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Understand supported pay types and deduction types in QuickBooks Online Payroll

by Intuit•18• Updated 2 weeks ago

Learn about the various pay and deduction types available in QuickBooks Online Payroll. Understanding these options will help you accurately compensate your employees and remain compliant with UK regulations.

This article is for customers who use QuickBooks Online Core, Premium, or Elite Payroll.

Important compliance reminders

Before processing payroll, consider the following key points:

  • Expenses and benefits: You must report certain employee expenses and benefits to HMRC at the end of the tax year, such as company cars, private health insurance, or travel and entertainment expenses. This is done using a P11D form.
  • Record keeping: Always keep detailed records of all payments, benefits, and expenses. HMRC may require you to provide proof of these records.
  • Tax and National Insurance on bonuses: Bonus payments are treated as regular earnings. You must deduct the correct Tax and National Insurance contributions and report them to HMRC.
  • Overtime pay: You are only legally required to pay for overtime if it is stated in an employee's contract. The contract must also specify the overtime rate.
  • Tax rates: For the most current information on income tax rates and personal allowances, refer to the official GOV.UK guidance.

Pay types

Choosing the right way to pay your employees is a key decision. Here’s a breakdown of the standard pay types you can use in QuickBooks.

Salaried employees receive a fixed annual amount for the work they perform. This amount is agreed upon in their employment contract. Typically, salaried employees are not entitled to overtime pay, as their fixed pay covers all required work.

Hourly employees are paid for each hour they work. The rate of pay is defined in their employment contract, and they must be paid at least the National Minimum Wage.

Commission is a payment based on an employee's performance, such as sales figures or the completion of specific tasks. It can be paid in addition to a salary or as the sole form of earnings. If an hourly employee also earns a commission, their total pay must meet the National Minimum Wage requirements.

You can create multiple commission types in QuickBooks and assign custom names to them for easier tracking.

Overtime is additional pay for hours worked beyond an employee's standard contractual hours. Entitlement to overtime pay must be specified in the employment contract, which should also state the overtime rate. Common overtime multipliers available in QuickBooks include 1.5x and 2.0x the standard hourly rate.

For further details, refer to the official guidance on GOV.UK regarding overtime rights.

Statutory Leave refers to legally required paid time off. QuickBooks supports the following types:

  • Statutory Sick Pay (SSP): For employees who are off work due to illness.
  • Statutory Paternity Pay (SPP): For employees on paternity leave.
  • Statutory Maternity Pay (SMP): For employees on maternity leave.
  • Statutory Neonatal Care Pay (SNCP): For employees on neonatal care leave.

A bonus is an extra payment you can give to employees, for example, as a reward for excellent performance or as a Christmas bonus. Bonuses are considered earnings, so you must deduct the necessary Tax and National Insurance contributions and report the payment to HMRC.

For more information, see the GOV.UK guidance on bonuses.

This category is for taxable payments that are not part of an employee's regular wages. Examples include severance pay or back-dated pay rises. These amounts are included in gross earnings and are subject to Tax and National Insurance.


Reimbursements

Reimbursements are non-taxable payments made to an employee to cover business-related expenses they have paid for personally, such as business travel.

Because reimbursements are not considered earnings, they are not subject to Tax and National Insurance and will not appear on tax reports. They are also excluded from calculations for percentage-based deductions.

You can create and name multiple reimbursement types in QuickBooks to suit your business needs.


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