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Add payrolling benefits in QuickBooks Online Advanced Payroll

SOLVEDby QuickBooks8Updated March 17, 2023

If you process payroll for your employees, you can now include their benefits in the payroll. This can be a big time saver, and it's easy to do in QuickBooks Online Advanced Payroll.

There are many benefits to payrolling benefits in Advanced Payroll. It allows you to apportion the cash equivalent value of a benefit over the tax year, and this amount is added to employee's taxable pay each period and taxed accordingly. Benefits will show on the employees' payslips.

To access your payrolling benefits, to go to:

  1. Payroll, and then Payroll Settings.
  2. Under Pay Run Settings, select Benefit Categories.
  3. In the processing options section, tick the Payrolling box.
  4. Choose the tax year you registered your business.
  5. Select Save.

To create a benefit category, follow these steps:

  1. Select Add.
  2. Select the Year – this is start date for the benefit.
  3. If you want to carry the benefit forward to the next tax year, tick the box.
  4. Choose the benefit type. A number of fields relating to that benefit type will show. Fill in the details.
  5. Select Save.

If you need to make changes to the benefit category, select the pencil icon. To delete it, select the bin icon, then Delete to confirm.

  1. Go to Payroll, and select the Employees tab.
  2. Select the employee's name to open their employee profile.
  3. Select Benefits.
  4. Select Add.
  5. Choose the benefit category. A number of fields relating to that benefit type will show.
  6. Fill in the details.
  7. Select Save.

If you've moved to QuickBooks Online Payroll during the tax year, and this benefit has already been partially processed in another payroll system, don't worry–you can still add it in.

To enter the opening balances if you are transitioning from another payroll system and need to bring across their current leave balances and/or year-to-date earnings amounts:

  1. Payroll, and then Payroll Settings.
  2. Under Business Settings, select Opening Balances.
  3. Select the Tax Year.
  4. Select Save.

You'll then need to add the total amount payrolled to date into the Payrolled benefits field. To do so:

  1. Go to the employee's profile.
  2. Select the Opening Balances tab.
  3. Select the Earnings.
  4. Enter the amounts.
  5. Select Save.

Once you process payroll, the benefit will be included in taxable pay and will show on the employee's payslip.

Let's take a closer look at what the pro-rata calculation is and how it works.

When you press the Pro-rata button next to the Annual cost to you field on some of the employee benefits, a window opens where you can see start and end date fields. This is used to calculate the proportionate amount of an employee's benefits entitlement, based on their start and end dates.

To use the calculator, you will need to enter your employees' start and end dates. The calculator will then show you the recalculated pro-rata annual cost to you.

If you are happy with this value, you can tick the Use new pro-rata checkbox to update the annual cost to you automatically, when you save.

If you don't want to use this value, you can leave the checkbox unticked and then set your own value. When you run payroll, the benefits will be picked up when they fall into the pay run.

You also have the option set the Pro-rata in first pay run. Once this is done, QuickBooks will automatically perform the necessary calculations each time you run payroll.

Any further pay runs will be re-calculated based on the cash equivalent, less the amount already paid, divided by the number of remaining pay periods.

If you specify an end date, then the calculation will work out the number of days the benefit is available and will stop taking that benefit once the end date has passed.

You can link benefits to multiple employees to save time and help ensure everyone gets the benefits they're entitled to. Note: car benefits should only be added from the employee record.

When you select Link benefits to multiple employees, a panel will open that lists all of the employees the benefit is currently linked to.

To add more employees, select Add and a list of unlinked employees will show. You can select which employees to link the benefit to. Once you're done, select Save.

When it comes to terminating an employee, there are a few things you need to take into account– especially if they have payrolled benefits.

  • When an employee is terminated, it's important to do so within their final pay run. Entering a termination date within a pay run will bring in the outstanding amount to be taxed on any benefits. Most benefits are for a full year, so the amount remaining will be added to the last amount of pay and the taxable pay including the benefit values, will be used to calculate the tax. These values will be reported to HMRC. If the full amount can't be taxed in the final pay period, then HMRC will be aware of the amount of taxable pay taken, and they'll will be able to sort any tax owed directly with the employee.
  • If the benefit is stopping at the same time as the employee is leaving, you'll need to take action to terminate their benefits. You can do this from the employee's profile and use either the pro-rata dates, benefit date available to, or adjust the cost to you in order to recalculate the outstanding benefit amount. Once that's done, this re-calculated value can be seen in the pay run. When an employee has payrolled benefits, it's not possible to add a termination date later than the end of the current pay period.
  • Terminating an employee who has payrolled benefits from within their employee details using the Terminate button, will have no effect on payrolled benefits and as such, any outstanding amounts will need to be reported to HMRC by you, outside of the payroll.

For detailed information on benefits, refer to the HMRC guidance.

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