By Peter G. Budreski
To accommodate the needs of good employees, employers will occasionally allow employees to bank hours worked and will then pay the banked hours when it is mutually convenient for the employer and employee. The task of tracking the banked hours could be a time-consuming exercise in maintaining separate paper documentation or additional Excel spreadsheets. Using paper documentation or Excel spreadsheets to track hours can create another problem – unrecorded liabilities – and this is not a good practice in accounting or record keeping.
For QuickBooks payroll users, there is a simple workaround that can address the issue of tracking banked hours, keep the books and records free of unrecorded payroll liabilities, and continue to report accurate year-end reporting to government tax authorities.
Create a new account – "Employee Banked Time Payable"
This can be one account to track all employees (analysis of who is owed time will depend upon proper filtering and subtotalling of this account) or several named accounts can be set-up to accommodate numerous employees.
Create two new payroll items – first, a deduction named Banked Hours Deducted.
Note that the liability account is the account created in step 1.
The tax tracking type is compensation.
Taxes do apply to this item
The calculation is based on quantity.
Default limits could be used, but are not necessary
The deduction payroll item "Banked Hours Deducted" is similar to making a deposit to the bank from the employee's perspective – something put aside and saved for a later time.
This step involves setting up a payroll item that will permit for withdrawals or previously banked hours to be paid out to the employee. This item can be named "Banked Hours Paid Out" and is set up as shown below:
The expense account in this item is the liability "Employee Banked Time Payable."
Again, the tax tracking type is compensation.
And taxes do apply to this item.
Calculations are based upon quantity.
Default limits could be used, but are not necessary.
If a separate "Employee Banked Time Payable" account is created for each employee, then the payroll items "Banked Hours Paid Out" and "Banked Hours Deducted" will have to be replicated with unique names and linked to the individual "Employee Banked Time Payable" accounts as the circumstances warrant. Similarly, if the banking of or payment of hours involves an overtime factor due to the existing labor legislation, then separate payroll items would be required to accommodate overtime factor.
The payroll items come into use once time has been entered and pay checks are being reviewed, but not yet created. From the example below, the employee in question has worked 100 hours in a two week period, but has requested that 20 of the 100 hours worked be banked for future use.
Note that the employee is only receiving $920 or 80 hours of pay. A quick look at the transaction details of the account "Employee Banked Time Payable" will reveal an entry of $230, the 20 hours being banked by the employee.
After the hours have been banked, they can be paid out or withdrawn by use of the payroll item "Banked Hours Paid Out" during the process of reviewing pay checks, but before the checks are created.
In the example above, the employee has only worked 70 hours and would like to have a pay check that reflects 80 hours of time – in this case, the additional 10 hours are withdrawn from the banked hours. Another look at the transaction detail after 10 of the banked hours have been paid out reveals there are still 10 hours or $115 of gross pay (before deductions) due to this employee.
Some additional advice on the workaround-
1) The year- end reconciliation of wages paid. The actual amount of wages reported to government authorities will be: (Wages and salaries actually paid) MINUS ("Banked hours deducted" in $) PLUS ("Banked hours paid out" in $).
2) Check your local payroll tax rules with the authorities in question for appropriateness.
About the author:
Peter Budreski has been a Chartered Accountant for over 25 years based in Halifax, Nova Scotia, is President of TCOB Computer Solutions and a Vice President of Certified Software Labs Inc., based in Toronto, Ontario.
TCOB’s mission statement states that it provides clients with the most efficient means of dealing with accounting data, the maximum useful information from their accounting systems, and a view to more effective utilization of resources through training and technology implementation in a simplified manner.
Peter is a Certified QuickBooks ProAdvisor, speaker at Discovery and is a Certified Regional Trainer for Intuit Canada. Peter is a member of the VOA (Voice of Advisor) and VOT (Voice of Trainer) councils of Intuit Canada. He participates in ongoing conferences regarding emerging business & technology issues. Additionally, Peter is a certified QuickBooks Consultant with the Sleeter Group, based in Pleasanton, California and a member of the Association of QuickBooks Technologists based in West Palm Beach, Florida.