Payslip items are specific elements that can appear on payslips. They are necessary so entries on employees’ payslips will be posted to the proper account or accounts. Therefore, you must define at least one payslip item before you can issue your first payslip. Every payslip item must be one of three types:
- Earnings
- Deductions
- Contributions
Enable the Payslips tab
Before payslip items can be defined, you must enable the Payslips tab. Under the left navigation pane, click Customize, check the box for Payslips, then click Update below the list:
Set up payroll accounts
Before you can create payslip items, you must add accounts to which they will be posted. Add these accounts according to instructions in this Guide. Payroll accounts can be:
- Expense accounts on the Profit and Loss Statement. Such accounts record the various types of payroll expenses of the business. Examples include Wages, Manufacturing labor, Vacation pay, Holidays, Sales commissions, and Bonuses. All payroll expenses can be combined in a single account, or you can divide them into as many categories as will be convenient for management review. Consider whether government authorities require reporting of certain categories of payroll expense when choosing your accounts.
- Liability accounts on the Balance Sheet. These accounts record amounts owed to outside entities, such as tax authorities or benefit funds on behalf of employees. Examples include Income tax withholding, Pension fund salary deferrals, Employee medical insurance premiums, and Employer retirement contributions. Some may represent funds deducted from employees’ pay. Others may represent funds contributed by the business. The primary considerations in determining which accounts to establish are who the funds will eventually be remitted to and for what purpose.
- Asset accounts on the Balance Sheet. These accounts record amounts owed to the business, such as salary advances to employees that must be repaid.
These accounts can be used to post more than one payslip item or type.
Example
Northwind Traders establishes the following payroll accounts:
- Wages & salaries, an expense account for normal and vacation or holiday earnings
- Retirement matching, an expense account for the company’s portion of retirement contributions
- Income tax withheld, a liability account for tax deductions from employees’ pay
- Retirement fund deferrals, a liability account for both employees’ and the employer’s contributions to a retirement fund
Earnings items
Earnings items are typically wages, salaries, bonuses, commissions, and various allowances you will pay to employees. Employees, in turn, will see earnings on their payslips broken out into these categories.
Go to Settings, then Payslip Items, locate the Payslip Earnings Items list, and click New Payslip Item:
Give the earnings item an informative Name, such as Regular wages, Holiday pay, or Vacation. Assign earnings items to the expense account created for each one.
Exmple
Northwind creates an item for regular wages and assigns it to the Wages & salaries account:
Click Create to save the earnings item, which will appear on the Payslip Earnings Items list:
Note
Earnings items must be posted to expense accounts because they are expenses of the business in the current accounting period.
Deduction items
Deduction items include payroll taxes, insurance premiums, union fees, or wage garnishments you subtract from an employee’s pay. Employees will see their deductions broken out into these categories.
Deduction items are defined the same way as earnings items, except that you click New Payslip Item for the Payslip Deduction Items list:
Give the deduction item an informative Name, such as Income tax. Assign deduction items to the accounts you set up for them.
Example
Northwind creates a deduction item for income tax and assigns it to the Income tax withheld account:
It also creates a deduction item for retirement fund contributions by employees, assigning it to the Retirement fund deferrals account. And it creates an item for recovery of salary advances and assigns it to the Staff salary advances account. All three appear on the Payslip Deduction Items list:
Note
Deduction items are most frequently posted to liability accounts because deductions from an employee’s gross pay (e.g., payroll tax, union fees) are payable to someone else (e.g., tax authority, union) by the business. Only when the deductions are payable to the business itself should the associated payroll account be classified as an asset account.
Contribution items
Contribution items are paid by an employer and characterized as both earnings and deductions.
Example 1
You are required to deposit a certain percentage of an employee’s gross pay into a pension or superannuation fund. This is regarded as a contribution. It represents a type of employee earnings paid by the employer, but is deducted from gross pay at the same time and subsequently paid into the employee’s pension fund.
Example 2
You have a matching gift program under which you add to an employee’s charitable contribution. Your matching gifts would normally be earnings for the employee and an expense for you, but the simultaneous deduction also makes it a liability you will pay to the charity.
Contribution items are defined the same way as earnings and deduction items, except that you click New Payslip Item for the Payslip Contribution Items list:
Give the contribution item an informative Name, such as Retirement match or Matching gift. Assign contribution items to both the Expense account and Liability account you set up for them.
Example
Northwind creates a contribution item for its portion of retirement contributions. It assigns the item to the Wages & salaries expense account and the Retirement fund deferrals liability account:
Click Create to define the contribution item, which will appear in the Payslip Contribution Items list:
