Handling Employee Receivables Through Payroll

There are three methods of handling Employee Receivables, entirely through Payroll, through Payroll and Accounts Receivable and through Financials.  Here, we'll be taking a look at the payroll only method.

Using the payroll method, all money is tracked through payroll and a payroll report is available by employee in a consolidated format.

Here's the accounting flow in this scenario: When the loan is entered, Employee Receivables is debited and, in this case, Supplies and Tools will be credited. Employee Receivables will be credited the amount of the deduction from the employee’s paycheck.

First, you'll need to set up General Ledger Employee Receivable account in your chart of accounts, located under Company → Enter Chart of Accounts.

Next, you'll set up a Deduction by going to Employees → Additions and Deductions.  Set up a deduction called "Employee Receivable" that will be used for the payroll deduction.

• Type will be Deduction
• Method is Flat Amount
• Vendor should be blank
• Liability Account would be the Employee Receivable account
• Limit Type should be Declining Balance
• Reporting Type should be None.
• No items should be checked in Taxes That Apply To This Item.

You'll also need to set up an Addition under Employees → Additions and Deductions. Set up an addition called "Employee Loan" that will be used to enter the amount of the loan you made to your employee.

• Type will be Addition
• Method is Flat Amount
• Vendor should be blank
• Liability Account would be the Employee Receivable account
• Limit Type should be None
• Reporting Type should be None
• Company Paid should be checked and the account in this field should be the account that was debited when the loan was made (in this example Tools & Supplies).
• No items should be checked in Taxes That Apply To This Item

Entering the Loan

Entering or recording the loan can be done a couple of different ways.  One way is from the timesheet.  At the bottom left corner of the screen there is a Special addition/deduction items section. Open the menu and choose "Employee Loan" and enter the amount under Rate.

You can also write a manual paycheck.  To do so, choose the Employee, set the Status to Mark as already printed and enter a Check number. Choose "Employee Loan" from the Addition/Deduction drop-down list and enter the amount under Rate.

To setup the Deduction for the employee go to Employees → Enter Employees and double-click on an employee, then click the Payroll tab. Using the drop-down list in the Addition/Deduction section, choose the "Employee Receivables" deduction, enter the amount (as a negative number) you want to deduct from each check under Rate and the amount of the loan under Limit.

In the example below $20 will be withheld from the next check and the limit will change to $180.00. The deduction will continue until the limit reaches zero. If the employee adds to his loan balance make note of the limit amount and add the amount of the new loan to the current limit. In the example below if the employee borrowed another $50.00 we would change the Limit amount to 250.00.

Running the report – To see the transactions go to Employees → Reports → Payroll Liability Report.

Set the Type to By Employee, choose None as the Reporting Type, enter an employee number to run a report for just that employee or leave blank for all, and enter your Employee Receivables GL account number in the Account field. This report will show you the loan amount, as well as the total deducted for all pay periods and the balance.

You can also view an employee’s balance from the Employee Setup Screen under Additions/Deductions – Limit should coincide with your payroll liability report.