Payslip deductions are showing as “Payroll liabilities” when they should not be. I pay my staff via Western Union and it’s the member of staff who pays for the Western Union fee. I list the Western Union fee as a Deduction on the payslip. Then I note the NET pay and that’s the exact amount I record as an expense. However all of the deductions are showing as “Payroll liabilities”. Have I done something wrong?
Well, normally when you deduct an amount from payslip on behalf of 3rd party (e.g. tax authority, union), it is correct that deductions will keep accumulating in liability account until they are paid to 3rd party.
In this case, it looks like you are paying 3rd-party (Western Union) every time you send employees a payment.
So when you pay employee, it’s their net pay + western union fee and that’s how payment to employee should be split.
Net pay should be categorized to
Employee clearing account and western union fee to its own account to clear the liability created by deduction.
Another option would be not to bother with Western Union fee from your point of view and simply pay employee their earnings + western union fee.
Another option is to set the Payslip Deduction to the expense account used to classify the Western Union Fees instead of a Liability Account. This will result in the deduction from the employee payslip offsetting the payment by you to Western Union.
I pay my staff as Salary Advance or Loan against Salary & I will deduct from his Salary. How i enter entry in Manager at the time of Payment of Advance or Loan to Staff and deducted from Salary ?
You can classify the Salary Advance when you Spend Money to the Employee Clearing Account. There is no need to deduct the Salary Advance on the Payslip. When you create the Payslip for the full pay for the period, the Employee tab will show the remaining Amount to Pay and when that amount is paid and allocated to the Employee Clearing Account it will show the employee is paid in full.
In these case how I know how much money I have to pay ?
Click on the Employees tab to view the amount payable to the employee.
Hi @lubos. I have looked for a thread touching on payslip deductions in the case of a fine or breakage or misdemeanor, but have found none.
I ran an Events Company and mostly deal with dancers, acrobats etc. Sometimes, when working on a project, they have the tendency to either arrive late, fail to properly fulfill their labour obligations, and so forth. For such instances, I have suitable fines apportioned, which they all subscribe to.
My problem arises in the following context; how do I categorize such an item on the payslip? Ideally, I would think it right to specify it a deduction from the gross pay, which in effect directly reduces the net pay and reflects in the payroll liabilities tab. However, such money, unlike tax deductions or union fees, is not meant to go to 3rd party entities, rather the company itself.
I am, therefore, wondering how to clear such liability because it is not, in my opinion, an expense item, but an income item, and should reflect as such. Thank you for the assistance.
I think, from the accounting perspective, such fines or reductions of pay are neither expenses nor income. Rather, they are a reduction of the amount owed per contract or employment terms (since you say all performers subscribe to these provisions).
If you contracted with an acrobat to perform for price X, with a penalty clause including a deduction of Y for arriving late, then the acrobat would be entitled to invoice you only for X - Y = Z. You would pay the acrobat Z and that amount would show in an expense account such as
Contract labor. You could enter such a sales invoice from your acrobat with a purchase invoice into Manager showing two line items: acrobat services for X and a deduction for late arrival of -Y.
If the acrobat is actually your employee instead of a contractor/supplier, you would, of course, not receive a sales invoice. Instead, you would record the reduced wages owed. You could do this as a single entry for Z or two entries for X and -Y.
In neither case does the deduction show up as an income item. Of course, you could make the argument that showing the full expense X and an offsetting income item Y has the same result, and you would be correct. But why clutter your P&L with that extra account when a single, reduced amount was paid to the acrobat?
I do agree with this statement; “from the accounting perspective, such fines or reductions of pay are neither expenses nor income.”
To clarify, The acrobat is an employee. I also understand why such a framework somehow creates a extended Income statement. I am inclined to afford you my perspective, and perhaps you will find it easy to see why the issue vexes me.
It is true, reducing the wage by the penalty price would make for a neat and seamless transaction. However, this would only reflect from my end; from the acrobat’s end, such a reduction would not be express, but only implied - covered only by verbal understanding of the same.
You see, I really want the acrobat to see such a deduction in their payslip and I suppose this is the area of contention; question is, am I quite out of line to think this would be possible given the implications on the P&L report or any other report for that matter?
“…or two entries for X and -Y.”
I would also like to know how to go about performing the above. Thanks so much.
I certainly see your point, @Writer-Typist, and agree with the idea that showing the deduction could hopefully have a positive management impact. Unfortunately, I don’t use the payroll capabilities of Manager, so I’m not a good person to explain how to enter such deductions. I don’t want to accidentally give you incorrect information. I’m sure someone else can explain it.
Yes, that is exactly the point I aimed to underscore. It would really make them feel the pain and need to alter behavior. Be as it may, I am certain that in the future you would have a tentative model upon which to base further discussion, and I would welcome it without prejudice. Thank you for you assistance.
@Writer-Typist, you should be able to show those items quite clearly on the payslip as deductions and up until quite recently you could but with the introduction of Custom Control accounts this has been to limited as you noted to 3rd parties. This has been highlighted to @lubos but not yet resolved - please refer to below
Please let me know if using the following method may solve my earlier problem with fine/penalties deductions.
I’ve created a new income account tentatively labelled “Penalties.” My intention is to clear the penalties deducted from employees through this account, thereby transferring them into a form of income, even though in reality they aren’t. It feels quite stupid, though, and that’s why am asking for your perspective. Thanks a lot.
[quote=“Writer-Typist, post:14, topic:4626”]
I’ve created a new income account tentatively labelled “Penalties.” My intention is to clear the penalties deducted from employees through this account, thereby transferring them into a form of income[/quote]
The structure you propose as outlined above is perfectly correct and prior to the recent introduction of Custom Control accounts would have worked in Manager without any issue. However since the introduction of the Custom Control accounts, the only accounts selectable under Payslip Deductions are Custom Control accounts and these tended to be for 3rd parties and not for internal usage of the business
This change caused a number of impacts on users who had previously been making internal deductions:
- An employer who charged rent for accommodation on the business premises to his employees
- An employer who advanced funds to employees with repayments based on a schedule
- An employer who may charge a private usage component with regards to a company vehicle
- An employer who wanted to make any form of financial arrangement with their employees, such as your penalties.
The solution could be quite simple, under Payslip Deduction Item, make it allowable to select any COA which was the case prior to the introduction Custom Control as illustrated by responses earlier in this topic.
However, having said all that there is a work around which will achieve the same result but requires a additional step. In addition to your Penalties Income account, under Settings - COA create a BS - Liabilities - Penalties Clearing control account - this account will now become available via the Payslip Deduction Item and so your penalty deductions can be implemented. The additional step required would be to process a Journal Entry, where you would transfer any Liabilities - Penalties Clearing account balance to the P&L - Income - Penalties account, perhaps on a monthly basis
Note: when creating the Penalties Clearing control account - select Suppliers as Employees/Payslips can’t be selected as they aren’t listed.
Classifying the penalty as Income is the correct thing to do. If you pay the employee 100 a week than wages would show 100. If a penalty was involved, the employee is still entitled to be paid at 100 with an itemised deduction of 20. Otherwise if you just made the pay 80, then that could have legal consequences.
Thanks for the response @Brucanna. I have created the COA just as outlined in your rejoinder. However, unfortunately, the transaction gets thrown into suspense account - I don’t know why. However, leaving the deductions in the payroll liabilities tab and then using a Journal entry to debit payroll liabilities and credit penalties income account seems to clear the issue. However, am not sure if what am doing is correct. Would appreciate your perspective, thanks.
Have just tested that and I get the same result. It would appear that as Employees/Payslip can’t be selected under the Control Account tick box as shown above there is no inbuilt Employee/Payee association.
As it currently stands, this means that all deductions, tax, super, rent, loan repayments, penalties etc., must all go through the Payroll Liabilities account and then be constantly reconciled. Your usage of the Journal is correct.
Returning to the previous status of allowing any COA to be selected under deductions resolves this clutter.
Alternatively, set your Payslip Penalties up under “Payslip Earning Items” as the P&L Income Penalties account is available for selection there and enter the amount as a negative, this will eliminate the Journal.
I suppose I could do it both ways, but I seem to favour your method using the earnings item to facilitate the deduction. Thank you for sharing @Brucanna
Payslip deductions should be used only when it’s deducted from employee on behalf of 3rd party.
Deductions which are kept by employer should be just negative earnings.
But staff advance/loan repayments can’t be negative earning as the BS accounts can’t be selected on creating a Payslip Earning Items, only P&L accounts can be selected - so Payslip Deductions has to be used.