This QuickBooks payroll tip discusses underpaying employee wages and wage restitution, after paychecks have been created and cashed.
Paying your employees the correct rate of pay is one of the most critical portions of your business; and if those employees are subject to multiple pay rate or have frequent pay rate changes, ensuring that everyone is being paid the correct rate can be a tedious and potentially error prone process.
In today’s busy workplace, business owners and payroll administrators are faced with numerous challenges which sometimes result in employee wage underpayments. Often times a wage shortage isn’t discovered until after paychecks have been created and cashed; which then requires wage restitution to the employee.
Quite often this situation puts the business owner or payroll clerk in a quandary about how to best record employee wage restitution, especially if the employees are performing work on a prevailing wage job and they must document the wage adjustment on the certified payroll reports and resubmit the reports. Clearly documenting employee wage restitution is crucial, and can be accomplished in three fairly easy steps.
3 steps to documenting employee wage restitution/payment:
- In the QuickBooks Payroll Item List, create a new Hourly Wage Payroll item and name it Wage Restitution
- Edit the records of employees who were affected by the wage underpayment, add the adjustment payroll item to the Payroll & Compensation Info tab, with the appropriate rate of pay (the difference between what they should have been paid and what they were paid)
- Issue a separate paycheck, using the QuickBooks Unscheduled Payroll option, use the adjustment payroll item and enter the number of applicable hours*
*Important Note:
The best way to document a wage restitution on a certified payroll report is to display each employee twice on the report; once displaying the rate that he (she) was originally paid and a second time displaying the hourly rate of the wage adjustment. Clearly indicate that you are submitting a corrected report by writing, in large letters, CORRECTED and highlight it using a highlighter.
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A QuickBooks payroll tip for calculating Workers Compensation when it is based on hours worked.
Workers Compensation Insurance is usually calculated as a rate which is applied to gross wages; and that’s how the built-in QuickBooks Worker’s Compensation feature calculates it. Last week, on the Intuit Community Forum, someone asked how you would set QuickBooks up to track Workers Compensation when it was a rate based on hours worked.
I gave a brief overview on the forum, but thought that it deserved a more detailed “how to” here on our blog.
Before you begin, you’ll need at least three accounts in your Chart of Accounts to track your Liability and Expenses:
- one to track the accruing Worker’s Compensation Liability {an Other Current Liability Account}
- one to track job or field related Worker’s Comp Expenses {a Cost of Good Sold or Direct Labor Costs}
- one to track administrative or overhead Worker’s Comp Expenses {an Expense account}
Next you’ll want to get your Worker’s Compensation rate sheet and using the rate sheet we’ll being adding QuickBooks Company Contribution Payroll items for each different classification code/experience rate.
- From the Lists menu -> choose Payroll Item List
- click the Payroll Item button at the bottom left
- choose New
- select the Custom Setup option
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- click the Next button
- select the Company Contribution option
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- click the Next button
- type in the classification code/experience rate name
- check the option to Track expenses by job {this selection is crucial for job costing}
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- click the Next button
- select your Worker’s Compensation Carrier
- select the Other Current Liability Account for tracking your accrued liability
- select your Cost of Goods Sold or Expense account
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- click the Next button
- in the Tax tracking type window, select None, click the Next button
- on the Taxes window, none of the tax items should be checked, click the Next button
- on the Calculate based on Quantity window you can choose two different methods of calculation:
- Calculate this item based on quantity – use this option if your employees perform work under more than one classification/experience rate during the week. You will have full control of the number of hours that count toward each experience rate.
- Calculate this item based on hours – use this option if each of your employees perform work under only a single classification or experience rate during the week. QuickBooks will automatically calculate the rate based on the total number of Straight and Overtime hours worked.
Using the Calculate this item based on quantity option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck you will manually enter the number of hours that the employee worked under each experience rate in the Quantity column, once you enter the Quantity {number of hours} for each experience rate QuickBooks will perform the calculation and display the applicable amount in the Company Contribution section of the paycheck.
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Using the Calculate this item based on hours option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck QuickBooks will automatically make the calculations for you by displaying the total number of hours the employee worked against the experience rate in the Quantity column and display the applicable amount in the Company Contribution section of the paycheck.
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When you pay your Worker’s comp do so through the Pay Liabilities option.
We hope that you’ve found this article to be helpful, including Worker’s Compensation costs – regardless of how they are based – is an important part of your job costing.
A QuickBooks payroll tip for replacing a lost employee paycheck.
I’m sure that you’ve all run into this situation at one time or another: an employee sheepishly comes to you and tells you that he’s lost his paycheck, it was run through the washer, blew out the care window on his way to the bank, he can’t find it, etc. – and he NEEDS his money!
This situation can create quite a quandary for some business owners and their payroll clerks about how to replace this lost check. The immediate need is to reissue the paycheck.
Follow these easy steps to replace a lost employee paycheck:
- Go the Employee Center, click on the Employees tab and click on the Employees name to display his payroll history
- Write down the Number of the check that you will be replacing.
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- Double-click on the check entry to open the paycheck form.
- Change the original check number to be the number of the current check that you will be printing.
- In the memo field type in “Replaces original check # XXXXX”.
- Click the Print button at the top of the paycheck form. A window will display prompting you to record your changes; click the Yes button. Another window will appear and you may need to type in the current check number again. Follow any remaining prompts, and the paycheck will be recorded with the new check number.
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You can now sign the replacement paycheck and give it to your employee so he can cash it.
The next step is to record the original check number as a “voided” check to maintain a good paper trail and it’s important to resist the urge to skip this step!
To record the original check number as a voided check:
- From the Home Page, click on the Write Checks icon
- In the check number field enter the original paycheck number
- Make sure that the date is the date of the original paycheck
- In the Pay to the Order of field, using the drop down menu select the Employee’s Name. You may immediately receive a warning message stating “If you want to create a paycheck for this employee, please use the built-in payroll features” – click the Ok button.
- From the Edit menu -> choose Void Check. This places the word VOID: in the memo field.
- Click into the Memo field and after the word VOID: type in “Replaced with Check # XXXX”
- Click into the Account field at the bottom of the check and choose your Payroll Wages account.
- Click Save & Close.
Now when you go to the Employee Center and click on the Employee’s name, you’ll see a visible record of the events that have just taken place, just like the screenshot below:
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NOTE: If the information that you see in the Employee Center doesn’t look like our screen shots, you can change your settings to make this information display by following these instructions.
If your right panel doesn’t display employee information at the top and paycheck transactions at the bottom – at the upper right of the Employee list window you’ll see an <– button, click on it to change the display to show this information.
If the transaction window doesn’t display the check number and memo field columns, right click anywhere in the transaction window and choose Customize Columns, a window will display. Here you can click on Chk No to highlight it and then click the Add button (this moves the Chk No field from the Available Columns window to the Chosen Columns window). Select Memo to highlight it and then click the Add button. Move the newly added items in the Chosen Columns window around arrange them as you would like to see the information displayed. Click Ok when you have arranged the information to your liking.
As an additional precaution, you may want to contact your bank and issue a Stop Payment on the original check number. While you may be charged a fee by your bank, it will ensure that the original check is never cashed.
We hope you’ve found this QuickBooks Payroll Tip to be helpful. If so, please feel free to leave a comment below.
A QuickBooks payroll tip about voiding paychecks – you should be very careful when choosing to void a paycheck because payroll checks have associated tax and other liability calculations and payments that need to be taken into consideration and it will result in changing payroll year-to-date amounts.
A common, and acceptable, reason to void a paycheck would be if the employee or someone else in your company notices an error on the check before it is cashed – in this situation voiding the check is acceptable because it will not have a negative impact on payroll liability calculations – because those liabilities have not yet been paid.
Be VERY careful about voiding a check if the employee has never picked it up – or it cannot be delivered to the employee because as an employer you have certain responsibilities regarding unclaimed paychecks.
You’ll find that there are several ways in which to make corrections to a paycheck that has already been printed, but not given to the employee OR given to the employee but not yet cashed; this is the method that I recommend:
Open the QuickBooks check register, find the check that you wish to void, click on the line entry to highlight/select it, right-click on the entry and choose the Void Paycheck option.
You can then make any timesheet entry changes, if necessary, and reissue the check by going to the Payroll Center and selecting the Unscheduled Payroll option.
Another method would be to simply open the paycheck in QuickBooks, make the necessary changes and reprint the check, giving it a new check number. This method leaves you with having to also record the already printed check as a voided check
- by opening the Write Checks window
- entering the check number of the check to be voided
- setting the correct date
- selecting the employee name and then dealing with a warning message about “If you want to create a paycheck for this employee, please use the built-in payroll features”
- clicking the Edit menu and choosing the Void Check option
You will also need to go back and make changes to the Employee Weekly Timesheet, if applicable. This method creates a lot of extra work and some of the necessary steps may be overlooked – which is why I’m not fond of it.
Tracking employee advance or loan repayments can easily become part of your normal QuickBooks payroll function and is a must for companies that do have a policy that allows giving employees advances/loans for personal reasons.
Earlier this week, in our post QuickBooks Payroll Tip – Tracking Employee Advances or Loans, we discussed three different ways in which to record an advance or loan that was given to an employee. Today we will discuss how to track repayment of that loan through an agreed upon payroll deduction that will continue until the loan is paid in full by the employee.
Create a payroll deduction item to record the loan repayment
If your payroll item list doesn’t currently have a payroll deduction item to record loan repayments, you will need to add one.
- From the Lists menu -> choose Payroll Item List
- Click the Payroll Item button (lower left of the window) -> choose New
- Select the radio button next to Custom Setup -> and then click the Next button
- Select the radio button next to Deduction -> then click the Next button
- On the Name used in paychecks and payroll reports window -> enter the name of the deduction item (I recommend using the loan date and employee name) -> click the Next button
- On the Agency for employee-paid liability window you don’t need to enter an agency name since the money will be going to your own company -> from the Liability Account (employee-paid) drop down menu you want to select the Other Current Asset account that you created to record the loan – do not select an actual Payroll Liability account here -> click Next
- On the Tax Tracking Type window -> select None -> click Continue
- On the Taxes window -> no tax items should have a check mark next to them -> click Next
- On the Calculate based on Quantity window -> select the radio button for Neither -> click Next
- On the Gross vs. net window -> select the radio button for gross pay -> click Next
- On the Default rate and limit window -> both should be set to 0.00 -> uncheck the This is an annual limit option -> click Finish
Add the loan repayment deduction item to the employee record
- From the Employee Center -> Employees tab -> select and edit the employees record -> Payroll and Compensation Info
- Click into the first blank row of the Item column of the Additions, Deductions and Company Contributions section -> from the drop down list -> select the loan repayment item -> in the Amount column enter the agreed upon weekly amount that the employee wants deducted from his paychecks -> in the Limit column enter the total amount that the employee was loaned
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ALTERNATIVE METHOD
Sometimes an employee will opt to repay the loan with cash or a personal check by some agreed upon date in the future, instead of through a payroll deduction. In this situation, when the employee gives you his payment – either in full or partially – you will record the receipt through the Record/Make Deposits window. Select the Vendor/Other Name List entry in the Received From column -> in the From Account drop down, choose the Other Current Asset Employee Loan Receivable account -> enter other details and proceed with the deposit as usual.
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