Unnecessary restriction in Payslip Items

Is it possible to relax the excessive restrictions in these areas because it does not apply to every business everywhere.

In my example, in Bahrain, we have a compulsory defined contribution plan with the Social Insurance Organization run by the government which dictates that 7% of gross pay to be borne by Employee (Deducted by the Employer) and 12% contribution by the employer. Every month, the Social Insurance Organization issues an invoice for the total 19% detailed earlier (with variances most of the time), which we record as a purchase invoice to which payments are applied.

Ideally I should be able to record the entire invoice as an Expense and then Credit the deduction from the expense account, which is currently not possible. Currently, I have to record the invoice as a Dr. to liability account, then reverse the previous Dr already recorded in my liability account in order to get the difference which then has to be either debited or credited to the expense account. This is an unnecessary complication to an otherwise straight-forward work flow. As a consequence, to me, this increases the following:

  • number of steps to be followed by my employees or my client’s employees
  • More steps = more possibilities for errors
  • time spent recording invoices and my cost of processing these transactions.

I propose that the user be allowed to determine the default Dr and Cr accounts for all payslip items without imposing of any restrictions whatsoever and this will accommodate almost all situations and all work flows.

I fail to see any “excessive restrictions.” Instead, you seem to be misunderstanding the payroll functions of Manager.

This requires two payslip items (see https://www.manager.io/guides/9667):

  • A deduction item for 7%, to be posted to a suitability payroll liability account. This is not your expense at all, but money held on behalf of the employee for remittance to the government. The money comes from the employee’s earnings, not from the business.
  • A contribution item for 12%, posted both to a liability account (which in this case can be the same one as above, since all money goes to the same authority) and an expense account. The liability posting is a credit for money you owe to the government. The expense posting is a debit reflecting the expense to you as the employer for your contribution to the plan.

When you receive your invoice from SIO, you have two choices:

  • Pay directly with a payment, posting the transaction to the payroll liability account. At that point, you are done. The benefit of this approach is one less transaction.
  • Enter a purchase invoice, likewise posted to the payroll liability account. In this case, you must then also enter a payment, posted to SIO’s subaccount in Accounts payable. The benefit of this approach is the ability to track and report on transactions with SIO. The cost is one extra transaction.

In neither case is there any need for all the debiting, crediting, and reversing you described.

No, you should not. The payslip contribution item debits the expense account, not the purchase invoice. That expense must remain, because it is a real expense of the business. The purchase invoice (if used as described above) debits the payroll liability account and credits Accounts payable.

That is not a solution. Just a workaround.

Why do you say that, @Ealfardan? What I described is exactly how the program is intended to work. It is proper accounting, not a workaround for anything. And it is much easier than whatever you are trying to do. What you described is incorrect accounting, as it removes an actual expense from the profit and loss statement. You seem to be trying to use an expense account as a clearing account. That will misrepresent your performance.

The way you proposed it is the way I was actually doing it, and it produces the correct outputs but there are always differences in the amount that require yet another step since we must go by their figures.

I know two additional steps may not sound like much but if you multiply that by the number of activities you register with the government (this is how many invoices you get per month) and by the number of clients we have add to that we need to reconcile the liability account know instead of just comparing it with the SIO statement. All of this made me think what if I stopped using payslip function and just do it manually, which I do not want to do before seeing if it was possible to remove these restrictions.

Thank you.

I assume you have a specific Manager account for SIO with the relevant payslip items referencing that account. This approach works well for me, simplifying reconciling the tax obligations.

@Ealfardan, l confess I have no idea what you are talking about. Who are “they” whose figures you must go by? You said the method I described works, but insist on the ability to do something else. Good luck. You are free to do whatever you wish.

It is as if you are not calculating your payslip deductions and contributions correctly as otherwise they would agree with the invoices from the SIO

That is good to hear.

Therefore, there must be a difference in either the salary values being used between the Payslips and the SIO or the calculation basis . To resolve the issue you need to determine how these salary variances are occurring or adjust for them when posting the invoice…

They are the SIO.
And yes, the method works but not the best for me at least. If only I can choose how the accounting treatment of the payslip works.

I have a couple of questions though: Why insist on keeping the restrictions? Why not let the users decide how to create their entries?

Exactly, I cannot reproduce their calculation exactly. For one there are the small differences in fractions and then you have the actuary adjustments and other fees.

It is kind of like bank interest, where you cannot exactly match the bank interest to the fractions but it does not matter since the difference will go to zero when the loan is settled, however, in this case the SIO differences will continue appearing forever.

If the bank gave me the interest schedule, I would use their figures and not calculate interest myself. The SIO does that for me, every month they raise an invoice with their calculation, so I do not need to calculate anything.

The solution here is not to try and match their calculations exactly, but process their invoice to match your payslip accounting. To give you an example.

Let say the salary income is 1273, therefore the payslip 7% is 89.11 and the 12% is 152.76.
Therefore your BS liability SIO account has a credit balance of 241.87.

Now the SIO invoice arrives and it is for 241.85 (for what ever reason) plus fees.
Therefore you post the invoice as a debit 241.87 to match your SIO BS liability account, a credit of 0.02 (the rounding) to the P&L SIO expense account plus the fees to another P&L expense account.

This rounding entry is the same as your “in order to get the difference which then has to be either debited or credited to the expense account.”

If the Payslip and the SIO are using the exact same salary income (1273) and end up with different values, then the situation is due to the calculations used.

I don’t understand these questions at all. From what I can see, there are no restrictions on how users can create “their” entries. Sometime users create unorthodox processes which unnecessarily complicates their transactions.

PS: @Ealfardan, you may missed my previous post as it was exactly at the same time as your last.

Two reasons:

  • To prevent users from accounting for payslip items incorrectly. Thus, deductions from employees’ earnings must be posted to a liability account. And contributions by the employer must be posted to a liability account and an expense account. Likewise,
  • To prevent payslip items from being posted to built-in accounts meant for other things. Payslip items can only be posted to liability accounts created for the purpose (or carried over from before the change, when they were automatically posted to a built-in Payroll liabilities account). They cannot, for example, be posted to Accounts payable, because that account is hard-coded into other functions.

This is the first time you have mentioned either actuary adjustments or other fees. Let me deal with “other fees” first. If SIO adds other fees on its invoice to you, you must add those as separate line items on your purchase invoice and not try to incorporate them in payment of your payroll liabilities. Those would be expenses. So one line item of the purchase invoice would be posted to your payroll liability account. That line should only include the 7% deduction and 12% contribution amounts. The other line item, posted to an expense account like SIO fees, should include only the fees.

As for the “actuary adjustments,” you need to explain those further. What are they, who determines them, and how? If these are adjustments you should know about, you need to adjust your deductions and contributions when creating the payslip. If they are some type of SIO fee, they also deserve another line item on the purchase invoice. But both of these recently mentioned components of the SIO invoices are separate from your payroll functions. And neither requires changing anything as far as what accounts can be selected when you define payslip items.

Thank you all.

I agree with your general analysis but I suspect it is just rounding errors which could be ignored (as the cumulative amount is recorded in the SIO account) or posted to a rounding account depending on user preference.

I suspect it is not rounding, @Patch. The only person who mentioned rounding was @Brucanna, and @Ealfardan did not pick up on that, responding instead by mentioning actuary adjustments and fees. That is why I wrote about handling those and asked the questions I did.

And that was purely and plainly in relation to the “illustrated example”, nothing else in the topic.

Your “referenced extract” (actuary adjustments and fees) is out of context with what @Ealfardan actually stated which is “For one there are the small differences in fractions then you have the actuary adjustments and other fees.”

That is, the “actuary adjustments and other fees” are IN ADDITION to the “small differences in fractions”, they, the “actuary adjustments and other fees”, aren’t the cause of the differences.

Have edited out previous misinterpretations.

@Brucanna Sorry for not picking up on your previous post ,but, yes, there are rounding and actuary adjustments, both.

I just do not understand the need to recalculate the SIO invoice and reconcile with the pre-existing liability at the time of posting (posting of the SIO invoice, that is) because something has already been entered prior to receiving the invoice. Can’t we just take third-party figures directly from the invoice? They are better evidence according to most auditors and faster to process by accountants + this accrual is never required by the owners.

I don’t see why I should use this. I think I will just enter the entire payroll as a payment on cash basis and process SIO the usual way.

Because somewhere along the line between your self and the SIO a variation is occurring.
What is being difficult to understand is how you and the SIO can have different results from the same information. You are creating the payslip salary, so it is assumed that the SIO is using the same salary. The rates 7% and 12% are universal.

Therefore all things being equal, both you and the SIO should have the same answer, except where different rounding is being used. Let say the result is 98.765, one could call that as 98.76 while the other could call that as 98.77, hence a 0.01 variance.

Is the SIO invoice a total or is it broken down by employee, if by employee, then it should be easy to determine where the variances are occurring.

This seems to imply that the payroll is being done external of Manager.

It is broken down by categories of employees: expats and locals.

You are right, but I am trying to fully implement manager in payroll right now.

So, @Ealfardan, has this entire discussion been about something you have been doing outside Manager and are now trying to do partially outside and partially inside the program? You should have disclosed that. Everyone’s comments have assumed you were asking about Manager functionality.