I've been challenged by an employee to explain how the vacation pay works when it's a different amount on every paycheque. We get paid on the 15th and last day of every month. She's a salary employee and gets 3 weeks vacation per year. Some pay periods have 72 hours, some have 80, 88 or even 96 hours. So when she takes a vacation day during a 72 hour pay period, she gets more for the day as opposed to if she takes a vacation day during a 96 hour pay period. For instance, if she took vacation from Feb 25 to March 1, Feb 25-28 is 4 days' vacation on her Feb 28 cheque ($1,250) which works out to $312.50/day because there's 72 hours in that pey period. The March 1 vacation day is $255.68 on her March 15 cheque because there's 88 hours in that pay period. And then if she took vacation from May 20 to May 31 (2 weeks) she ends up getting $234.38/day. See how it's all different amounts?
She thinks QB is not figuring this out properly. How does it know when she reaches the 3 weeks when the amounts are all different?
Welcome back! I love that you're taking advantage of the community environment to find answers to your QuickBooks Desktop questions. I'll do what I can to help you with this one.
QuickBooks Desktop's payroll is a basic system that relies a lot on how you configure it. Seeing more details about how it's been set up in your company file would allow us to provide a better explanation for why it's calculating the way it is. For that reason, I recommend touching base with our phone support team. I'll include the contact details below in case you'd like to go over the setup with someone.
The payroll system is great for keeping track of how much vacation is accrued and used, but it doesn't have a stop switch for when the values are reached. You can keep track of that yourself outside of the program or you can use something such as the Vacation Summary report and customize it to view the information you need.
You can learn more about vacation pay by reading Set up vacation pay and accrual or by hitting F1 while in QuickBooks Desktop and using the QuickBooks Desktop Help feature to search for related articles.
Thank you. I've researched on this site how payroll is set up and it is done correctly. I've been here for over 14 years and have never been approached by this question. If there is anyone here that can offer a bit more information as to why they think this is happening, I would appreciate it. I just can't justify spending $99 on one phone call.
I see what you're doing and I actually agree with it, because it is the most accurate. Especially if you have an employee who starts or leaves at any point during a calendar year.
However, most payroll services consider each semi-monthly pay period (paid on the 15th and the end of the month) to be 86.67 hours (2080 hrs divided by 24 pay periods), which is an average (and usually only used for salaried employees who have little to no fluctuations in their pay).
But that only works out truly accurately when, as I said above, someone is employed for a full calendar year. If they start at any point during the year, or leave at any point during the year, no it doesn't work out with their 'actual' hours because as you've said, some months have 20 working days, some have 21, some have 22 and February often only has 19, creating many different number of days for each semi-monthly period, depending on how they fall in the months of the year.
Personally, I would rather pro-rate it to actual days myself, as then I know it is completely accurate. But it does make it more difficult for employees to understand their pay stub. For this, and probably other reasons that I don't know about, the 86.67 hours for semi-monthly payroll for salaried workers has become the normal practice.