Compensation for loss of employment is processed as an ad hoc pay item. Talenox applies a tax exemption to this pay item only.
NOTE: Termination Benefits and Salary in lieu remain fully taxable and does not use the exemption.
Step 1: Add the pay item
In payroll, go to the Ad Hoc Payment/Deduction tab.
Select the Compensation for loss of employment pay item for the employee and key in the amount.
Check the Apply tax exemption checkbox shown under the pay item line. The line also shows the taxable and exempt amounts.
Step 2: Confirm the years of service
Years of service counts completed full years only, worked out from the hire date to the resignation date. For example: 3 years 11 months counts as 3 years.
The years of service fills in automatically from the employee profile. You can override it under the employee's Malaysia statutory details. If it is blank, nothing is exempt and the whole payment is taxable.
How the exemption works
Talenox exempts the compensation up to completed years of service x RM10,000. Ill-health cessations are the exception. They are fully exempt rather than partially exempt.
What happens above the exempt amount
Anything above completed years of service x RM10,000 is the taxable portion. It appears on the EA form in section B(6), Compensation for loss of employment. It is also included in PCB/MTD as additional remuneration for the month it is paid.
Where the compensation shows
Payment reports show what was actually paid, so the full amount appears. These are the payslip, the Pay Items Overall Report (under "Others"), payroll totals and the bank file. On the payslip it shows as one line with the taxable and tax-exempt breakdown.
Tax and statutory reports include only the taxable portion. These are the EA form, CP21/CP22A, PCB/MTD, and EPF/SOCSO/EIS/HRDF.
Nothing is double-counted. The taxable and exempt amounts still add up to the amount paid.
The payroll report's "Compensation for loss of employment" tax line also includes salary in lieu. It can show a figure even when the compensation itself is exempt.
Why section B(6) of the EA form shows 0.00
Section B(6), Compensation for loss of employment, on the EA form reports only the taxable portion. If the whole compensation is exempt, there is no taxable amount to show, so B(6) shows 0.00. The exempt amount is not shown on the EA form.
If some of it should be taxable
Once the payrun is marked Processed, it is locked and the Apply tax exemption checkbox is greyed out. You need to unlock the payrun before you can change it.
Go to View/Edit Payruns and click View on the payrun.
Click Edit. If a bank file has already been exported, type Edit to confirm and click Edit. The payrun is converted to Draft status.
Untick Apply tax exemption on the compensation line.
Process the payrun until you reach the Month Total page to lock it again.
Regenerate the EA forms.
For more details on unlocking and re-locking a payrun, see Steps to Lock and Unlock Payments.