assets Test which applies to the payment the customer is receiving.

For customers who are eligible for Working Credits, income from paid leave is not employment income. Leave payments are included in ordinary income used when calculating the accrual of Working Credits. The customer is unable to deplete their Working Credits or use the Work Bonus to offset income from paid leave.

For students and Australian Apprentices, income bank can be offset against income from paid leave.

For customers claiming or receiving:

• JobSeeker Payment
• Partner Allowance
• Widow Allowance
• Parenting Payment Single (PPS) and Parenting Payment Partnered (PPP)
• Youth Allowance
• Austudy, or
• Disability Support Pension (DSP) (except customers who are permanently blind)

Leave and redundancy payments received by either the customer or partner may result in an Income Maintenance Period (IMP) during which the customer is either not entitled to payment or is entitled to a reduced rate. Other Centrelink payments are not affected by the IMP rules, however, leave payments can still be considered financial assets and subject to the deeming provisions regardless of whether the leave is assessed as income or not.

In cases where the IMP does not fully preclude payment (that is, customer has a part rate) and the customer also has employment income, Working Credits can be used to offset the employment income.

If the customer goes on leave and is still employed (employment has not been terminated) and receives paid leave, it is assessed as income under the normal Income Test and an IMP may apply for the period the payment covers. This is regardless of when the payment is received.

A person on leave is not generally regarded as unemployed as their contract of employment still exists. For example, teachers and other school workers would not be regarded as unemployed during term holidays.

If the customer's employment has been terminated, any leave payments received upon or after termination may result in an IMP from the date the payment is received. This will be for the duration of the period the leave payment covers, for example, 2 weeks paid sick leave. If more than one type of leave payment is received, the IMP is worked out by adding the separate periods to which the payments relate.

Cashed in leave entitlements are treated differently. In cases where the employee does not go on leave but the employer pays out their leave entitlement in a lump sum, the amount is assessed as a non-remunerative lump sum. It should be held on the record as income for 52 weeks from the date the customer was entitled to receive it. The amount is normally entitled to be received on the date the employer pays it.

This is recorded as income if the employment is continuing. Leave payments paid in a lump sum on termination of employment are not recorded as income for customers not subject to an IMP. Exceptions: PPS and DSP customers who are of Age Pension age (except customers who are permanently blind) are subject to the IMP, for other pensions, if employment is terminated, leave payments paid either in instalments or as a lump sum are disregarded as income. However, assess the asset value and any deemed income generated by investment of the payment.

An employee may earn money but choose to defer receipt of the money. As the person has an entitlement to claim the income before it is received, the income is assessed at the time it is earned rather than the time it is received.

Deferred salary schemes operate in two ways. The employee may:

• take a reduction in salary on the basis that they will be entitled to leave several years later
• 'purchase' additional leave each year by having 'leave without pay' deductions made from each fortnight's salary

Purchased leave is assessed as nil income during the time it is taken as it has already been assessed through gross income declared during previous employment periods.

Effect of the IMP on couples where one is receiving an IMP affected payment and the other is receiving a payment not affected by the IMP.

Age Pension, Carer Payment (CP) and service pensions are not affected by IMP provisions.

Allowee/non-IMP affected pension couple

If the allowee customer receives the leave payment, the amount is to be recorded on their record. This will affect the allowee but not the pension customer. No income is to be assessed against the pension customer.

If the pension customer receives the leave payment, the only time it will affect their payments is if they are still employed. No IMP is applied to the pension customer but the income can still affect.

If the pension customer has ceased employment and receives a leave payment, the amount is disregarded for the pension customer, but should still be coded on the pension customer's record to correctly affect the allowee partner.

Where a pension customer's employment is ongoing and they receive a leave payment, the amount is coded on the pension customer's record to correctly affect both the customer and the allowee partner.

A Mobility Allowance (MOB) customer receiving paid leave is still considered to be employed for the purposes of the MOB during the period of leave.

If a customer is working casually they are not entitled to leave payment/loading. The customer may receive a loading as part of their ordinary pay in lieu of holidays or sick leave. This loading is included in their hourly rate of pay and assessed as employment income. This loading is coded with all other employment income.

If the customer or their partner is registered for the Pension Bonus Scheme, the leave may affect their entitlement to the Pension Bonus. The case should be referred to the Senior Practitioner to consider if the entitlement to the Pension Bonus is likely to be affected. If so, a Financial Information Service (FIS) is required.

In New South Wales (NSW), non-teaching support staff (teacher's aides, library assistants or other non-teaching staff), are employees of the NSW Department of Education. As they are unable to work during term breaks, they receive a stand down payment which is based on them meeting certain criteria. This is treated as ordinary employment income.