Pay Advances & Loans
Pay advances and loans allow you to advance additional money to an employee when you process a paycheque. The money advanced to the employee can then be recovered in the next pay period on another paycheque by entering a negative amount in either the Advances or Loans row.
As you may know, payroll advances paid against future earnings should be included in future income and taxed. The Advances option in Sage 50 Accounting calculates taxes. The Loans option in Sage 50 Accounting does not calculate taxes. If you are providing a payroll advance that is taxable, you would use the Advances option. Consult your federal and provincial tax authorities to determine which taxes apply to the advance.
There are two scenarios in which taxes do not need to be calculated for pay advances:
Overpayments
If an employee has been overpaid and the cheque has been cashed, adjust the cheque to the correct amount and then in the same paycheque enter the difference in the This Period column of the Loan row. This ensures that the cheque amount matches the original overpayment. You can then "repay" the advance on the next paycheque by entering a negative Loan amount.
The employee will "repay"
the advance within the same remitting period
You can use the Loans option if you are going to be recovering the advance from the employee within the same remitting period that the payroll advance was made. For example, if you remit on a monthly basis and you make a payroll advance to an employee, you do not need to calculate the taxes if the payroll advance is repaid in the same month. The reason for this is that there is no net change to the employee's taxes.
When you process the employee's regular paycheque, the payroll advance will be calculated against the amount the employee receives. This ensures that all taxes are correctly calculated for all employees.
Note: Payroll advances or loans should not be used as a regular method for paying employees.