The beauty of a payroll advance

I love my work. Best of all is when a situation that’s potentially confusing in “real life” gets boiled down into a single elegant journal entry in QuickBooks.

Say you’re working with a very small organization (our favorite kind!) with only two employees. One of these employees has asked for a $1000 advance on their payroll. The advance was approved by the board, and the employee is going to pay it back with deductions of $50 in subsequent paychecks. But nobody involved knows exactly what to do.

First, it’s best to create some kind of memo laying out the advance and its repayment terms, to be signed by the employee and their supervisor (here, probably the board chair). Next, call your payroll processor. Ask them to generate a paycheck for the employee for the gross amount, no payroll taxes withdrawn. Otherwise, the employee will be taxed twice on this thousand dollars—once when they receive the advance, and once again as they pay it back in increments of fifty dollars (each of which is deducted from the net paycheck after taxes).

Now, how do you book the advance? It would be incorrect to show it as a normal salary expense, because it represents an advance on salary that hasn’t yet been earned. It’s moving forward in time, so to speak, so it is more correctly shown as a balance-sheet transaction, along the same lines as a prepaid expense. Record it with a journal entry debiting (increasing) an Advance Payroll asset account and crediting (decreasing) your cash. If it’s part of a larger payroll, you can quite tidily tuck this into your usual payroll entry by adjusting the credit to cash—your processor’s report will give the correct amount—and adding in the Advance Payroll debit.


New I-9 form

This is a little scary, but the government has rolled out a new I-9 form. The I-9 is a form you need to sign a new employee up for payroll. Or, to quote Citizenship and Immigration Services, “Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens.”

Okay, so it’s only scary if you have a default paranoid style like mine. Which, to be fair, is not a bad style for a bookkeeper.

New overtime rules

UPDATE: The implementation of this rule has been delayed indefinitely.

If you use ADP’s payroll service, you’ve been getting a lot of updates about upcoming changes to overtime rules. Now they’re here! These rules are good news for workers, in my opinion. Briefly, where an employee previously needed to make only $455 per week to qualify for exempt status (a worker is “exempt” when they are on salary, e.g. not eligible for overtime; there are several other criteria involved as well), they now need to make $913 a week. If you are paying your exempt employees less than $913 a week, you need to check yourself! Raise their salaries or reclassify them as non-exempt. The argument that this change will have a negative impact on small businesses and/or nonprofits holds no water with Cathy Keeps Books. You knew you were on a progressive site when you got here.

Read more about the new rules here.

Edit: Additional links have come my way from CNN and the Department of Labor itself. And here’s the DOL’s detailed guidance for nonprofits.