My client, Debbie, had rather unique payroll issues some years back, when I first took over the back-end bookkeeping for her business.
She was utilizing QuickBooks Online Enhanced Payroll. She had a history of giving payday advances to her employees, but she was not doing the best job of keeping records of the ongoing balances of these advances (and subsequent paybacks).
When I took over the bookkeeping duties and investigated this matter further, I discovered two additional bookkeeping issues:

  • The paycheck advances were being booked to an asset account (correctly so), but the subsequent employee paybacks were all being booked to a totally separate liability account. So, the Advances asset account never diminished and the Payback liability account kept increasing as well. The fix here was:
    • Converting the Payback liability account into an asset-type account. This caused the balance in this account to invert and go negative.
    • Merging the new Payback asset account with the Advances asset account. This combined the two balances of both accounts (negative & positive) into the correct net balance.
    • Deleting the separate payroll item being used for the paybacks and ensure the payday advances payroll item was being used for all advances and paybacks events.
  • The other major bookkeeping issue was the fact that employees were being taxed on their advances (basically just paid an extra gross wage), but they still had to pay back these so-called advances thru the means of a net wage deduction on their subsequent paychecks. The fix here was:
    • Calculating what was owed to the employee. Since the employees’ advances were cut short due to the taxes and their paybacks were paid in full, they were owed the difference back.
    • Re-submitting IRS form 941 for all quarters affected by this mishap. The original reports showed that the employees received additional gross wages (which were taxed), when in reality they were advances on pay that were repaid on subsequent paychecks via the after-tax net wages. In effect, the employees were double-taxed and had to be repaid.
    • Re-submitting the W-2 to each affected employee.

One more issue we found was due to the record-keeping being mishandled regarding each employee’s paycheck advances and paybacks balances. We found that some employees still owed money, while others had overpaid (had more payback deductions taken out than what was advanced). This matter required reviewing all paychecks for the time period involved, and auditing each individual employee’s advances/paybacks to ensure the proper balances were now recorded. Those who had overpaid would now be reimbursed and those who still owed would have their deductions entered for processing.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.

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