Deductions - Payslips

Normal Journals

Whenever I do a journal for liabilities in order to pay an amount at a later stage, I do the following: -

CT Liability account

DT Expense Account

The amount is reflected on the P&L Report as an Expense

The amount is reflected on the Balance Sheet under liabilities

When I need to pay the expense I do the following: -

DT Liability Account

CT Expense Account

The amount reflected on the P&L report is now cleared due to the contra transaction

The amount reflected on the Balance Sheet is now cleared due to the contra transaction

Bear in mind that the actual payment has not been done yet.

I do the payment – The following happens: -

The amount is shown as an expense in the P&L Report as it should. The amount Reflects as a payment on the Cash Flow Report as well.
This all Seems to be correct

Payslip Deductions
This is where things are going wrong

The Deductions are setup under settings/payslip items to allocate the liability amount to a liability account.


Manager automatically does the following.

CT Liability account on the Balance Sheet

CT Expense account, because it is shown in ()

I do the payment the following happens: -

P&L Report

This amount does not reflect

Balance Sheet

This amount does not appear

Cash Flow Report

I fail to understand why this happens with the payslip deductions, but it works fine with normal journals

Am I doing something wrong or is it a bug in the program?
Having said that I know that Manager was never intended to be a payroll program, but it could be helpful.

It is normal that the payments to the employee and other organisations do not affect the Profit and Loss accounts. They were affected when you created the payslip.

Please show the edit screens of the two payment transaction

Also the edit screen for the UIF deduction - it looks incorrect to have it appear as an expense.

It is a liability not an expense. As a deduction from the employee’s salary, it is not an expense for the business. The expense is already included in the salary.

Actually, you can only select balance sheet account in there. It shouldn’t be labeled as Expense account. This is fixed in the latest version now (21.5.26)

@lubos I do not know which UIF edit screen. The Balance sheet posted. It was automatically put under Liabilities. Normally when I put something under liabilities for a later payment,
I CT the Liability account and DT the expense account. When I want to do the actual payment at a later stage I DT the Liability Account and CT the expense account. I do the physical payment and everything is above board. I will send all screenshots soon.
With the payslip it does this allocation automatically.

How did you end up with UIF - Employees amount on profit & loss statement?

Payroll deductions are not your expenses (or income). They will not show on your P&L.

Payslip deduction will create liability on your balance sheet.

When you pay this liability, you create payment that will be allocated to that liability account so the liability will no longer exist.

Don’t do this. This is where your confusion starts.

@lubos Manager allocates This UIF automatically as a Liability as you say.
I do a contra journal as in a normal journal before I do the payment.

This works perfectly with Normal Liabilities, but with payslips it is being done automatically

I mean yeah. You are right. I understand what you mean now… accrued expenses you can record that way.

But for payslips, you need to understand… payroll deduction is not your expense, it is expense of your employee. So do not make this journal entry at all that you normally do for accrued expenses.

@lubos @Joe91 Ok I understand this part. Remember I am now sitting with the salary in the cle4aring account, UIF in Liabilities and PAYE in liabilities. Not Paid yet although deducted. How do I do the payment then in Manager ? Please Help.

You can record New Payment transaction

https://www.manager.io/guides/9768

To pay UIF liability and PAYE liability, that will be different payment. Instead of Employee clearing account, you will simply select the relevant UIF liability or PAYE liability account.

Payment transaction will credit your cash/bank account and debit your liability account.

@lubos @Joe91 Thank you, this is just a test company. I will try as you suggest and I will read the link.

@lubos @Joe91 I do not know how I missed this. It is working perfectly and it is so easy. All reports balance and the Cash Flow as per the Cash Flow Report reduces accordingly.
Thank You again for your valuable input.

Why not?
How about penalties and sanctions?

It seems to me that you assume that a balance sheet Debit exists prior to deducting from payslip, but that’s not always the case. In fact this assumption requires one extra step to create a balance sheet Debit:

Dr. Employee clearing account
Cr. P&L --> Staff cost --> e.g. Penalties

It’s in fact other income or a reduction in an expense but you choose not to look at it this way. The side effect of this view is that users have to create additional journal entries or invoices to workaround the payslip deductions limitations.

@lubos, what would it take to convince you that deductions can legitimately be P&L items? If it all possible. :thinking:

@Ealfardan, the fundamental concepts of Manager’s payroll functions are simple.

Earnings items are earned by employees or given up by them. They are expenses or income of the business. Normally, they are positive, but can also be negative. When they are negative, simply enter negative numbers. For example, an employee who earns a fixed monthly salary, but takes unpaid personal leave, could have two earnings line items. One would be for the salary (and be positive). The other would be for the reduction due to the unpaid leave (and be negative). Your penalties and sanctions fall into the negative earnings item category.

Deductions are only for adjustments related to amounts the business must pay to outside entities on behalf of the employee. They are most particularly not for adjustments that affect the business’ income or expenses. They can also be negative, such as when the business deducted too much for advance income tax in a prior period. But that changes only what the business owes to the tax authority and the employee, not its income or expenses.

Your disagreement seems to be centered around the idea that any reduction of employee net pay is a deduction. That is not Manager’s scheme. To put things in other words, earnings items increase or decrease (usually increase) the employee’s gross income. Deduction items decrease or increase (usually decrease) the employee’s net pay and increase or decrease (usually increase) the business’ liabilities to outside entities.

@Tut obviously you’re in a much better position to discuss the intended usage of deductions and I am not going to argue there.

But to me, at least, it only seems logical that all positive amounts are earnings and all negative amounts are deductions, wouldn’t you agree?

I mean most wouldn’t like the idea of classifying sanctions as earnings.

I’m not sure whether it should be implemented like that. If you have a payroll deduction which should offset P&L expense account rather than creating liability, then you can have negative earnings line item for that purpose.

Also there is already topic in ideas category proposing this…

Already voted there.

You might be right in some aspects, but it still is big bummer for me because it creates a lot of extra work for me. I tried classifying our deductions as earnings but I faced a lot of pushback from my clients or their staff.

I am starting to lean towards not using manager to generate payslips. But I still have some hope since something is already in ideas. So I really don’t know whether using something else on the side is a good idea at this point.

So what are your examples of payroll deductions which are business expense offsets rather than liabilities?

Two basically.

  1. Social insurance deductions. We get invoiced that by the government every month and record it as an expense and credit all employee deductions from that expense account. This is the only straight forward process that requires less work, less user calculations and less room for errors overall.

  2. Gross pay needs to be shown gross of any wage, time or penalty deductions for when the employees request loans from banks.