How do I record a payroll advance to an employee?

Hi alect,

If you are paying your employee an amount in advance, you can set up a Pay Category specifically to record the amount in the pay run. Depending on the nature of the payment, you can then pay this as a Lump Sum amount to aggregate the tax over as many pay periods as you require. This can be used when processing any additional payments (regardless of the financial year the additional payment applies to) and can include all back payments, commissions, bonuses and so on. To set up the category:

1. Select the Employees tab, then Payroll Settings.
2. Select Pay Categories (under the Pay Run Settings subheading).
3. Select Add (top right) and name the category, eg Pay Advance, then Save.
4. Enter in the category setup as required, then select Save. 

Now you can apply the category in a pay run:

1. Open the pay run, or select New Pay Run and create a new one.
2. Use the Pay Run Actions to add the employee if they are not already showing. Then click on their name to expand the information, and select their Actions button and click Add Lump Sum Payment to create the earnings line.
3. Select the pay category and add a note as required. Enter the hours or units and the amount. Select Method A and enter the amount of pay periods the tax will be aggregated over. Then Save and Finalise the pay run. 

There is no specific or preferred method of entering a pay advance in the pay run; if you do not need to aggregate the tax, you can instead select Add Earnings instead of Add Lump Sum Payment, and enter the pay category and units/amounts as required. 

-Kass

Thanks - I actually figured out the deduction in payruns etc from the equivalent on the USA QBO community.

The outstanding questions I have are:

• how do i record the cash payment (out of cycle of payruns) transaction from the bank account?
• how do I connect/reconcile that cash payment transaction to the deduction in the next payrun for the employee?

Hi alect,

When you finalise the pay run in which you have recorded this advance, it will automatically create a journal to QuickBooks Online. If you haven't selected a specific account in QuickBooks Online for the pay advance category to journal to, it will be included in the default wages expenses journal to your default payment account. This is usually the Payroll Clearing account; you can double check this by going to Payroll Settings, then Chart of Accounts and clicking on Default Accounts to see what payment account you have set up. When the amount you have paid to the employee comes through your bank feed, you can then categorise the payment to this account like you would for a regular pay run. 

I am not sure what you are referring to in your second question, or specifically the 'deductions' side of it - are you deducting the amount from the employee's wages at a later date? If that's the case, the amount you pay the employee will match the amount recorded in the pay run - that is, their regular wages less this pay advance, and you would categorise this just like a regular pay run.

-Kass

So the cash transaction in the bank account is allocated to the Payroll Clearing Account.

My second question I think is answered by your explanation as when they payrun runs, it will post to the Payroll clearing and set off against the cash transaction already there....?

Hi alect,

That's correct - the advance recorded in the pay run will journal to your Payroll Clearing account and balance against the bank transaction. As an example:

You record an advance of $50 on a pay run and transfer this from yours to your employee's bank account. The $50 will be recorded as paid to the employee in the pay run, journal to the selected account (in your case the Payroll Clearing) and increase the balance (as it's a liability account). The bank transaction itself, once categorised to the Payroll Clearing account, will then offset that amount by decreasing the balance.

Similarly, if you were to deduct the amount from the employee's wages in the future (let's say they earn $150 and you deduct the $50, making your total payment to them $100), when you record this in the pay run the $100 will journal to Payroll Clearing, and your bank transaction will offset this amount as well. 

-Kass

Hi

I need to do this again.  Can the advance payment made (eg today) be offset in parts over several payruns or does it have to be in one pay run?

Hi alect,

Thanks for your post in the Community!

You can create a pay category for the payroll advance and then, set a payroll inclusion to automatically add the payroll advanced to the next pay runs. Here's how:

1. Click on the Payroll Settings.
2. Click on Pay Categories.
3. Click on Add.
4. Enter a name like payroll advance.
5. Set up the units and payment classification.
6. Click on Save.

If this is a recurring payroll advance, you can set up a payroll inclusion. Here's how:

1. Click on the employee's name.
2. Click on Pay run inclusions.
3. Under Additional earnings, click on Add.
4. Under Pay category select the advance payroll category created.
5. Fill out the earnings pay run.
6. Click on Save.

That's it. Once you create the pay run you can see the advanced payroll category. If not, click on Add earnings and choose the advanced payroll category.

Post again in the Community if you have other questions. I am around to help you.