Terminating an employee in QuickBooks Online Advanced Payroll

In this article, we will guide you through the necessary steps and best practices for effectively terminating an employee in QuickBooks Online Advanced Payroll.

Jump to:

• Terminate an employee
• Re-activate a terminated employee
• Make a termination payment (split or cancel payments)

Terminate an employee

There are two methods for terminating an employee: through the employee's details page or via a pay run.

From the employee's details page

1. Go to Payroll.
2. Select the Employees tab.
3. Open the employee's details page by selecting their name.
4. Select Terminate Employee.
5. Enter the Termination Date. This will mark the employee as inactive, making them ineligible for future pay runs and termination pay.
6. Select Terminate.
7. If you want to permanently delete an employee, select Delete employee.
   Important: Deleting an employee is a permanent action and cannot be undone. Once an employee is deleted, their data cannot be retrieved.
8. Select Delete to confirm.

From a pay run

Note: You can't terminate an employee if they're included in pending pay runs.

1. Go to Payroll.
2. Select the Pay Runs tab.
3. Open the pay run.
4. Next to the employee's name, select the arrow to show their earnings details.
5. Select Actions.
6. Select Terminate employee.
7. Enter the Termination Date.
8. Select Save to confirm. When you save:
   • The employee's record will turn red and display their earnings and accrued leave.
   • Once the pay run is finalised, the terminated employee will no longer be active or eligible for future pay runs.
   • Any relevant termination payments will be calculated for the employee. The breakdown of payments and associated hours will include:
     • Annual Leave payout (select the box for this to occur).
     • Option to pay out Sick Leave (select the box for this to occur)

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Re-activate a terminated employee

1. Go to Payroll.
2. Select the Employees tab.
3. Use the filter option and choose All Employees to show all your employees, including inactive ones.
4. Choose employee you want to re-activate.
5. Select the Re-Activate Employee. This will make the employee active again and eligible for pay runs.
6. Select Activate to confirm.

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Make a termination payment

1. Go to Payroll.
2. Select the Pay runs tab.
3. Open the pay run.
4. Next to the employee's name, select the arrow to show their earnings details.
5. Select Actions.
6. Select Terminate employee.
7. Enter the Termination date.
8. Select Save.
   • Any owed annual leave will be calculated, and the 'Pay Out' option will be automatically selected. If the employee has used all their holiday entitlement, no annual leave payout will be made.
9. To make the termination payment, select Actions.
10. Select Add earnings. A new field will show under Earnings.
11. Select Termination Payment from the dropdown options. The following will show:
    • Tax and National Insurance (NI) Class 1A will be applied to termination payments over £30,000.
    • Termination payments under £30,000 are not subject to tax and NI.
    • If an employee receives a termination payment over £30,000, they will pay tax on the amount exceeding £30,000. For example, if they receive a £45,000 termination payment, they will pay tax on £15,000 and no NI contribution. The employer will pay Class 1A NI on £15,000.
12. Add 1 in the Units field.
13. Enter the termination amount in the Rate field.
14. Select Save.

Cancel a termination payment

If you want to cancel a termination, follow these steps:

1. Unlock the finalised pay run.
2. Select the employee name.
3. Select Actions.
4. Select Cancel Termination.

Split termination payments

To split a termination payment over different pay runs:

1. Terminate the employee and make the first payment before creating a new pay run.
2. In the new pay run period, select Pay Run Actions.
3. Select Add Employees. 
4. QuickBooks will apply payment after leaving regulations and change the employee's tax code to 0T wk1/mth1.
5. Make the termination payments.
6. Finalise the pay run. 
   Note: This will not create a new P45.

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