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I have a casual employee who wants $30 to $40 taken out each pay week so that when she has a week off she can still have some income coming in for that week.
I have set up a standard deduction for this employee and have called it "loan repayment" (for want of a better description). I have set the Before Tax option to "No" (I am not 100% sure if this is correct).
After that, I am not sure how to handle things? Where do I put the money? What happens when I pay her during a non-pay week?
Thanks in advance.
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Firstly congratulations on being prepared to 'go the extra yard' on behalf of your staff.
I believe that overall your thinking is right and, like you, I would be taxing it at the point of withholding rather than the when she receives the loan. I assume that you have setup an Asset account Loan to Employee.
If you equate it to a someone coming to you for a loan for say $2000, that is how much they want, not $2000 less tax. they get there money and repay it in after tax dollars. At any point you will be able to say we owe you $xxx tax paid dollars
Where do I put the money? What happens when I pay her during a non-pay week?
Within the payroll settings this deduction needs to be linked to the Loan Account and I'm afraid that I'm not qualified to instruct you on this but the lovely @CloverQ at MYOB will join in this thread and let you know all of those sort of details. Come the day that the employee need the money you enter loan on the payroll that is linked to the correct account and she will be paid $xxx without any further tax.
Now all of the above would drive any accountant mad if it was on the EOY account. A negative asset means that you owe an employee money and you are not supposed to be seen to do that outside of unpaid payroll. so you journal the money through to an Owners/Directors Loan account dated 30/6 and reverse the journal 1/7.
Thanks for the lovely invite Ron, I shall try my best.
To add to what Ron has already explained, I'd suggest borrowing the method for Wage advanses, as this can be seen as a reversed process to it. That means you'll need to create the following:
- An asset account
- A payroll deduction category (exempt from PAYG, linked to the asset account)
- A payroll wage category (exempt from PAYG, linked to the asset account as well)
Use the deduction category to reduce the net pay when processing payroll, then use the wage category to record the payout, no tax is attracted.
What Ron kindly explained about the negative asset aspect, it may be best to first double check your accountant to make sure they won't go mad.
Hope this helps, feel free to let us know how you go.
Thank you Clover & Ron,
I am using Essentials. And I'm not sure if I can figure out how the steps in 'Wage Advances' transfers or equates to Essentials??
I see that in the Employee setup I can allocate wages to two seperate accounts - maybe this is an oprion I could explore?
Sorry, I am a bit of a novice, and my accountant no doubt cringes whenever I call!!
My apologies, didn't realise that you are using Essentials not AccountRight.
It'll be tricky to process it in Essentials, as it is not within the scope of simply payroll that Essentials Accounting caters for. You can still create an after tax deduction and an after tax allowance to record the wage withheld and paid; however, the deduction will still be hitting the 'Payroll Deductions' liabilities account by default, and the allowance will still be hitting the 'Wages & salaries' expense account by default. You can record general journals after to transfer the balance to the asset account created.
Another matter to look out for is leave balance, in Essentials leave is accrued automatically whenever a pay is recorded, using the leave accrual settings specified in employee contact. Which means when you pay employee the withheld pay, it will still accrue leave. To avoid that, you can temporarily de-select the option to pay annual leave and personal leave in employee card, when recording the payout.
Overall, it is not within the Simple Payroll scope, AccountRight would be able to handle this situation much better. Having said that, numbers of payroll improvements are coming for Essentials payroll this year, which shall make the situation bit easier.
Hope this helps.
This is a casual person so leave won't be an issue. The reason for the exercise is to give her money when she does 'take time off'.
What is the default deductions account? Can @Fay_S set up a loan account and journal the money from Payroll Deductions to the Loan account on a regular basis?
The loan would show a number of repayments until it is used for holidays taken. Am I right in thinking that when the loan needs to be used it could be Spend Money loan to bank and that the payroll will be equal and opposite.
Thanks guys, for trying to sort out my woes.
I might talk to my employee and see if she can set up a Christmas Club account or something and split the wages between two accounts!!
Happy to hear your ongoing discussions about this - I have been deducting money from this employee for a while, so it could be interesting!! Plus I have another employee want to allocate $20 per week for Dog Boarding (our business).
The deductions go into 2-2800 Payroll deductions - the last time I paid her back some money, I debited it to this account.
Thanks again for your input. Fay
Yes as Fay discovered, by default the deductions will post to the system liability account 'Payroll Deductions'.
So in my own test, I set up the loan account as a credit card account. When wages are withheld, a journal entry would be used to debit the Payroll Deduction account (reduce this liability), and credit the loan account (increase the liability).
To pay the withheld wage, I went to Payroll > Payroll Settings and temporarily changed the 'Pay From Account' to the loan credit card account, so the payment is taken out of the loan account. If you already paid from the main bank account, then a Transfer Funds transaction or general journal can transfer the money from the loan account to the bank account.
It will be a manual process to record the journal entries. Without having to worry about the entitlements certainly makes it easier, if you could split the pay to another account then it'll be much simpler.
Hope this helps.
That works a treat, thank you so much for your time and expertise CloverQ & Ronatbas!
It wouldn't allow me to do a Transfer Funds transaction but a General Journal entry worked!
Even though it is a manual process - it is amazingly simple when you know how!!
You are (both) terrific! Thanks a billion!