Employee paying back minus leave

An employee took annual leave in advance due to an emergency. He wants to pay this back by working his normal 38hr week (+overtime), but only getting paid for 30.4hrs (+overtime) until the leave goes back into positive.

Do I process his pay as normal 38 hrs and setup the payment as a deduction, as if it's an employee loan, then adjust the leave accrued manually?

Thanks

Answers

  • Acctd4
    Acctd4 Accredited Partner Posts: 3,314 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited February 2023

    Hi Lorri

    There are 2 separate considerations with this scenario ...

    1. The monetary payment
    2. The leave hours.

    Leave accrues on hours worked & also on leave hours taken, so the leave running balance changes/updates every pay run. Some employers are happy for leave to go into the negative (eg for staff to take leave in advance) - particularly if the employee is reliable/long-term - as it will progressively accrue back into the positive again as the employee works.

    NOTE: If the employee has to pay the money back for his leave ... then that's not leave, it IS a loan ! In this case, the original payment to the employee needs to have been outside of payroll (eg entered via a Write Cheque) to a new "Employee Loan" Current Asset-type Account (NO tax code as a loan is not a purchase/expense!)

    You would then use a Deduction-type Payroll Item - linked to this "Employee Loan" account - to offset the Chq. It should be configured based on Net (NOT Gross) pay with no Taxes or Super applicable, as it is a loan repayment from the employee's net/after tax pay.

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015)* ICB-Certified Bookkeeper* Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Lorri Neal
    Lorri Neal Member Posts: 8

    Thanks Shaz,

    He doesn't have to pay it back, he wants to pay it back so he can be in positive quicker that he would be if he was accruing it back at the normal hourly rate. He already had a holiday planned for Sept before he had to take leave in advance. I don't think he wants to have to take 2 weeks leave without pay, he'd rather just take one day a week unpaid, but it sounds a bit complicated.

    The original discussion was that he would just accrue it back, so he was paid the annual leave + loading.

    I feel like it's going to get messy.

    Would the loan attract FBT?

  • Acctd4
    Acctd4 Accredited Partner Posts: 3,314 Reckon Accounts Hosted Expert Reckon Accounts Hosted Expert
    edited February 2023

    Hi Lorri

    Annual leave accrual is 0.07692 hrs accrual per hr worked/paid (which is around 2.75 hrs p/wk, give or take). Is he a long-term/reliable employee that's going to stay with you long enough to work it back again ? If so, I'd just be allowing the run into negative as - like you say - it will otherwise get very messy.

    Have a look at the Award that applies to the employee - If the employee is covered under a federal rather than state award, most of the modern (federal) awards actually now specifically allow employees to take annual leave in advance of it having been accrued. However, there is also a new ‘model clause’ which permits the employer to deduct any subsequent ‘annual leave debt’ from the employee’s final pay, should their employment end before their accrued annual leave has returned to a positive balance.

    As a loan .. If the loan is minimal & repaid in one full repayment, I think it's unlikely it would attract FBT but you would need to check that with your own particular tax agent.

    Shaz Hughes Dip(Fin) ACQ NSW, MICB

    *** Reckon Accredited Partner (AP) Bookkeeper - specialising EXCLUSIVELY in Reckon Accounts / Hosted ! ***

    * Regd BAS Agent (No: 92314 015)* ICB-Certified Bookkeeper* Snr Seasonal Tax Consultant since 2003 *

    Accounted 4 Bookkeeping Services

    Ballajura, WA

    [email protected]

    https://accounted4.com.au

    (NB: Please give my post a Like or mark as Accepted Answer if I have been able to resolve your query as this helps others when seeking solutions!)
  • Lorri Neal
    Lorri Neal Member Posts: 8

    Thanks for your help Shaz,

    He isn't going to be leaving any time soon and the company is prepared to let him accrue it back but he would rather pay it back one day/week.

    Sounds like too much fluffing around to change it to a loan now.

    Thanks

    Lorri