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
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.