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How to Add Leave Categories in QuickBooks Payroll

SOLVEDby QuickBooks25Updated September 15, 2023

Learn how to set up new Leave Categories or adjust existing ones in QuickBooks Payroll powered by Employment Hero.

How to add a new Leave Category

  1. Go to Payroll.
  2. Select Payroll Settings, then select Leave Categories.
  3. Select Add.
  4. Enter a Name for your Leave Category.
  5. Enter the External Id and Leave Loading amount, if applicable. (Note: You may require entering the External Id if you use an external system to capture leave requests or timesheet entries and need to map the code from there into QuickBooks Payroll).
  6. Select the Leave Category Type from the dropdown menu.
  7. Select if the Employee leave balance will be tracked or not tracked. 
  8. Tick the boxes for the settings you wish to turn on. For more information on these settings hover over the ? next to that setting.  
  9. Select the Payment Setup. (see below if you need further assistance with this).  
  10. Select Save.

Payment Setup allows you to choose if you want a pay category to be assigned when the employee is paid for their leave taken. The default setting for Payment Setup on Annual Leave used to be Basic but this has been updated since so that leave hours are reported against a separate pay category called Annual Leave Taken (you are free to change this if necessary).

  • Basic: When an employee does not use timesheets, the employee's leave balance will be reduced and earnings are not impacted. When an employee is using timesheets to submit all time worked, an earnings line will be created and the leave balance will be reduced. To check or assign the employee's timesheet setting, go to the employee's Pay Run Defaults page. The timesheets option is near the top of the page. 
  • Don't pay for the leave taken: When an employee does not use timesheets, an earnings line with negative hours will be added to reduce the earnings for the employee. When an employee is using timesheets to submit all time worked, no earnings line will be created.
  • Report the earnings for the leave taken against another pay category: If you want to report payments for leave taken in a separate pay category (for reporting/journaling purposes), select this option. The earnings related to the leave taken will be assigned against the specified pay category instead of the employee's primary pay category. When you choose this option you will be able to use the rate of pay from the employee's primary pay category.
  • Custom: (For advanced users only), this option allows the user to deduct hours from an arbitrary pay category and transfer them to another arbitrary pay category when leave is taken.

Setting up Automatically Accruing Leave

If you have selected Automatically Accrues for your Leave Category, here is a detailed guide on how to set it up.

  1. Select if the leave is accrued automatically on an ongoing basis or based on the employee’s leave year. (Selecting Based on the employee’s leave year will prompt you to select the date you want the leave year to start).
  2. Navigate down to the Standard Allowance section, and enter the calculation of how much leave is automatically accrued for this leave category. Select whether the calculation is based on Hours per hour worked or Hours per pay run.
  3. Select the Calculator icon to open the Calculate Leave screen, which will assist you in entering the right standard allowance. You can enter a numerical allowance value and it will calculate how much leave will be accrued for an employee based on the hours entered.
  4. If you have selected the leave to automatically accrue based on the employee’s leave year, select if you want the Leave Category to accrue in advance.  (Note: This means the full yearly entitlement is accrued in the employee’s first pay run and will be added to their leave balance).
  5. If you have selected the leave to automatically accrue based on the employee’s leave year, select if you want to Carry over the entire balance or enter the maximum hours to carry over.
  6. Select if the Accruals for this leave category are not limited or limited.

Note: We have recently removed the weeks per year and days per year leave accrual methods. So for all new businesses and businesses that aren’t using these accrual methods you will no longer have this option in the leave category or employee leave allowances pages.

If your business is already using either of these leave accrual methods, nothing will change and you will continue to accrue leave as you always have, however, we encourage you to consider switching to the hours per hour worked leave accrual method.

Paying out Leave to employees

Once you have set up the leave categories, you will be able to apply them to the pay run.

From there, you will pay out leave to your employees through the same process as paying out their earnings, e.g. by paying directly to their bank account or via an ABA file uploaded to your bank.

Content sourced from Employment Hero

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