How to create On reserve payroll pay code

Hi Deb, we actually can't create a specific tax-exempt pay code in QuickBooks Online Payroll. Instead, you'll need to mark the employee as tax-exempt within their Tax withholdings settings. From there, we can create a separate Pay Type to track the exempt income independently from taxable income for reporting purposes.

To do this, please follow the steps below:

Employee payroll tax exemptions:

1. In the Employees page, select your employee.
2. Click Edit from the Tax withholdings section.
3. Tick the taxes the employees are exempt from.
4. One done, hit Save.

Please consult with a tax professional if you are not sure if an employee should be exempt from certain taxes.

Add pay types:

1. In the Employees page, select your employee.
2. Click Add from the Additional pay types section.
3. Choose + New pay type from the Pay types dropdown.
4. Fill out the Name field and the Recurring amount if applicable.
5. From the Type dropdown, choose Other Earnings.
6. Once all the details are complete, hit Save.

You can now run a payroll for that specific employee. Please review the Preview payroll details to ensure that Canada Pension Plan (CPP), Employee Insurance (EI), or Federal Income Tax is not being deducted for that pay item.

Please let us know if you need further assistance or have additional questions. The Community team is always here to support you. Have a great day!