I found excellent instructions written by David Hobbs of Evarsys,Inc.. Processing payroll can be very stressful. Add to it that you mistakenly overpay an employee who has direct deposit and the file has already been sent to the bank! Below is a blog I found to be very helpful in processing the correction which ensures that the employee’s wages are correct as well as FICA, Federal, and State taxes. It also corrects the company’s tax liabilities!
1.How do you correct the employees YTD gross, fica, fed, state, etc? How do you correct the matching company taxes?
2.If you simply do a payroll tax deduction for the gross amount of the overpayment in the next pay run you are penalizing the employee and the company. You are taking the gross amount from him, and he still pays the fed, state, fics, medicare, etc on amount. The company is still out the matching taxes.
1) For the amount of the over payment, create a payroll transaction batch and key in just the employee and the pay code for the gross amount of the overpayment.
2) Run a payroll build for just that employee, with no deductions and benefits marked. Mark only the batch you just created. In the ranges for the build select just the employee in question.
3) Run Calculate Check and print the payroll precheck report for the employee. You will use this report in a later step.
4) Remove the build you just did.
5) Go to Transactions – Payroll – Manual Check
a) You will enter a negative manual check that mirrors the precheck report
b) Key in all amounts as negative.
c) Do the gross pay first, make sure to key negative in the gross and all fields.
d) Do FICA SS, make sure to key the employee amount negative, then in the EFIC key the matching company amount negative at gross times 6.2%. Also, key the taxable wages amount as negative. This is necessary since the employee rate is 4.2% and the company matching rate is 6.2%
e) Repeat for FICA Med. These amounts will be the same for both the employee and the company.
f) Repeat for State Tax.
g) Repeat for Fed Tax.
h) When you are done the front screen should mirror the precheck report exactly except with negatives. Negative gross and net should match exactly.
j) After the result of this you have fixed the employee and company liability. You will notice the Check Register will show all the taxes and company liability as negative.
6) Create a new payroll deduction code for the employee. It should be sheltered from all taxes as you want this deduction to come out first before any taxes are calculated on it. Enter the single amount of the deduction to be taken back from the employee for the overpayment.
7) In the new pay run make sure to include this new deduction.
8 ) As a result of this the gross amount of the overpayment will be deducted back from the employee, and no FICA or Fed is calculated on it.
9) In the payroll posting accounts for the deduction make sure to set the gl account you want it to go to if necessary.
He has outlined all the steps except for reversing the impact of the negative check. GP creates a negative check in bank reconciliation module and thus creates an entry to the payroll cash account.