On occasion, employees may receive negative net pay because they take unpaid leave or because they don’t work enough hours to cover their insurance premiums. In this case, the district can offer a payroll advance to cover any necessary deductions. The advance essentially serves as a loan that the employee will pay back.
Enable negative net pay
Negative net pay cannot be processed in payroll until an asset function is selected in payroll options for the payroll advance to use. This function will be debited upon creation of the advance and credited when it is paid back. It is recommended to reserve an asset function that is used only for payroll advances, so you may want to create a new asset function for this purpose.
To enable payroll advances for negative net pay:
- Go to Financials Main > Payroll > Payroll Options
- Choose the asset function reserved for Payroll Advance for Negative Net Pay
Process negative net pay
If an employee owes more in deductions than their wages earned, they will appear in the Negative Net Pay tab of the payroll register. Every employee who appears there must either be issued an advance, removed from the payroll run, or have their numbers adjusted so they no longer have negative net pay.
To issue a payroll advance:
- Go to Financials Main > Payroll > Payroll Runs
- Open the Register
- After finalizing all the amounts in the register, go to the Negative Net Pay tab
- Create Payroll Advance for an employee whose net pay is negative
- If multiple employees have negative net pay, you may Mass Add Payroll Advance to issue an advance to each of them
You can then proceed with finalizing payroll like normal.
Creation of journal entries for an employee with a payroll advance differs slightly from normal because typical pay would debit an expenditure account, but an employee with negative net pay will cause the payroll advance asset account to be debited.
When you generate paychecks, any employee with negative net pay will not incur any transaction.
Pay back advance
The employee who receives a payroll advance should bring in money to reimburse the district, which will be recorded as a receipt and deposit. The receipt should debit the bank account that receives the funds and credit the payroll advance asset account.