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Community Contributor **

How do we accrue Vacation Pay by percentage instead of fixed hours?

We recently switched from Quickbooks Desktop to Quickbooks Online.

Our employees accrue vacation pay at either 4%, 6% or 8% depending on how long they have been with our company. Quickbooks Online doesn't seem to allow vacation to accrue by percentage. It only seems to allow accrual by a fixed number of hours per pay period.

This doesn't makes sense for us as our employees don't work a set number of hours each week. Some weeks, they might work 30 hours, other weeks could be 50. Right now the only way I see of doing this is to manually calculate it each week for each employee which would be a lot of work.

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Best answer 04-16-2019

Accepted Solutions
QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hello Brad, 


Setting up a vacation pay policy for your employees is made easy with QuickBooks Online. You can absolutely set up your employees to receive a percentage of 4%, 6%, or 8% per pay period. The option to accrue vacation pay will have to be on an hourly basis. You can adjust the percentage of vacation pay when it's paid out each pay period.

 

To do this, follow these steps:

 

1. Click the Employees tab on the left navigation menu.

2. Select an employee from the list.

3. Click the small Pencil icon next to Pay.

4. Click the small Pencil icon next to Question #4: "What is this employee's vacation policy?"

5. Select the option to "Receive vacation pay each pay period" 

6. Enter the percentage of gross wages the employee receives.

7. Click OK.

 

That's all there is to it. Let me know if you have any other questions. 

 

Have a great day!

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18 Comments
QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hello Brad, 


Setting up a vacation pay policy for your employees is made easy with QuickBooks Online. You can absolutely set up your employees to receive a percentage of 4%, 6%, or 8% per pay period. The option to accrue vacation pay will have to be on an hourly basis. You can adjust the percentage of vacation pay when it's paid out each pay period.

 

To do this, follow these steps:

 

1. Click the Employees tab on the left navigation menu.

2. Select an employee from the list.

3. Click the small Pencil icon next to Pay.

4. Click the small Pencil icon next to Question #4: "What is this employee's vacation policy?"

5. Select the option to "Receive vacation pay each pay period" 

6. Enter the percentage of gross wages the employee receives.

7. Click OK.

 

That's all there is to it. Let me know if you have any other questions. 

 

Have a great day!

View solution in original post

Community Contributor **

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hi AddieB,

 

Thanks for the reply.

 

So there is no way of accruing vacation pay as a percentage? It has to be paid out each week?

QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

That's correct, Brad. Let me know if there's any other way I can help.

Community Contributor **

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

This doesn't match up with the employment standards act. Employees are supposed to accrue vacation pay as a percentage and it isn't supposed to be paid out until they take vacation. They have to agree to have it paid out every pay period, and most will not agree to that. 

 

There are lots of industries where employees are paid hourly, this is definitely a problem. I'm going to have to track vacation pay separately on a spreadsheet.

 

https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standa...

QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hi DynamiteBooks,

 

Thanks for bringing this to our attention. I'll be sure to share it with my team for review. It's important to us that we're meeting current business practices and standards.

 

AddieB's response above covers vacation policies in QuickBooks Online's Standard Payroll service, where there is only the option to accrue based on a set number of hours or to pay out a percentage each pay period. For those that need to accrue based on a percentage each pay period, the Advanced Payroll powered by Wagepoint is something that you can consider. Its vacation policies allow you to accrue or pay out each pay period based on a percentage. Read How to handle employee and contractor vacation pay to learn more.

 

I've got a few more links for you below to help you choose the right payroll option for you and your business needs. Check them out below and feel free to ask more questions!

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hello @LauraAB ,

 

I have used QB online, but not for a couple of years and the more I read on these forums, the less I am inclined to make the switch over to online from desktop.  This topic particularly disturbs me.  Do you mean to say that the Canadian version of Quickbooks Online w/ Payroll has no provision to retain accrued vacation pay and then pay it out when the employee takes vacation?  That is just basic payroll 101 and I can't believe that it wouldn't be a standard feature.  Perhaps I don't understand how the payroll service is provided through QB Online.  It almost sounds to me that someone using QB Online and who wants payroll has to pay for a separate payroll subscription through some other vehicle . . . perhaps a third party payroll app??  Am I missing something?

QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hey Rochelley. Fancy seeing you again! Allow me to explain. Like QuickBooks Desktop, the payroll service is an add-on feature that has its own subscription rate on top of the regular account rate. There are two payroll options to choose from for QuickBooks Online.

  • QuickBooks Online Standard Payroll
  • QuickBooks Online Advanced Payroll powered by Wagepoint

Our Advanced Payroll service is done in partnership with a third-party company called Wagepoint. It offers more automation and flexibility than the Standard payroll service. While Wagepoint does have its own payroll app as well, the Advanced Payroll service is an integration directly in the QuickBooks Online account.

 

I want to assure you that both allow you to accrue vacation to pay out to employees because, you're right, that's basic payroll practice. What this post was going over is how that amount is accrued in the payroll service. I'll outline them both to help create a better picture. The screenshots I'm including are for fake employees, but give you an idea of the vacation policy setup.

 

For Standard payroll, the option to accrued is based on number of hours. So for those using Standard payroll who'd like to accrue based on percentage, a little math is involved to figure out what the percentage would be in hours. Here's a screenshot of what it looks like.

 

 

The other options in the drop-down menu are to accrue each pay period, per hour worked, or on anniversary date.

 

For Advanced payroll, the accrual vacation policy works on a percentage basis. Here's what it looks like.

 

 

The other options in the drop-down are paid out each pay period and not applicable.

 

I hope that helps clear it up. You're welcome to ask more questions. :)

 

I know QuickBooks Online isn't best for everyone and it's important to make the best decision for your business needs. Don't be afraid to pick QuickBooks Desktop over QuickBooks Online if that's what works for you!

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hi @LauraAB ,

 

Several questions that I'm curious about:

  1. Does QBO Standard Payroll automatically accrue the correct $ amounts to Vacation Expense and Vacation Liability for the accrual period designated? i.e. Employee who earns $20.00/hr accrues 4.62 hrs per pay period; Is there a financial transaction in the background for $92.40 debiting Vacation Expense and $92.40 crediting Vacation Liability? or
  2. Does it simply accrue time and not $, and only records Vacation Expense when an employee takes their vacation?
  3. What happens when someone works overtime?  Are the vacation accrual hours increased to account for the overtime thereby increasing the amount of vacation time available to an employee?
  4. What happens when someone wants to be paid out some vacation pay but they aren't taking any vacation time (hrs)?  Is there still a Vacation Liability to that employee that can be drawn from using a different payroll item than a Vacation Hourly item?
QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

These are great questions that'll really highlight some of the major differences between QuickBooks Desktop and Online. Keep in mind that Online is a more streamlined version of QuickBooks, so while it's doing all the necessary calculations, it doesn't get into the same level of detail you're used to in QuickBooks Desktop.

 

For instance, the vacation time doesn't track into specific expense or liability accounts in the Chart of Accounts. Instead, QuickBooks Online uses reports to show you what's been used and what's available in hours and dollars. It's called the Vacation and Sick Leave report. Clicking on the amounts in that report will show a bit more detail of how that amount was calculated, but there aren't any accounts to look at in the CoA.

 

Vacation will accrue on regular payroll items and some additional items. When it comes to overtime, it's dependent on a few things, such as which province you're in. I've got an article here you can review: Which pay types earn vacation?

 

What you're used to having to add as payroll items are always present on the payroll screen in QuickBooks Online. So when you want to pay out vacation hours, you simply fill in the Vacation Pay Hrs box in addition to whatever else you'd like to add on for the employee. Here's another screenshot so you can see. I've got an employee here with vacation that's paid out each cheque and one with accrual set up so you can get a sense of the difference.

 

 

Standard and Advanced Payroll work similarly for these features, with a few different steps along the way. I've got a few links for you to check out and I also encourage you to take advantage of our free trials and the QuickBooks Online test drive account, which is similar to Desktop's Sample Company files. They're a great way to see if Online will do what you need it to do before committing to a subscription.

I'll leave you with those for now. I hope that helps, Rochelley! :)

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

I am a Quickbooks ProAdvisor for Desktop and have, as part of my package, Quickbooks Accountant Desktop and Online.  I just don't use Online, ever.

 


@LauraAB wrote:

 

For instance, the vacation time doesn't track into specific expense or liability accounts in the Chart of Accounts. Instead, QuickBooks Online uses reports to show you what's been used and what's available in hours and dollars. It's called the Vacation and Sick Leave report. Clicking on the amounts in that report will show a bit more detail of how that amount was calculated, but there aren't any accounts to look at in the CoA.

So when you pull a P & L report, will there be $ values in Vacation Expense and Vacation Liability (on Balance Sheet) accounts that will coincide with the proper entries for the period?

 


@LauraAB wrote:

 

Vacation will accrue on regular payroll items and some additional items. When it comes to overtime, it's dependent on a few things, such as which province you're in. I've got an article here you can review: Which pay types earn vacation?

The pay types which earn vacation are not my concern.  My concern is with the accounting entries that should be made when vacation is accrued and where one sees evidence of that happening. 

 To just have a report showing the amounts but no accounting entries to correspond with the report seems wrong.   If it is truly not posting entries into the accounts, QBO is not doing it's job.  All vacation accrued must be expensed as wages in the period in which it's earned and a liabliity created on the books.  Are you saying this does not happen with QBO Standard Payroll?

 

I get your comments about the QBO Payroll being an add-on subscription, but at least with Desktop there is only one level of Payroll that everyone gets, not a lesser version and a greater version as it appears to be with QBO.  I know I sound negative, @LauraAB , but I really want to understand how QBO is negotiating the functions that I take for granted in Desktop and so far, I don't think I'm liking what I'm seeing.  I used it a couple of years ago for a client, but without payroll, and I wasn't impressed at all.  It was very slow and cumbersome and forced you to do things in a specific way that is very hard for an old, die-hard accounting type like myself to accept.

 

 

QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Thanks for your patience, Rochelley. I was out of the office yesterday, but wanted to make sure that I came back to follow up with you on this.

 

It's awesome that you're one of our ProAdvisors and hearing that you've already set up a QuickBooks Online Accountant (QBOA) account makes things even easier if you did want to test something out. QBOA comes with a free version of Standard payroll for that account. If you wanted to try payroll to see how it works, you can do so and then delete the paycheques later.

 

On the P&L report, payroll expenses simply show up a with a breakdown into Taxes and Wages when you're using Standard Payroll. Since there's no liability or expense accounts in the Chart of Accounts, there isn't anything to map onto the P&L. The program is calculating the amounts as they need to, but it's happening in the background without hitting a visible account. Considering your background in accounting, I can appreciate how you'd want to see those kinds of details in the P&L and other areas. For the Advanced payroll option, you can get into more details and map accounts the way you'd like to keep track of vacation and other payroll information.

 

I absolutely hear what you're saying as well in regards to the differences between Standard and Advanced Payroll services. We like to give our customers options for the services they'd like to use, but can see how it might come across as you've described. That's something I'll be sure to share with my team.

 

Since you're more about the hands-on accounting side of things and have your own ways that you want to do things, Desktop is probably the better fit for you. Knowing both products as I do, the Desktop environment allows for a more in-depth accounting experience than QBO. The QBOA accounts do allow you to get a bit more into the details, but Desktop has wider range when it comes to those kinds of things.

 

I'll keep an eye out for if you'd like to discuss anything else. It's great to know how our customers view QuickBooks! :)

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Hi Laura,

 

I am actually setting up an employee in QBO right now to experiment with the Payroll features and see if I end up with what I would expect for payroll entries.

 

Pertaining to the question of Vacation Hrs vs. Vacation $, below is another post I made regarding this topic (with a few edits as my original answer assumed we were dealing with QB Desktop when the OP was really dealing with QBO.

 

 

Vacation ($) Available and Vacation (Hrs) Available are two completely separate things.  The only time you can do an exact division of $ and Hrs and come up with the right answer is if the employee has 1) never had a pay increase, 2) never worked overtime 3) never taken a lump sum payout of Vacation $ at any time and 4) reached a particular year milestone where vacation pay rate changes, i.e. in SK, ten years of service nets you 4 weeks or 4/52 per year instead of 3/52.

 

As soon as an employee has experienced any of these, their Vac Days (Hrs) Available and their Vac $ Available will no longer match.  For example, if an employee works overtime, he is still only entitled to the legislated amount of time per year for Vacation.  But he is entitled to all the Vac Pay ($) he earns on those extra hours.  It simply means that just because he may have earned the equivalent of 4 or 5 weeks of Vacation $, an employer is not obligated to give him any more Vac time off than what is legislated by the province.

 

This can also work in reverse where if an employee takes lump sums of Vacation $ at any time (VacPay-Accrual Paid Out payroll item) he may now still be entitled to 10 days of vacation (for example), but only has enough Vac $ to cover 5 days.  He may still take his 10 days of vacation, but he would only be paid Vac Pay for 5 days, and the rest would be at no pay.

 

Unfortunately, Quickbooks does not track Vacation Time taken, per se - it only tracks Vac $ accrued and used.  However, you can create a custom report that will show you how many hours of Vacation a person has taken, as well as any lump sum payouts of Vacation $ by filtering for only Vac Pay payroll items and make sure you Display QTY on the report.  But it is not a running balance and does not show how many hours have been earned and how many hours have been taken - only what has been taken and entered as vac hours in the pay cheque.

 

You will have to track these stats outside of Quickbooks in a spreadsheet or other method, if you want to keep track of the time as well as the $.

 

The points I made above are why it seems erroneous to me that you would only have the option to pay someone vacation pay based on # of hours of vacation taken.  What does QBO do if someone has more time than they have $ in their vacation 'bank'?  What does QBO do if someone has more $ than time in their vacation 'bank'; assuming that all vacation is paid out at the current rate of pay?  Is there an item similar to Desktop's 'VacPay-Accrual Paid Out" to deal with someone who has more $ than they have hrs accrued (this is very often the case for people who work overtime)?

 

I am still also not clear whether accrued Vacation is posted into the Wages/Vacation Expense account and shows up on the P & L, and Vacation Liability congruently posted into the Vacation Payable and shows up on the Balance Sheet?  If not, and QBO is only realizing the Vacation expense at the time that it is paid out to employees when they take vacation, then QBO is violating accrual based accounting, which all Canadians must use unless they are farmers or fishermen.  If these entries are being made in the background, then great.  But I'm not clear on this due to your statement :  "Since there's no liability or expense accounts in the Chart of Accounts, there isn't anything to map onto the P&L. The program is calculating the amounts as they need to, but it's happening in the background without hitting a visible account." I can't wrap my head around this; how is it still happening but not hitting a visible account?  Sorry . . . perhaps I'm being dense, but sometimes I need all the help I can get! LOL:smileylol:

QuickBooks Team

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

You're keeping me on my toes with your questions, that's for sure! I'll do my best to clear this up.

 

Once again, QuickBooks Online's payroll doesn't use payroll items like you're used to in QuickBooks Desktop. You're able to add different pay types and such, but it's not quite the same process as Desktop's configuration.

 

At this time, the Standard Payroll feature is only working based on hours, so it's disregarding the dollar amount entirely. Our engineers realized that the dollar-figure calculations weren't working correctly and have been making changes to fix it. We know that there are different scenarios which would require vacation paid out in a certain way, but for right now the hours option is all that's available. When it comes to the hours, the program will mark amounts in the negative if more time was taken than is available.

 

When it comes to the accounts, I totally get it being difficult to wrap your head around. Since there aren't payroll expense or liability accounts created for Standard payroll, there's no where in the Chart of Accounts for those amounts to show up. It was described to me once as "phantom accounts." The back-end workings of the program knows what information it's using and needing, but it's not showing you that information. Here are a few screenshots from my test account again, where I've run a payroll.

 

 

 

 

Like with Desktop, it's possible to delve deeper into the dollar figures on a report. For example, if I click the number associated with Wages in my P&L, here's what I get.

 

Clicking on any of those amounts brings me to pay cheque breakdown. Here's the one for Laura for 21/05/2019.

 

 

Let me know if it's starting to make a bit more sense. :)

Not applicable

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

This is actually not entirely true.  You can accrue vacation time as a % in QBO Online Payroll.  While the question asks if you'd like to accrue 80 hours, behind the scenes, it's equating that to a 4% accrual on vacationable earnings.  120 hours equates to 6%, and 160 hours equates to 8%.  

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

As far as the $ being paid out when an employee takes vacation, and the $ showing on the vacation reports in QBO, yes, the percentages equate to the hours and are correct.  However, if you dig a little deeper, you will find that although QBO provides vacation time/$ reports, no financial entries are being made for the accrual.  In other words, Vacation expense on the P & L is not going up to account for the vacation time earned in the period, and Vacation payable is not going up to show the liability to the employee on the Balance Sheet in the same period. QBO only records Vacation expense at the time that the employee takes vacation, and no liability to the employee is ever recorded prior to this.  This behaviour defies all accounting principles regarding the recording of employee benefits expenses and liabilities.  I have had an extensive conversation about this with @LauraAB and she is looking into it.

Not applicable

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Yes, you are totally correct.  I am now the Product Manager for QuickBooks Online Payroll and will be looking to address 'all things vacation' in the coming year.  This is extremely high our on backlog.  With that, we'll be looking ensure that the liability is tracked on the Balance Sheet, and the timing of the vacation expense is recorded at time it is earned vs. when it is simply taken/paid out.  

Andrew

Established Community Backer ***

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

That is good news!  Is there any way you can notify us when this actually happens?

Not applicable

Re: How do we accrue Vacation Pay by percentage instead of fixed hours?

Yes, of course.  Email communications will be sent out to all customers once this goes live later this year.