Set up vacation pay and accrual for Payroll Desktop

QuickBooks Desktop allows you to set up vacation time and accrual that can be used when paying employees.

Set up vacation pay

1. Go to Employees and select Employee Centre.
   • If the employee is already on the list, right-click the employee's name and choose Edit Employee.
   • If the employee isn't on the list yet, select New Employee.
2. From the Payroll Info tab, select Vacation Pay.
3. Enter the Pay ($) available and Pay ($) used YTD.
4. Select Retain if you'd like QuickBooks to calculate and accrue vacation pay through the year.
5. Select Pay every period if you'd like QuickBooks to calculate the employee's vacation pay and add it to each of their pay cheques.
6. The default Percentage value is 4%, enter a different Percentage if required.
7. Select the appropriate Payroll Items under Earnings that accrue vacation.
8. Select OK.

Adjust vacation pay

Note that changing the vacation available by going to Employees,  Employee Centre, double-clicking an employee, Payroll Info tab, then Vacation won't change the actual vacation accrual/liability amount for the employee. You need to do this within the payroll module.

If you've adjusted the vacation pay for an employee, and accounts and reports are affected by the adjustment, adjust the amount of vacation pay accrued on the next paycheque for the employee.

1. From Employees, select Pay Employees.
2. Select Scheduled Payroll or Unscheduled Payroll.
3. Select the employee then select Continue.
4. Verify the Cheque Options.
5. Confirm the dates for Cheque Date and Pay Period Ends.
6. Select the name of the employee who requires an adjustment.
7. From the Review Or Change Paycheque window, enter in the paycheque information.
8. Under the Company Summary area, there's an item for VacPay-Accrued with an amount that is accrued on this paycheque. Adjust this amount.
   • Example: If vacation pay available is $400.00, and only $100.00 is being displayed, an adjustment of $300.00 is needed. The accrued amount for this pay cheque is $35.00. You would change the amount to $335.00.
9. Click Save & Close.
10. Click Create Pay Cheques.

If you've adjusted the vacation pay for an employee and the the accounts and reports don't require adjustment, an adjustment can be made in the employee's information:

1. From Employees, select Employee Centre.
2. On the Employees tab, double-click the employee.
3. From the Payroll Info tab, select Vacation Pay.
4. In the Pay ($) available as of field, enter the amount of vacation pay that's currently available for the employee.

Correct under accrued (overpaid) vacation for an employee still with the company

You may need to correct an over calculation of vacation accrual if an employee's accrued vacation was set up incorrectly and vacation pay is accruing at a rate higher than 4%.

1. Create a Payroll Deduction
   1. From the List menu, choose Payroll Item List.
   2. From the Payroll Item ▼ dropdown, select New.
   3. Go to Deduction, then select Next.
   4. Enter a name for the deduction (e.g. Vacation Accrual Adjustment).
   5. Leave the Enter name of agency to which liability is paid and Enter the number that identifies you to that agency fields blank.
   6. From the Liability Account ▼ dropdown, select the Expense account that's used on the Vacation Accrual payroll item, then select Next.
   7. From the Tax tracking type screen, choose Box 14/A - Employment Income, then click Next.
   8. From the Taxes screen, select all the taxes, then select Next.
   9. On the Calculate based on quantity screen, choose Neither, then select Next.
   10. Select whether to calculate on gross pay or net pay, then click Next.
   11. Leave the Default Rate and Limit fields blank, then select Finish.
2. Create a paycheque for the employee
   The Vacation Summary Report will still show the original amount in the VacPay - Accrued column but you'll see correction in the Vacation used in VacPay-Accural Paid Out column.
   1. From Employees, select Pay Employees > Unscheduled Payroll
   2. Select the employee and select Open Paycheque Detail.
   3. In the Earnings section, remove the Salary or Hourly from Item Name and choose VacPay - Accrual Paid Out.
   4. Enter the amount of the over calculation.
   5. In the Other Payroll Items section, select the Payroll Deduction (Vacation Accrual Adjustment), and enter the same amount as the VacPay Accrual Paid Out
   6. SelectSave & Close. This'll create a 0.00 amount cheque.  Also, note on the paycheque details window that the Vacation Available amount will decrease.

Clear under accrued (overpaid) vacation for an employee no longer with the company

1. From Employees, select Payroll Setup > Set Up YTD Amounts
2. Select Next.
3. Enter the correct dates for When should YTD summaries affect accounts?, then select Next.
4. Enter the correct date for the Earliest QuickBooks payroll date, then select Next.
5. Select the employee's name, then select Enter Summary.
6. On the YTD Adjustment screen, enter the overpaid amount in the Period Amount column beside VacPay-Accrued, then select OK.

Clear over accrued (underpaid) vacation for an employee no longer with the company

1. Create a Vacation Pay Write Off payroll deduction item:
   1. From Lists, select Payroll Item List.
   2. From the Payroll Item ▼ dropdown, select New.
   3. Select Deduction, then select Next.
   4. Enter a name for the deduction (e.g. “VacPay-Write Off”), then select Next.
   5. Select the name of agency to which the liability will be paid from the drop-down menu (optional).
   6. Leave the Enter name of agency to which liability is paid and Enter the number that identifies you to that agency fields blank.
   7. From the Liability Account ▼ dropdown, select the Expense account that's used on the Vacation Accrual payroll item, then select Next.
   8. From the Tax tracking type screen, choose Box 14 - Employment Income, then select Next.
   9. From the Taxes screen, select the appropriate taxes, then select Next.
   10. On the Calculate based on quantity screen, choose Neither, then select Next.
   11. Choose whether to calculate on gross pay or net pay, then select Next.
   12. Leave the Default Rate and Limit fields blank, then select Finish.
2. Create a paycheque using VacPay-Accrued Paid Out as the earnings item for the amount paid out
   1. From Employees, select Pay Employees.
   2. Select Unscheduled Payroll.
   3. Select the employee and select Open Paycheque Detail.
   4. Under the Earnings section, select VacPay-Accrual Paid Out.
   5. Enter the underpaid amount.
   6. Under the Other Payroll Items section, select the VacPay-Write Off item you created above and enter the amount to zero out the VacPay-Accrual Paid Out amount. This should lead to a net $0 paycheque.
   7. Remove any other payroll taxes or deductions
   8. Select Save & Close.

Create a report that'll show vacation pay accrued and paid out for employees

1. From the Reports menu, select Employees & Payroll then Payroll Liability Balances.
2. Select Customize Report.
3. On the Filters tab, under the Filter section, select Payroll Item, then from the Payroll Item ▼ dropdown, select Multiple payroll Items
4. On the Select Payroll Item screen, select the following payroll items:
   • Vacation Salary (if used)
   • Vacation Hourly Rate (if used)
   • VacPay-Accrued
   • VacPay-Accrual Paid Out
5. Click OK.
6. From Display in the Modify Report: Payroll Liabilities Balances screen, change the selection for Display columns by to Payroll Item Detail.
7. From the Header/Footer tab:
   • change the Report Title to "Vacation Pay Owing"
   • change the Company Name to the Employee's Name
8. Select OK.
9. To memorize the report for future reference, select Memorize then OK.