BSBADM308A Process Payroll Topic notes. Superannuation categories - used to calculate an employee s superannuation.

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1 (1) What are Payroll Categories? In MYOB, there are six types of Payroll Categories: Wage categories - used to pay an employee. Superannuation categories - used to calculate an employee s superannuation. Entitlement categories used to calculate and accrue an employee s entitlements, such as holiday leave and sick leave. Deduction categories used to deduct amounts from an employee s wage, such as Union Fees. Expense categories used for expenses that are outside the employees actual wage expense, such as WorkCover. Taxes - calculates and deducts the correct PAYG tax from the employees wage. The calculations are based on the ATO s tax tables Please Note: The Tax category is set within the program and can t be changed or edited by the person using the program. Each of the Payroll Categories, apart from Entitlements, interacts with the general ledger through journal postings via the pay cheques. Entitlements however, do not affect the general ledger as they calculate and accrue units of time. (2) Create a new Payroll Category To create new Payroll Categories go to the Lists menu and click Payroll Categories. Click the tab for Category type you want to create then click the New button. (3) What options and settings are used for payroll setup? MYOB s payroll module has been developed to accommodate the most common payroll scenarios. To ensure the payroll is setup correctly, the following gives an outline of the options of each Payroll Category type. Employee Pay Basis Your payroll options and settings are largely governed by the employee s Pay Basis, which will be either Salary or Hourly. The window below shows the Employee Payroll Information window. You can access it by opening the employee s Card and clicking Payroll Details then Wages along the left. Source: adapted from MYOB support notes 2009 Page 1 of 12

2 Please note: The Pay Basis has only two options: Hourly or Salary. The example above is set to Hourly. The Base Hourly Wages category is automatically selected in the lower panel when the Pay Basis is set to Hourly. Similarly, the Base Salary Wages category is automatically selected if the Pay Basis Salary is set to Salary. The account entered in the Wages Expense Account field becomes the employee s default wage expense account. Once the employee s Pay Basis has been set, you can then proceed to create and setup new Payroll Categories. Source: adapted from MYOB support notes 2009 Page 2 of 12

3 Wages The window below shows the Wages Information window of a newly created Wage category. By default, Salary will be selected and the fields displayed in the below example will be hidden. The fields and options are as follows: Wages Name: Enter a Wages Name that will allow you to quickly identify a Wage s purpose. Type of Wages: Salary: Selecting this option will cause the Pay Rate fields to be removed from view. Using a new Salary Wage on a paycheque will require the Amount on the paycheque to be manually entered. Hourly: Will cause the Pay Rate fields to be displayed and will, for this Wage category, activate the Hours field on the paycheque. Please note: The Hourly option must be used for Wages that are to be linked to an Entitlement (see Entitlements Linked Wages Category). This would include Holiday Pay and Sick Pay for salaried employees. When entering Hours against an hourly based Wage category for a salaried employee such as Holiday Pay, MYOB automatically calculates that employee s hourly pay rate to determine the Amount to be paid. This calculation is based on the Annual Base Pay and The Number of Hours In a Full-Time Work Week. MYOB first divides the employee s Annual Base Pay by 52 (the number of weeks in a payroll year). This is then divided by The Number of Hours In a Full-Time Work Week The Annual Base Pay is found in the Employee Information window. You can view the The Number of Hours In a Full-Time Work Week by going to the Setup menu and clicking General Payroll Information. Source: adapted from MYOB support notes 2009 Page 3 of 12

4 Pay Rate options: Regular Rate Multiplied by The amount entered in this field is used to calculate the Wage Amount on the Paycheque. For example: 2 would be entered for a Wage where double time is paid for Overtime. Assuming an employee has an Hourly Base Pay of $15.00, entering 2 in the Regular Rate Multiplied by field would calculate $30 for one paid hour of Overtime. 2 hours of overtime would result in $60 and so on. Basically, the wage calculation is the employee s Hourly Base Pay or the calculated salaried employee s hourly rate x the Regular Rate Multiplied by figure x the Hours entered on the paycheque. Fixed Hourly Rate of This option allows you to set the hourly rate for this Wage category, and will override the hourly rate set for the employee. Optional Account: Left un-selected - If not selected, the expense of the Wage will be posted to the linked Wages Expense Account as set in the Employee Payroll Details window (see page 2). Selected - the Override Account field will be displayed and the Wage Expense can be linked to an account other than the employee s linked Wages Expense Account. Employee: Click this button to mark the Selected field against the employee(s) who are to be linked to the Wage category. Exempt: Click this button to display the Wages Exemptions window. This allows you to select Taxes and Deductions that exclude this Wage from their calculations. Superannuation The following window shows the Superannuation Information window of a newly created Superannuation category. Source: adapted from MYOB support notes 2009 Page 4 of 12

5 The fields and options are as follows: Superannuation Name - Enter a Superannuation Name that will quickly identify its purpose. Linked Expense Account and Linked Payable Account - When recording a paycheque, superannuation posts a debit to the Linked Expense Account and a credit to the Linked Payable Account. When remitting the superannuation, use Spend Money and allocate the payment to the Linked Payable Account. This will post a debit to the payable account, offsetting the credit postings of the paycheque(s). Click the drop down list of each field and enter the relevant accounts as per your chart of accounts. Contribution type - MYOB offers several Contribution Types. The three most common being: Salary Sacrifice (Deduction) This option deducts the salary sacrifice from the employee s Gross wage. As PAYG is not payable on salary sacrifice wage amounts, MYOB will re-calculate the employee s PAYG so that its calculated on the post salary sacrifice 'Net' wage amount. Superannuation Guarantee (Expense) and Employer Additional (Expense) Selecting either of these two options will have no effect on the employee s wage, and the superannuation will be posted as an employee expense. Calculation Basis: Equals / Percent Of: These fields cause superannuation to calculate at the set percentage of the selected Wage category; or a consolidation of Wage categories (such as Gross Wages). Equals / Dollars per: These fields allow you to set a determined amount of superannuation for the period selected in the Dollars per drop down list. Exclusions This field is used to reduce the gross wage upon which superannuation is calculated (the gross wage calculated by the Calculation Basis). Limit: These options allow you to place a limit on the amount of superannuation that can be accrued. No Limit - The amount of superannuation that can be calculated and paid is unlimited. Equals / Percent of and Equals Dollars per options These options use the same principals as those of the Calculation Basis. Threshold Superannuation will only begin to calculate once the employee s eligible monthly gross wage has exceeded the amount entered in the Threshold field (the current superannuation monthly threshold is $450.00). For example: The gross wage of the first paycheque for a month is $400 no superannuation will be calculated as its below the Threshold amount. A second paycheque for the same month is entered and also has a gross wage of $400. Superannuation will now begin to calculate as the month s gross wage has exceeded the Threshold ($450), and will be calculated on the month s gross wage of $800. Employee - Click this button and place a check mark against the employees that are to be linked to the Superannuation category. Exempt: This button is only active when the Equals / Percent of option is selected, AND, either the Gross Hours or Federal Hours options are selected When active, you can open the Superannuation Exemptions window and select Wages that are Exempt from the Entitlement calculation. Source: adapted from MYOB support notes 2009 Page 5 of 12

6 Entitlements Unlike the other Payroll Categories, Entitlements accrue units of time and therefore don t affect the general ledger when used on a paycheque. The window on the following page shows the Entitlement Information window of a newly created Entitlement. The fields and options are as follows: Entitlement Name - Enter an Entitlement Name that will quickly identify its purpose; for example, Holiday Leave accrual. Calculation Basis: User Entered Amount per Pay Period - For each pay frequency, the accrued hours is both determined and entered in the paycheque by the user. Equals / Percent Of: These fields cause Entitlements to calculate at the set percentage of the selected Wage category or a consolidation of Wage categories such as Gross Wages. Equals / Hours per: These fields allow you to set a determined Entitlement accrual for the period selected in the Hours per drop down list. Payroll Year / Carry Remaining Entitlement Over to Next year Select this option if the Entitlement s end of payroll year balance is to be carried over to the new payroll year. Linked Wages Category: Select the Wage category to which the Entitlement relates. For example, link the Holiday Leave Accrual Entitlement to a Holiday Pay Wage category. When an Entitlement is paid using the linked Wage, MYOB uses the link to reduce the balance of the Entitlement. For example: an employee s Entitlement balance is 40 hours for Holiday Leave and the Holiday Pay Wage is linked to a Holiday Leave Accrual Entitlement. And, 8 Hours is applied to the Holiday Pay Wage in the next paycheque. The Entitlement balance will be reduced by the 8 hours paid to the employee, leaving an Entitlement balance of 32 hours (plus the hours accrued on the Holiday Pay). Employee - Click this button and place a check mark against the employees that are to be linked to the Entitlement category. Source: adapted from MYOB support notes 2009 Page 6 of 12

7 Deductions Exempt: This button is only active when the Equals / Percent of option is selected, AND, either the Gross Hours or Federal Hours options are selected. When active, you can open the Entitlement Exemptions window and select Wages that are Exempt from the Entitlement calculation. Deductions are setup to reduce an employee s pay by a user entered amount, or an amount automatically calculated by the Deduction. The window below shows a newly created Deduction. The fields and options are as follows: Calculation Basis and Limit these options use the same principals as those for the Superannuation Payroll Categories. For information on these options, please refer to the section titled Superannuation on page 4. Deduction Name - Enter a Deduction Name that will quickly identify its purpose; for example, Union Fees. Linked Payable Account - Amounts withheld from employees are usually posted to a Liability account. Employee - Click this button and mark the employees that are to be linked to the Deduction category. Exempt - Click this button to display the Deduction Exemptions window. Marking the PAYG Withholding option will cause MYOB to deduct the Deduction from the gross wage before calculating the PAYG. Source: adapted from MYOB support notes 2009 Page 7 of 12

8 Expenses Expense Payroll Categories are used for wage expenses that are outside the employee s actual wage, such as WorkCover. Although Expenses are external to an employee s wage, their calculation can be based on Wage categories. The window on the following page shows a newly created Expense. The fields and options are as follows: Calculation Basis, Limit, Threshold and Exempt These options use the same principals as those for the Superannuation Payroll Categories. For information on these options, please see the section titled Superannuation on page 4. Employer Expense Name - Enter an Employer Expense Name that will quickly identify its purpose; for example, SGC superannuation. Linked Expense Account and Linked Payable Account: As employer expenses are outside the employee s wage, they are usually posted to an Expense account separate to the employee s wage. Employee - Click this button and place a check mark against the employees that are to be linked to the Expense category. Source: adapted from MYOB support notes 2009 Page 8 of 12

9 4. How to set up Entitlement percentages for Holiday Leave and Sick Leave accruals Total annual entitlement hours / total annual work hours) X 100 = Percentage rate for accrual. If you have hourly employees who are entitled to Holiday Leave or Sick Leave, you will need to set up the Entitlements category for these in the Payroll Categories. A percentage is normally required to be calculated, to allow MYOB Payroll to automatically accrue the hours the employees are entitled to. Calculate an entitlement wage category percentage Here the example is shown for 20 days Holiday Leave per Year. In the window shown above, the percentage is % of Gross Hours. This means that for every hour the employee earns, MYOB will accrue hours of Holiday Entitlement. Assuming an employee works 40 hours a week (2080 hrs/year), x 2080=160 hours or 4 weeks. So, if your employee is entitled to 20 days Annual leave per year, the percentage to use is % and should be entered in this format. Calculating the percentage for HolidayLeave (other than 20 days) and Sick Leave Accruals. You can use the following formula to calculate the percentage necessary to accrue the correct number of Sick leave or Holiday Leave hours. Source: adapted from MYOB support notes 2009 Page 9 of 12

10 General Formula Number of Days Leave x Hours worked in a day= Total Hours entitled to in a Year. (Total Hours entitled to in a Year/ Total number of working hours in a Year) X 100 = % Example: 8 days Sick Leave entitlement. Number of days Leave entitled to in a year = 8 days Normal hours worked in a day = 7.5 hrs Total Hours entitled to for Leave in a year = 8 x 7.5 = 60 hrs Total number of working hours in a Year = 7.5hrs x5days x 52weeks = 1950 hrs (60 / 1950) X 100 = % Using this percentage, by the end of the payroll year, the employee will be entitled to 60 hrs in Sick Leave. Tax Instalments on Leave Loading Some federal and state awards provide for annual leave loading for employees taking annual leave. What are Tax Instalments on Leave Loading? The first $320 of leave loading received within a financial year is tax-free. Any amounts in excess of $320 are taxable at the employee's normal rate. All leave loading payments are part of the employee's assessable income and details must be included in the payment summary. How do you deal with Leave Loading in MYOB Payroll? You will need to setup two Leave Loading wage categories: one for the tax-free portion of leave loading and one for the taxable portion. To setup these categories: 1. Go to the Payroll Command Centre and click Payroll Categories. Click New to create a new Leave Loading wage category for the tax-free portion. Name this category Leave Loading < $320. Make sure you change the Regular Rate to be multiplied by In this example we are assuming a 17.5% rate of leave loading. Source: adapted from MYOB support notes 2009 Page 10 of 12

11 2. Click the Exempt button and mark PAYG Withholdings to exempt the wage category from tax. Click OK. 3. Click the Employee button, mark the employees who receive leave loading and click OK. Source: adapted from MYOB support notes 2009 Page 11 of 12

12 4. Click OK to the wages information window and return to the Payroll Categories list. If you have an existing Holiday Leave Loading category which was being taxed, click the white zoom arrow next to it. Rename this category to Leave Loading > $320. This category will be used to pay any taxable portion of Leave Loading. 5. Click the Employee button, mark the employees who receive leave loading and click OK. 6. Click the Exempt button and confirm that the category has not been exempted from PAYG Withholdings. Click OK. 7. Click OK to complete the setup of the category. Source: adapted from MYOB support notes 2009 Page 12 of 12