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Big-Al
October 7, 2022
Question

Choosing a deduction "type"

  • October 7, 2022
  • 1 reply
  • 0 views

I have attached a copy of the option screen in creating a new Payroll Item:  it is for a Health/Medical deduction from employees.  The first one highlighted is what exists now, but it is posting the deduction from employees to a liability ... as it says it will ... but the problem is that the deduction from employees is only to cover their portion of the cost:  it is not the entire liability for the medical insur. premium.  To my way of thinking, the employee deduction should post as a credit to the medical insurance expense to reduce the company cost of the expense.  The vendor invoice comes to the company and is entered as a payable (to the liability for the full cost and a debit to the expense, and the employee deduction reduces the expense portion.  Employee deductions for health & medical, dental and/or vision insurance should not post to a liability but instead only to the expense. Unless of course, the employee was paying 100% of the insurance cost!  

 

So I think I should create a new Payroll Item and chose "Other Deduction" to avoid needing to select a liability at all, yes?  Or am I missing something here?????

1 reply

BigRedConsulting
BigRedConsulting
October 7, 2022

RE: To my way of thinking, the employee deduction should post as a credit to the medical insurance expense to reduce the company cost of the expense. 

 

You can do it that way, but notably when you deduct money from an employee to pay the medical insurance, that money is a liability to your company until you remit it to the insurance company. If, somehow, you didn't pay it to the company, you'd need to give it back to the employee.

 

In this case, though, you don't need to change the type as seen in your screenshot in order to change the account. All deductions (or almost all) will default to a liability account, but you can change that. To do so, edit the item and proceed to the Agency/Account slide and then change the "Liability Account" to your medical expense account (it doesn't have to be a liability type account).

 

The other way to do it is to leave the item account alone, and then when recording the bill split the bill details to use two accounts, where one is the expense account for the company portion and one is the liability account for the employee portion of the bill.

 

When you do it this way, you won't see an expense on your financial statements that isn't yours for the period between when the bill is entered and the paychecks are created.

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