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Community Contributor *

How do I account for prepaid employee payroll expenses for employee on leave of absence?

So an employee went on a planned 8-week leave of absence, planning to miss four bi-weekly payrolls.  She wrote us a check for $770 to cover her portion of 401(k) and health and dental insurance while she was gone (192.50 per payroll).  Then she returned early, after missing only one payroll, so now we need to cut her a check for $577.50 to refund the unused prepayment.

I’m just a dumb engineer trying to keep the books, and need some help getting this right.  I’ve been keeping the books in my companies for about 35 years, but never came across this kind of an issue. 

We do our payroll thru QB.

  1. What kind of account should the $770 have been deposited into, asset, liability, income or expense?  The $577.50 refund would come back out of that same account (that’s the easy part). 

  2. I have made a Payroll Liability Adjustment for the $192.50, assigning it to the various things the check covered for the one missed payroll so my liability payments will be right for the end of the month.

    1. Should that Payroll Liability Adjustment be a Company Adjustment or an Employee Adjustment?

    2. What accounts should be affected in either case?

Thanxalot for anybody that can help me with this one.  I’ve been trying to figger it out for a couple of weeks now.

Solved
Best answer 12-10-2018

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Established Community Backer ***

"She wrote us a check for $770 to cover her portion of 40...

"She wrote us a check for $770 to cover her portion of 401(k)"

You cannot do this for 401(k). Just because there is a Standard amount deducted, it is taken from Pay; not Paid in by the employee. You only get to Contribute because there is a paycheck; not because you can afford to Pay it yourself.

"and health and dental insurance while she was gone (192.50 per payroll)."

That would be different; the funds would be returned to where you typically draw them from. That might be Liability or Expense. This assumes this is a Net Pay deduction; otherwise, once again, she cannot pay you for something that typically is Pre-taxed. You cannot mix sources of Funding like that.

"Then she returned early, after missing only one payroll, so now we need to cut her a check for $577.50 to refund the unused prepayment."

Her Prepayment would have been deposited into a Liability account for tracking how you used it. That is no different than a customer's prepayment might be tracked or a Tenant Security deposit. That means you would still have a balance and you pay it out using Write Check.

But, you need to reverse the 401(k) activity, most likely. Their own funds from home do not qualify for 401(k).

1. Liability to you, since it is not your money to keep.

2. That would be a mistake. This was not Payroll to start with, if she is paying. You don't have more liability to pay; you have someone else's Funds to pay with. Your Liability check needs you to click on the Expenses tab and post her share from the Liability Account where you first put her deposit = increases what you are paying, but this is not part of Payroll, as you noted = no paycheck involved. I would delete the payroll adjustment and fix the liability check(s).

There typically is not a reason to make a mess of payroll for simple stuff.

View solution in original post

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Highlighted
Established Community Backer ***

"She wrote us a check for $770 to cover her portion of 40...

"She wrote us a check for $770 to cover her portion of 401(k)"

You cannot do this for 401(k). Just because there is a Standard amount deducted, it is taken from Pay; not Paid in by the employee. You only get to Contribute because there is a paycheck; not because you can afford to Pay it yourself.

"and health and dental insurance while she was gone (192.50 per payroll)."

That would be different; the funds would be returned to where you typically draw them from. That might be Liability or Expense. This assumes this is a Net Pay deduction; otherwise, once again, she cannot pay you for something that typically is Pre-taxed. You cannot mix sources of Funding like that.

"Then she returned early, after missing only one payroll, so now we need to cut her a check for $577.50 to refund the unused prepayment."

Her Prepayment would have been deposited into a Liability account for tracking how you used it. That is no different than a customer's prepayment might be tracked or a Tenant Security deposit. That means you would still have a balance and you pay it out using Write Check.

But, you need to reverse the 401(k) activity, most likely. Their own funds from home do not qualify for 401(k).

1. Liability to you, since it is not your money to keep.

2. That would be a mistake. This was not Payroll to start with, if she is paying. You don't have more liability to pay; you have someone else's Funds to pay with. Your Liability check needs you to click on the Expenses tab and post her share from the Liability Account where you first put her deposit = increases what you are paying, but this is not part of Payroll, as you noted = no paycheck involved. I would delete the payroll adjustment and fix the liability check(s).

There typically is not a reason to make a mess of payroll for simple stuff.

View solution in original post

Community Contributor *

401(k) is OK since it a loan payment due every two weeks,...

401(k) is OK since it a loan payment due every two weeks, not a pre-tax contribution.
Community Contributor *

And I forgot about adjusting the liability check by using...

And I forgot about adjusting the liability check by using the expense tab.  Thanxalot!

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