Payroll Setup for Pay in Lieu of notice (Taxable ,Pensionable, Insurable ,vacationable)

Hi there, zmaleki51.

QuickBooks Online Payroll does not have a specific setup or payroll item for severance and pay in lieu of notice. Although, you can add or use Other Earnings when paying the employee's final paycheck. This item is usually used for other taxable earnings that are separate from regular wages, such as retroactive pay increases and severance pay. 

Here's how:

1. Go to the Payroll menu, then proceed to the Employees tab.
2. Click the name of the employee and click the Pencil or Edit icon beside Pay.
3. Under How much do you pay. . ., select Add additional pay types.
4. Select Other Earnings, then enter the amount.
5. Click Save or Done.

Let me also share these articles for additional details and reference:

• Supported Pay Types And Deductions Explained
• Create Final Paychecks For Terminated Employees

The Community is always here if you need anything else. We're always here to help. 

Hi Jeno,

Thanks for your information ,

I see the this set up on QBO for Severance (attached image), but don't know the proper tax for each of them.

1. Severance (Taxable)

2. Pay in lieu of notice ( Taxable, pensionable, insurable , vacationable)

Can you guide me on this,please?

Thanks,

Zahra

Hello again Zahra,

It's great to see that you've made your way into the employee profile where you can add other payroll items. I know how vital it is to ensure that you've got the right tax tracking in place, and double checking on the kind of taxes you need and is also a good idea. I can point you in the right direction for this.

To ensure you know how your payroll items should be tracking and taxed, I recommend consulting the Canada Revenue Agency or Revenu Québec for any provincial-related questions since I see your screenshot shows Québec. While I can direct you to the features in QuickBooks Online and how to use them, I don't have the training to advise on taxes for payroll or other areas of your finances. Government agencies or payroll tax specialists would be able to guide you to make sure that the way things are set up in QuickBooks Online Payroll meets your filing needs. I also see you've tagged QuickBooks Online Accountant as your product for this post, so I encourage you to consult colleagues that may know as well.

If you have other questions about the Payroll module in QuickBooks, don't hesitate to ask. There's also the QuickBooks Online Payroll help article hub which goes over many of the staple tasks for payroll, such as setting up pay types, handling taxes, and more.

I hope you have a great weekend. :)

Thanks Laura for your information. I will contact with CRA .

Zahra

Hi Jeon,

Actually I found the setup for both Pay in lieu of notice and severance, but have default setup (see the attached file) and is not changeable. As they're not changeable, should be correct setup,yes?

Appreciate your help:)

Thanks,

Zahra

Hello again, Zahra,

I can tell this is an important part of the setup for you, and it's good you're seeing the ways to set it up in QuickBooks Online Payroll. I can clarify the situation for you when it comes to these setups and the taxes that are assigned by the program as default.

QuickBooks Online is designed to be compliant with CRA's Payroll regulations. Our team is constantly keeping on top of this kind of information to make sure your payroll data is accurate and you won't have any trouble with your remittances in the future, meaning the default items in the system, such as allowance, reimbursement, overtime, and controlled tips should be accurate and compliant to those regulations. 

However, for instances where you'd like to confirm or double check on these setups, it's vital that you check the details against what the CRA mentions or you can also check with a payroll specialist. This is especially true when you're using the Other earnings type field on an employee profile to set up a new earning type. The Other earnings type refers to "taxable payments to an employee that are separate from regular wages, such as retroactive pay increases and severance pay. The amounts are included in the wage base and used to calculate percentage-driven deductions." I pulled that definition from our Pay type overview article.

I hope this helps clarify the situation further so you know the next steps to take for your books and payroll.

Thanks Laura for the information and it make sense with QBO default setup for Payroll on the Canadian version.

I will go with the QBO default setup. 

Best,

Zahra

You're welcome. Have a great rest of your day.

Hi there. In Canada, severance pay is taxable (although at different rates than normal), but it is not insurable nor is it pensionable. From the CRA at https://www.canada.ca/en/financial-consumer-agency/services/losing-job/understanding-severance-pay.h...

"If you get your severance pay as a lump sum payment, your employer will deduct the income tax.

The amount of tax depends on the province or territory you live in and the total amount of severance pay. Your employer won’t deduct Canada Pension Plan (CPP) contributions, Quebec Pension Plan (QPP) contributions and EI premiums."

However, in setting up the severance pay in QBO, the default is that it is insurable and pensionable (see the screenshot). One of my colleagues needs to update the tax settings on this type of pay for their client. Can you advise?

Hey there Melissa HK,

Thank you for contacting us here. Ensuring that you record your transactions correctly is an essential step in maintaining clean books. I would be happy to provide some information.

To ensure the accuracy of your books, I recommend that you contact an accounting professional for expert advice. They will be able to point you in the right direction so that your accounts can end up with the correct balance. Having an accountant can be beneficial for you and your business. You can add your accountant to your books by going to the My Accountant tab in your QuickBooks account. You can also find an accountant who has experience with QuickBooks near you by clicking the Find a professional to help you option in this section.

If you have any further questions, please do not hesitate to contact us here.

Thanks for this. I am actually an accountant, and I already know that severence is not pensionable nor insurable. I need to know how to edit the QBO payroll item so that CPP and EI are not deducted.

Hello Melissa HK, Thanks for reaching back out to us. I recommend reaching out to the support team outside of the Community so we can work directly with you. You can reach them by following one of these methods:

Schedule a Callback or start a Chat: click (?)Help in the upper right > type and enter "Contact support" into the QB Assistant > click Contact Us > explain your situation > click Let's Talk > choose Get a callback or Start a Chat.
Social Media: Facebook and Twitter

If you have any other questions, feel free to reach out here.