We had an employee quit, and he has remaining vacation accrued. We are not paying this out, which the employee has agreed to, because we prepaid him for time that he did not end up working before he quit. I am wondering how to handle this vacation accrual, or how to zero it out. I followed the instructions in this article: https://quickbooks.intuit.com/community/Employees-and-payroll/Set-up-vacation-pay-and-accrual-CA-onl... under "Clear over accrued (underpaid) vacation for an employee no longer with the company," which seemed to work as it cleared the accrued vacation pay and zeroed out on the paycheque, but the amount of the vacation pay that I cleared is included in his insurable earnings on his ROE. I don't know why this is showing up, or how to change it?
I want to make sure your employee's earnings are calculated correctly. I know it's necessary for both of you that these details are accurate for government filing.
Based on what you've described, it sounds like the accrued vacation was paid out at some point before he left the company, even if it wasn't on his termination cheque. Since you're saying you prepaid him, that would have had to have been logged somewhere on a paycheque. To do that, you'd need to use the VacPay - Accrual Paid Out payroll item for that pay period. If that wasn't done, I recommend deleting the paycheque you created from the Clear over accrued (underpaid) vacation for an employee no longer with the company instructions and correct the payroll where the vacation was actually paid or prepaid out to him. If that was done and you're still seeing information added to his ROE that shouldn't be, a closer look at your paycheques and set up will help us narrow down what's going on.
For the process I described and further troubleshooting, please call the phone support team. They'll be able to walk you through step-by-step to ensure everything adds up as it needs to. Agents can be reached at 1-877-772-9158. Pro and Premier support are available 24 hours and an Enterprise support can be reached from Monday to Friday between 9 a.m. and 8 p.m. EST.
I also have the Intuit QuickBooks Desktop software support policies for your reference.
I hope that helps. Enjoy the rest of your day!
I don't recommend deleting or voiding the pay cheque, as that will change your bank balance and will/could compromise previously filed bank reconciliations, etc. Rather, edit the pay cheque by removing time from the 'regular' time you paid him (using your regular hourly payroll item with his hourly pay rate and a negative number in the hours), and adding a line for 'vacation' pay, using either the Vacation Hourly , Vacation Salary or the VacPay-Accrual Paid Out payroll items, all the while ensuring that the net pay does not change, as that is what has already cleared the bank. Any difference you come up with will have to be put to Advance. If it is a negative advance, you would owe that much to the employee. If it is a positive advance, the employee would owe you the difference. You are just exchanging one type of wage for another, and in the process clearing your vacation liability.
Let's say John Doe (your employee) earned $60,000/yr and had a vacation accrual built up of 5 days (40 hours) = $1,154. On his last cheque you paid him for a full month ($5,000) with a regular salary payroll item. On top of his previous vacation avail, he has now accrued $288.46 more bringing the total Vacation Liability to $1442.46. This is what you actually owe him for vacation.
Now you realize that you still have a vacation liability for him that needs to be cleared, and that he was paid for some time that he didn't actually work, you need to make adjustments. Go back to the final paycheque and make the following adjustments, assuming that he only was paid for 5 days that he didn't work. You reduce wages by 40 hours (using his converted hourly rate) and increase vacation paid of 40 hours. Nothing changes yet in the net value of the cheque because you are taking away and adding the same gross amounts. But now he is still owed the $288.46 of vacation that he accrued on this cheque. Note that the net amount of the cheque is still the same as the original.
Now you owe him $288.46 but he has already left your employ. In this case, he is in Saskatchewan, where Vac Pay is calculated on Vac Pay, thus in order to clear the total liability I had to pay him out $306.12.
Now the net amount of the cheque is not what actually cleared your bank, so you must create a negative Advance to bring it back to the proper net amount. If you use the Quickbooks Advance item, it automatically treats it like income and calculates taxes. In this situation, I have created an Addition payroll item called Employee Advance because what you owe him now is just a net amount of cash - all deductions have been taken care of through your adjustments to salary and vacation pay. To get down to the proper net amount, take the $3,890.55 that he should have netted and deduct the $3,706.02 that he actually netted and create the Employee Advance for -$184.53.
This cheque now reflects the exact calculations that should have been made in the first place, including all Tax, CPP & EI. Now you just have to cut him another cheque for $184.53, and it is not affecting any of your salary expense, vacation expense, vacation liability or tax liabillity accounts - it is only clearing an employee liability (I have a G/L account called Employee Advances linked to the Employee Advance payroll item for this purpose). You will have to create an Unscheduled Payroll run, and use the same pay period dates as the original cheque, just so any payroll reporting is correct. You don't want that Advance straggling over into another period, or affecting the ROE.
Depending upon how late it is when you do these pay cheque edits, you may have to reprint your PD7A and mark down the differences between the original filed and the 'new' one, and remit the differences in the next remittance. You may also have to amend the ROE if you ended up either owing him money or him owing you money.
When it comes to vacation pay, it's not really acceptable to loosely estimate the situation by saying, "Well, he worked less time than we paid him for and that will offset any vacation owing to him and we'll just zero it out and call it even." The scenario outlined above will give you exact and correct numbers and leaves no chance for the employee to come back to you or go to labour standards, claiming that he hasn't been paid his full amount of vacation pay.
This can work the opposite way as well, in that you paid him for more days unworked than he was owed in vacation. In that instance, if you end up with a positive Employee Advance, you would use the native QB Advance item rather than the Employee Advance item above, which automatically turns what he owes you into wages, and calculates taxes accordingly. Your chances of recovering amounts he owes you is slim to none which is why CRA changed the Advance rules several years ago and stated that all Advances are to be treated as income in the period in which they occur. This will obviously alter taxes further, and you will most likely have to amend the ROE and the remittances. Hope this helps!