Termination pay for a laid off employee who won't be returning

Hi MG-2021

Take a look at this from Wagepoint which covers a few other considerations as well as just the paperwork: https://blog.wagepoint.com/canada/employee-terminations-and-subsequent-payments

Hi MG-2021. Thanks for reaching out to us here. I'd be happy to share more information about the termination pay in QuickBooks. Since you've already submitted the ROE, you can proceed with re-activating your employee and pay them their final pay using the steps below: 

1. Go to Payroll > Employees.
2. Select Run Payroll.
3. Select the employee by checking the box beside their name and click Preview payroll.
4. Select the edit pencil next to the Net Pay amount.
5. Scroll down to find vacation Hours available to determine the remaining balance.
6. Select Cancel to go back to the main payroll screen.

The final pay will also reflect on the ROE. Depending on your business practices, you're more than welcome to use the old ROE or the new one which shows the final pay. Here's an article with more info on how to: 

Create a Record of Employment (ROE). I also recommend checking out the article that lashedlifter shared above for more info on how to handle this situation. Feel free to ask other questions, I'm here to help. 

Those steps are fine in determining the Vacation payable (though it was paid every pay period so won't be necessary to have an outstanding payable balance). Do I just use the Hours category to pay them x number of hours and make a Memo that it is termination pay? 
I don't believe I need to pay the employee Vacation pay on this Severance pay as they have not worked to earn that vacation pay? 

I suppose my initial question should have been clarified that this is a Severance Pay (2 weeks pay in lieu of notice) rather than a final pay for their worked time. 

I appreciate the additional detail that you've provided @MG-2021. It's crucial that you have the correct information and steps to pay your terminated employee's severance pay. This isn't a difficult task with QuickBooks Online Payroll so I'd like to explore it with you further.

When it comes to severance pay, many people prefer to use the Other Earnings paytype. This doesn't calculate or pay vacation pay, but will deduct the appropriate taxes. As @JamesM4 indicated above, you'll want to make the employee active again so that you can pay them this final pay, but if you use the Other Earnings pay type, you won't have to worry about Vacation.

When it comes to the ROE, you'll want to consult with an accounting professional to find out whether or not this severance pay should be included or whether you should use the ROE you produced when the employee was first terminated. If you don't have an accountant, navigate to the My Accountant tab within QBO and use the Find a pro to help button. That'll bring you to our database of QuickBooks-certified accounts. You can reach out to one in your area to get their expert opinion.

In case you need a hand with making your employee active again, here are the steps you should take: 

1. Navigate to the Employees tab of the Payroll menu.
2. In the dropdown menu next to the search bar on the Employee list, choose Inactive employees.
3. Click on the appropriate inactive employee and choose to Edit employee.
4. Pick the Employment tab from the top.
5. Change their status from Terminated to Active so that you can run payroll for their severance pay.
6. Hit Done when you've finished making the necessary changes.

You can add the Other Earnings pay type to this employee by choosing the Pay tab once you've chosen to Edit employee as per the steps above. Under Question 4 you'll see Additional pay types. Choose the Edit pencil to make changes. Scroll to the bottom of the Common pay types section and check off Other Earnings. You can customize this to read Severance pay if you wish by choosing to add + Another Other Earnings type. The taxation stays the same, you'll just be able to specify the name of the pay type. Learn more about pay types here: Pay types overview.

Let me know if there's more I can do to help. I want to ensure that you get this figured out! Have a great day.

I saw this post and thought I would inquire about this also. 

If you use the "other earnings", ei & cpp are deducted from the severance payment.  According to the CRA, a severance payment is subject to federal/provincial income tax but there should be no ei or cpp deducted.  Is there another payment type I can use in QBO that will complete this task (issuing severance pay) in compliance with legislative requirements. 

Thank you.

Julie

H Julie. Thanks for chiming in on this. I'll be happy to share more on this. QuickBooks makes it simple to manage your payroll. Another way of paying the severance pay is by creating a bonus cheque or a commission cheque. I'd encourage you to also reach out to your accounting professional for expert advice on how you can handle this situation. Feel free to reach out to the QuickBooks certified accounting professionals using this link here. Let me know if you have other questions. 

Hello James,  are you actually employed by QB?

no I don't need to go to an accountant to resolve this. I'd like QBO to actually resolve this issue as it is a fault in their system not in my ability to process payroll.  I actually believe that I know what they are doing mostly when it comes to processing payroll and would like the ability to create new earning categories or edit the EI and or CPP deductions when instances such as severance pay occur for which the CRA requires the employer NOT withhold EI or CPP contributions from pay.  As far as I can tell there is no way for me to do this while in the QB Desktop Premier with Payroll version it was possible.  This is something QBO payroll needs to fix.  If an employee dies actually and a company has to pay out death benefits, it is obvious that no EI or CPP would be deducted from the death benefit payment.  An option such as this it appears does not exist in QBO payroll. 

Since switching to QBO from the desktop version about 2-3 months ago, I've seen many comments that the  version of payroll for QBO is at best "lacking".... I tend to agree.  I would like better advise on how to resolve this type of issue and not be directed to consulting with an accountant.

Thank you.

Hi there @Julie526 and thanks for expanding on what it is you're looking to accomplish with QBO Payroll. I hear what you're saying and I know how important it is to be able to pay your employees with or without certain taxation and deductions when necessary, such as in the case of severance pay or death benefits. I'd like to point you in the direction of an option you have to manually adjust the CPP and EI that's deducted from your employee's pay.

No matter the pay type that you're using, you now have the option to manually edit the amount of Income Tax, Employment Insurance, or CPP that's deducted. After you've selected the appropriate employees to run payroll for, and adjusted the hours as needed, you'll want to hit Preview payroll. From there you can select the Edit pencil next to Net Pay. Scroll down and click the sections for Employee taxes and Employer taxes and manually adjust the amounts calculated by QBO to reflect $0.00 if necessary. Hit OK when you've finished, then proceed with submitting payroll. 

I can see how our payroll module can be improved to include more specific pay types to suit these special situations. If you'd like, you're welcome to pass along your suggestions to our product developers through the form of feedback. Navigate to the Gear icon in-product, and select Feedback. While you won't hear back from the developers, they're taking your ideas into consideration for updates and future improvements. Keep an eye on our New Features page to see if your suggestion has been implemented!

I hope my workarounds are helpful for you. Take care and have a good day.