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markrougeux
January 27, 2025
Question

Severance pay and 401k

  • January 27, 2025
  • 1 reply
  • 0 views

We terminated an employee on 12/31/24, but have agreed to pay severance biweekly as part of our regular payroll run, for 2025. This means he is not eligible to participate in our 401k program (Guideline). Guideline uses the employee status from QB to determine eligibility. We need to run his pay with our payroll to make sure taxes are deducted, etc, but also need to  exclude 401k amounts. How do we do that? If I show him as terminated, his pay won't get processed with our payroll. If I show him as active, then 401k amounts will be calculated. Showing his pay type as Severance doesn't give Guideline the data they need to terminate his 401k. Feels like catch 22! Any help?

1 reply

F
FaithA
January 27, 2025

I appreciate you for clearly detailing your concern, Mark. 
 
It’s great that you’ve identified the need to keep employees active in QBO to ensure their severance pay is processed seamlessly. Now, let’s ensure you can handle this without any hitches regarding the 401(k) deductions.

 

First, it's crucial to communicate with your 401(k) provider, Guideline. Inform them about the situation and ask for their assistance in ensuring your terminated employee is correctly removed from the program. Guideline may have their own procedures or recommendations for handling such situations, which will ensure compliance and prevent any unexpected deductions.

 

After this, we need to ensure that the severance pay is processed without any 401(k) deductions. Adjusting the employee’s profile settings will help you achieve this during the next payroll run. Follow these steps to do so:

 

  1. Log in to QuickBooks Online (QBO).
  2. Go to the Payroll tab, then click the Employees section.
  3. Filter to Inactive Employees. Select the terminated employee from the list.
  4. Under the Profile tab, scroll down to the Deductions and Contributions section, then click Edit. 
  5. Find the 401(k) contribution and then click the delete icon.
  6. Once done, click Save. 

 

 

 

After this, reactivate the employee to ensure that the payroll system includes them in the upcoming pay run. 

 

Following these steps ensures compliance and accuracy. It also simplifies your payroll process and prevents potential errors or discrepancies with your 401(k) contributions. Clear communication with Guideline and proper payroll management in QBO are key to smooth operations.

 

Furthermore, to generate various payroll reports in QuickBooks and gain deeper insights into your business's financial status and employee details, you can refer to this article for future reference: Create a payroll summary report in QuickBooks.

 

Managing payroll doesn’t have to be a catch-22, Mark. If you need more assistance or have any other concerns, feel free to keep the conversation going in this thread. The Community has got your back and we're here to help you every step of the way.

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