Understanding Employee Entitlements using MYOB software

Transcription

1 Understanding Employee Entitlements using MYOB software copyright Veechi Curtis Veechi Curtis Understanding Employee Entitlements using MYOB software 1

2 Table of Contents UNDERSTANDING LEAVE ENTITLEMENTS... 2 What kinds of leave are employees entitled to? How much annual leave are employees entitled to? How long does an employee have to work before they re entitled to annual leave? How much personal leave are employees entitled to? What about long service leave? SETTING UP ENTITLEMENTS IN MYOB... 6 How do I set up MYOB software to track employee leave due? How do I change or delete an entitlement category? What about leave that was due to an employee before I started with MYOB? CALCULATING LEAVE ENTITLEMENTS... 8 How do I calculate employee entitlements on a fixed number of hours per pay period? How do I calculate employee entitlements on a percentage basis? Do I need to accrue long service leave entitlements? PAYING EMPLOYEE LEAVE How do I record payments for annual leave? What happens if an employee receives holiday pay in advance? What about leave loading? What if an employee asks to cash out their annual leave? What happens with public holidays? How do I record payments for personal or carer s leave? Can I pay more holiday or personal leave than the employee is due? How do I record the payment of long service leave? CATERING FOR RDOS AND OTHER TYPES OF LEAVE How do I track entitlements for rostered days off? How do I pay RDOs? Can MYOB software track time-in-lieu? What about compassionate leave? REPORTING FOR EMPLOYEE ENTITLEMENTS How can I see how much holiday or personal leave employees are due? How can I check whether the leave report is correct? How do I fix it if the amount of leave showing for an employee is wrong? Why doesn t holiday or personal leave show up on my payslips? MAKING PROVISIONS FOR LEAVE How do I make provisions for leave in my Balance Sheet? Can I make leave provisions on a continual basis? Understanding Employee Entitlements using MYOB software Veechi Curtis

3 PARENTAL LEAVE How do I know if an employee is eligible for Parental Leave Pay? Do I get reimbursed in full for Parental Leave Pay? How do I set up Parental Leave Pay in MYOB? How do I record the payment of parental leave? What about receiving the payments from Centrelink? What happens after the 18 weeks have finished? Do I include Parental Leave Pay on payment summaries? Veechi Curtis Understanding Employee Entitlements using MYOB software 3

4 Understanding Employee Entitlements Tracking employee holiday and personal leave is one of the trickiest aspects of managing payroll. You ve got to figure out what kind of leave each employee is entitled to receive, when they should receive it, whether the award includes any quirks or perks and much more besides. You ll find it makes sense to track leave entitlements using MYOB software so that at any time you can see how much leave you owe your employees. You can include this information on employees payslips so that at any time you can pull up a complete record of leave taken by each employee. The secret to tracking leave has two simple ingredients. The first is to set up your entitlement categories carefully, making sure they fit your business. The second is to keep reports of all leave taken for every employee. Golden rule Always document all annual and personal leave taken, printing a separate report for each employee at the end of each year. With your end-of-year leave reports, always give one copy to the employee and keep a copy for yourself in your employment archives. That way, if an employee ever disputes the amount of leave you owe them, you re able to pull out a complete record of all leave taken since they commenced employment with you. To make sure you get these reports just right, this document explains the basics step by step. You ll also find out about how to deal with the more tricky types of leave, such as rostered days off, time-in-lieu and long service leave. By the way, this document uses the words entitlements and leave interchangeably (although you ll find that MYOB software mostly uses the word entitlements ). Also, the term personal/carer s leave is used instead of sick leave in accordance with the latest National Employment Standards. Understanding Leave Entitlements From 1 January 2010, all employers in ACT, New South Wales, Northern Territory, Queensland, Tasmania and Victoria fall under special federal legislation called the National Employment Standards (NES), as do all companies in Western Australia. Sole traders and partnerships in Western Australia still fall under state legislation. To view more information regarding the National Employment Standard, and how the National Employment Standards affect leave entitlements for employees, visit to au. What kinds of leave are employees entitled to? Under the National Employment Standards, permanent employees (full-time and part-time) 4 Understanding Employee Entitlements using MYOB software Veechi Curtis

5 are always entitled to annual leave, personal/carer s leave and, after a certain period of time, long service leave. (Personal/carer s leave is the new term for sick leave.) Depending on their award, employees may also be entitled to rostered days off, study leave or time-in-lieu. Casual employees aren t usually entitled to any leave entitlements at all, although they may be entitled to long service leave if they are employed for 10 years or more. How much annual leave are employees entitled to? The National Employment Standards provide for four weeks (that s 20 days) of annual leave per year for every full-time employee. However, remember that four weeks per year is the minimum amount of leave employees are entitled to. Employees may be entitled to more than four weeks annual leave in two situations: Where a full-time employee does shift work where shifts are continuously rostered 24 hours a day for seven days a week, and the employee is regularly rostered to work these shifts. In this situation, the employee is entitled to a minimum five weeks leave per year. If the employee s award specifies that the employee is entitled to more than four weeks per year. By the way, you can view a very silly (but educational) video that explains annual leave by visiting Tip The National Employment Standards specifies minimum working conditions for Australian employees. However, individual awards often offer better conditions than this minimum. For example, an award could say that an employee is entitled to six weeks annual leave per year, or three weeks personal leave per year. You need to meet both the minimum requirements of the National Employment Standards and the award, whichever is the greater in each instance. How long does an employee have to work before they re entitled to annual leave? Under the National Employment Standards, permanent employees (as opposed to casual employees) start accruing annual leave from the moment they start work. So, if an employee is entitled to four weeks leave per year and they want to take annual leave after three months, they can. (After three months, this employee would have accrued one week s worth of leave.) Some additional comments: You can t unreasonably refuse to agree to an employee s request to take annual leave. There s no minimum or maximum amount of annual leave that employees must take at a time. So, if an employee asks to take one day s annual leave, you must agree unless there s a legitimate reason for you to refuse. Any leave that an employee hasn t used up at the end of a year automatically carries forward to the next. If an employee builds up more than two years worth of annual leave (for example, if an employee who normally receives four weeks leave per year has more than eight weeks accrued), then you can direct this employee to take up to one quarter of their leave balance. Veechi Curtis Understanding Employee Entitlements using MYOB software 5

6 How much personal leave are employees entitled to? Under the National Employment Standards, all employees, with the exception of casuals, are entitled to receive personal and carer s leave. The Standards specify that the minimum entitlement for an employee each year is 10 days of combined personal and carer s leave. However, remember to check your employees awards as well, in case an award specifies that employees are entitled to more than 10 days per year. Any personal/carer s leave that an employee hasn t used up at the end of a year automatically carries forward to the next. Classic mistake Before the National Employment Standards were introduced, many awards stipulated that employees accrued personal leave (which used to be called sick leave) as a single lump at the beginning of each year. For example, as soon as an employee s employment anniversary rolled around, they were entitled to a whole year s worth of sick leave. In contrast, under the National Employment Standards personal leave builds up progressively. For example, if an employee is entitled to ten days per year but has only been with your company for six months, at that point they re only entitled to five days personal leave. What about long service leave? Long service leave (an amount of paid leave for employees who have been working for the same company for a long period of time) works a bit differently from other kinds of leave, such as holiday or personal leave, in that many employees leave employment before they become entitled to it. For this reason, you may not want to track entitlements for long service leave until an employee has been working for you for at least five years. At the time of writing, the National Employment Standards don t cover long service leave, so you ll need to refer to your state or territory laws for more information. The actual amount of long service leave that employees are entitled to, along with the qualifying period, varies from state to state. Table 1 shows the contact details for each state. Classic mistake Although casual employees aren t entitled to annual leave or personal/carer s leave, they are entitled to long service leave in some states. Be sure to check the legislation that applies in your state or territory if you employ casuals for five years or longer. 6 Understanding Employee Entitlements using MYOB software Veechi Curtis

7 ACT (02) NSW NT (08) QLD SA TAS VIC WA Table 1: The rules for long service leave are still governed individual states and territories. Setting Up Entitlements in MYOB Tracking employee entitlements is the trickiest part of managing payroll, and the secret to success lies in setting up your payroll categories correctly. Payroll categories form the hub of payroll, and are crucial to how every employee s pay gets calculated. To check out your payroll categories list, go to the Payroll command centre in MYOB and click the Payroll Categories button. All the information relating to employee entitlements sits under the Entitlements tab. How do I set up MYOB software to track employee leave due? As an employer, you ve got to get the leave calculations for your employees spot-on. Here s how: 1. Go to the Payroll command centre in MYOB and click the Payroll Categories button. 2. Click the Entitlements tab in your Payroll Categories list. 3. Check that you have a leave entitlement category for all types of leave relevant to your business, such as Annual Leave Accrual, Personal/Carer s Leave Accrual, Long Service Leave Accrual and so on. (If not, click New to create a new entitlement category.) 4. Double-click each category in turn and check that the Calculation Basis is correct. (For the decision about whether to calculate leave as a percentage, or as a fixed number of hours per pay period, see Calculating Leave Entitlements later in this document.) 5. If you want to print leave details on payslips, click Print on Pay Advice (generally a good idea for annual leave; maybe not so good for personal leave). 6. If this entitlement carries across from year to year (and almost all entitlements do), click Carry Remaining Entitlement Over to Next Year. 7. Ensure the Linked Wages Category reflects the wage category that pays out the entitlement. For example, Annual Leave Accrual links to Holiday Pay and Personal Leave Accrual links to Personal/Carer s Leave. Veechi Curtis Understanding Employee Entitlements using MYOB software 7

8 8. Click Employee to select all employees who are entitled to this category of leave. 9. Check your work! Figure 1 shows what your Annual Leave entitlement category may look like. Figure 1: Creating a new entitlement category How do I change or delete an entitlement category? MYOB software comes with standard entitlement categories such as Annual Leave Accrual and Personal/Carer s Leave Accrual. Feel free to add, modify or delete any of these categories: To delete a category, double-click the name, then go up to Edit on the top menu bar and select Delete Entitlement. To change the name or the settings of an existing entitlement category, simply doubleclick the category name and make your changes. To create a new category, click the New button, give the category a name, and then select the settings you require. What about leave that was due to an employee before I started with MYOB? In order for holiday and sick entitlements to calculate correctly, you first need to record how much annual and personal leave your employees were due at the point you start using MYOB payroll. Here s how it s done: 1. Calculate how much annual leave and personal leave each employee is owed, expressing this amount in hours and not days. 2. Go to Process Payroll and click Next. 3. Zoom in on the first employee s pay and set all amounts to zero, including any hours showing up in leave accrual categories. 4. Still in the employee s pay, enter the number of hours that the employee is owed against the relevant leave accrual category (for example, Annual Leave Accrual). This entry should look pretty similar to Figure 2 by now. 8 Understanding Employee Entitlements using MYOB software Veechi Curtis

9 5. Click OK, and when asked if you want to record a void paycheque, click OK. 6. Repeat this process for all employees. 7. Click Preview Pay Details to view your Payroll Verification report for these entries, and print a hard copy of this report so you have a record of how many hours you entered in leave for each employee. 8. Click Record then Next to finalise these transactions. Figure 2: Recording opening employee entitlements Tip When you re working with entitlements, remember to express them in hours (and never in dollars or days). For example, if an employee works a 38-hour week, this converts to 7.6 hours per day. If they have two days leave owing, this converts to 15.2 hours leave. Calculating Leave Entitlements There are two different ways to calculate leave entitlements in MYOB software: as a fixed number of hours per pay period or as a percentage basis. There s no right or wrong method you just have to figure out what method works best for you. Fixed number of hours per pay period. This method works best if you employ mostly fulltime salaried employees whose hours stay constant from month to month. The percentage basis. This method is the least fuss if you have lots of part-timers who work different numbers of hours for example, one part-timer works 15 hours a week, another part-timer works 24 hours a week, and so on. Veechi Curtis Understanding Employee Entitlements using MYOB software 9

10 Many businesses use both methods, setting up leave entitlement categories calculated on a fixed number of hours for full-time salaried employees, and leave entitlement categories calculated on a percentage basis for part-time employees. The next few questions go into the practicalities of each one of these methods. number of hours per pay period? As explained in the preceding question, if you employ mostly full-time salaried employees whose hours stay fairly constant, you re usually best to calculate employee entitlements as a fixed number of Hours per Pay Period. Here s how to figure out the correct number of hours: 1. Confirm how many weeks leave each employee is entitled to per year. For example, an employee may be entitled to four weeks annual leave, two weeks personal leave and one week long service leave per year. 2. Multiply the number of hours in the employee s working week by the number of weeks entitlement. For example, if an employee is entitled to four weeks annual leave per year and they work a 40-hour week, then they are entitled to 160 (that s 4 x 40) hours holiday per year. 3. Divide the total number of hours leave per year by the number of pay periods per year. For example, if an employee is entitled to 160 hours annual leave per year and they get paid once a fortnight, then this converts to hours leave per fortnight (that s 160 divided by 26). 4. Double-check your figures make sense. The table below shows how these calculations work out for an employee who is paid weekly; even if this table doesn t show the exact scenario you re looking for, you should be able to see if your result is in the right ball-park. 5. Edit the relevant payroll category to reflect your calculations. Record the number of hours in the relevant entitlement category (such as Annual Leave Accrual or Personal leave Accrual) in the number of Hours per Pay Period field. (You can see how this is done in Figure 2.) 28 hr week 32 hr week 35 hr week 38 hr week 40 hr week 5 days leave per annum days leave per annum days leave per annum days leave per annum Table 2: Converting annual leave entitlements to hours per week 10 Understanding Employee Entitlements using MYOB software Veechi Curtis

11 Classic mistake Calculating entitlements on a fixed number of hours per pay period works fine, but be careful to click the Leave in Advance button if you process more than one pay period using a single pay transaction. (See What happens if an employee receives holiday pay in advance? later in this document for more details.) Similarly, if you record an extra pay transaction for an employee in a single pay period (maybe doing a pay adjustment), you need to manually edit this extra pay to change the leave accruals to zero. How do I calculate employee entitlements on a percentage basis? If you employ lots of part-timers who work different numbers of hours, calculating entitlements on a percentage basis makes sense. You can see how to calculate the correct percentage by reading through the following examples: Annual leave full-timers This example is based on a full-time employee receiving four weeks annual leave per year. (To double-check how much annual leave you have to pay your employees, refer to How much annual leave must I provide to employees? earlier in this document.) Total working days per year 52 5 = 260 Total days annual leave per year 20 Percentage annual leave (20 260) x 100 = % Annual leave part-timers This example is based on a part-time employee working two-fifths of a regular full-time loading. (You calculate entitlements for part-timers on a pro rata basis (pro rata means that if a part-timer works two days out of five every week, they receive two-fifths of normal annual leave entitlements). Total working days per year 52 2 = 104 Total days annual leave per year 8 Percentage annual leave (8 104) x 100 = % Personal leave This example assumes you re paying two weeks personal leave per year. To double-check how much personal leave you have to pay your employees, refer to How much personal leave must I provide to employees? earlier in this document. Total working days per year 52 5 = 260 Total personal leave days per year 10 Percentage personal leave days (10 260) 100 = % Veechi Curtis Understanding Employee Entitlements using MYOB software 11

12 Long service leave You are not obliged to make provisions in your financial accounts for long service leave; however, it is a good idea to do so if an employee has been with you for more than five years. This example assumes that an employee receives 4.33 weeks for every five years worked, but remember that these calculations vary from state to state across Australia. Total working weeks in 5 years 52 5 = 260 Total weeks leave per 5 years 4.33 Percentage long service leave ( ) 100 = 1.666% Rostered days off This example assumes that a rostered day off accrues when a 40-hour week is worked for four weeks, but the governing award or employment agreement is based on a 38-hour week. Number of hours in working day 38 5 = 7.6 Frequency of RDO 4 (one RDO every four weeks) Percentage entitlement (7.6 4)/38 = 5% Percentage entitlement (7.6 4)/ 38 = 5% Classic mistake When calculating leave entitlements on a percentage basis, you must be careful not to calculate leave entitlements on anything other than regular pay (you don t want to an employee to receive extra annual leave just because they work overtime or receive a tool allowance). To check your exemptions, highlight each entitlement category one by one and click Edit. Next, click Exempt to display the Entitlements Exemptions window. Click in the Exempt column against all wages categories, with the exception of base salary, base hourly, holiday pay and personal leave. (Allowances, annual leave loading and overtime are all exempt from leave accruals.) Do I need to accrue long service leave entitlements? Yes and no. A good rule of thumb is to accrue long service leave for employees that have been around for five years or more. Sure, you may get an employee who has just started with you and who knows, they may end up sticking around for ever. On the other hand, you often get employees who leave after five years but before their ten years is up (ten years is the normal cut-off point after which long service leave applies). To calculate long service leave using MYOB, first set up a wages category called Long Service Leave Paid, and then create an entitlements category called Long Service Leave Accrual. (Refer to Calculating Leave Entitlements for how to set up the calculation basis for this entitlements category.) If you want to show long service leave for an employee who has already been with you for several years, but for whom you ve never accrued this leave, you first calculate how much long service leave this employee is due, then enter this balance using the procedure earlier in this document called What about leave that was due to an employee before I started with MYOB? 12 Understanding Employee Entitlements using MYOB software Veechi Curtis

13 Paying Employee Leave Probably the most important thing about paying any kind of employee leave is maintaining proper records. If you use MYOB correctly, you automatically create a record for each employee every time they take leave. However, if you purge transactions when you start a new year in MYOB, you ll end up purging these payroll records. This can be a problem, because when an employee queries their leave entitlements, you often have to go back to when they first started employment (which could be several years ago) in order to justify why their current balance is what it is. In order to guarantee that you can always justify an employee s leave balance you need to do two things: Print leave reports for each employee at the end of each year and ask each employee to sign the report, agreeing that this record is correct. Be meticulous about retaining payroll backups on CD or external hard drives, year after year. How do I record payments for annual leave? Here s how to record holiday pay using MYOB payroll: 1. Check that the employee has enough hours built up in annual leave. See How can I see how much holiday or personal leave employees are due? for more info on running entitlement reports. 2. Go to Process Pays as you normally would and proceed to the second step, the Select & Edit Employee s Pay window. You should see the employee appear in this list, along with their standard net pay. 3. Zoom in on this pay and enter the total number of hours of Holiday Pay. The amount of pay in Base Hourly or Base Salary should reduce automatically. (If it doesn t, see the tip below.) 4. Click the arrow that appears next to Holiday Pay and record the dates that leave was taken, the total number of hours taken, and notes about their leave. 5. If this employee is eligible for leave loading, enter the number of hours holiday against Annual Leave Loading, as shown in Figure Click OK to record your changes and return to the Select & Edit Employee s Pay window. Click Record to complete your pay run in the normal way. Veechi Curtis Understanding Employee Entitlements using MYOB software 13

14 Figure 3: Processing holiday pays Tip If the amount shown in Base Hourly or Base Salary doesn t reduce automatically when you enter a figure against Holiday Pay, then you need to check the setup of your Holiday Pay category. Go to Payroll Categories, click the Wages tab, and double-click the Holiday Pay category. Check that the option to Automatically Adjust Base Salary or Base Hourly Details is clicked. What happens if an employee receives holiday pay in advance? If an employee receives holiday pay in advance (maybe they re normally paid weekly, but they take a fortnight s leave and you pay them for both weeks in a lump sum), you need to record this pay in a special way so that PAYG tax and ongoing leave entitlements calculate correctly: 1. Go to Process Payroll as normal, but click Process Individual Employee, rather than Process all Employees Paid. 2. Click Pay Leave in Advance and specify the number of weeks of leave this employee is receiving in advance. For example, if you re paying the employee three weeks pay, being for the week just completed and for two weeks holiday in advance, then you enter 1 as Weeks of standard pay and 2 as Weeks of leave in advance. 3. Complete the employee s pay as normal, recording the amount of Holiday Pay given and the dates that this pay is for. 14 Understanding Employee Entitlements using MYOB software Veechi Curtis

15 Tip Always take the extra time to record the details of annual leave taken in the Leave Tracking Information window (you get here by clicking the arrow next to the Holiday Pay category). This info forms a vital record in the future if this employee ever queries their leave entitlements. What about leave loading? Although paying leave loading seems like a piece of cake, there are a few technicalities hidden away, such as how you calculate leave loading, why you should make sure it s exempt from superannuation and whether you need to adjust the PAYG tax calculations. Here s the fine detail: 1. Double-check that this employee is eligible for leave loading. (Many awards state that leave loading is only payable after 12 months of employment.) 2. Check that Leave Loading comes up as a category in this employee s standard pay (even if the amount is zero). If it doesn t, go to the Wages side menu in the Payroll Details tab of the employee s card and click against Leave Loading. 3. Go to Process Employees and progress to the Select & Edit Employee s Pay window. Zoom in on the employee who is receiving leave loading. 4. Whatever number of hours you re paying in holiday pay, enter this number of hours against annual leave loading also. For example, if you re paying 14 as the number of hours Holiday Pay, enter 14 as the number of hours Leave Loading (you can see how this works earlier in this document, in Figure 3). 5. Check that the leave loading calculates correctly, referring to the fine detail of your employee s award in order to be sure. (If the calculation doesn t come up right, you can either edit the settings for your Leave Loading payroll category, or simply edit the Amount.) 6. Check that superannuation isn t calculating on leave loading (leave loading is not included in ordinary time earnings). See Managing Employee Superannuation, the ebook that comes as part of this MYOB Payroll series, for more info about calculating super. 7. Check that PAYG is calculating correctly. (Strictly speaking, the first $320 of leave loading paid in any payroll year is exempt from PAYG withholding tax.) What if an employee asks to cash out their annual leave? Under the National Employment Standards, all employees can cash out their annual leave, so long as their award or workplace agreement allows. There are a few conditions that must be met, including the stipulation that employees must be left with at least four weeks annual leave up their sleeve, even after cashing out leave. (For more details, go to Assuming an employee is ready to go ahead and cash out their leave, here s your part of the deal: 1. Process the week s pay for that employee as normal, not including the amount of leave being cashed out. Veechi Curtis Understanding Employee Entitlements using MYOB software 15

16 2. Return to Process Pays and this time select Process Individual Employee, followed by the employee s name. 3. Click Next. 4. Zoom in on the employee s pay and put all values to zero, including any leave entitlements. 5. Enter the number of hours of Holiday Pay being cashed out, and check that the Amount calculates correctly. 6. Click the arrow that appears next to Holiday Pay and in the Notes field write Annual Leave cashed out, followed by the number of hours being cashed out. 7. Manually adjust the employee s PAYG tax in the same way as you adjust for any oneoff payment, such as bonuses. If you re not sure how to adjust PAYG tax, go to the ATO website at and search on their document PAYG tax table bonuses and similar payments. 8. Click OK to record your changes and return to the Employee Pays window. Click Record to complete this pay in the normal way. What happens with public holidays? For information about public holidays, you need to refer to your employees award or workplace agreements. However, here are some general comments that may help you figure out what to do: All permanent full-time employees are entitled to public holidays, and therefore when you record a pay transaction that includes a public holiday, just treat it like any other pay transaction. Put the total pay through as wages, and don t put public holidays through as holiday pay. With part-timers, most awards specify that they should neither gain nor lose because of a public holiday. So if a part-timer normally works on a Monday, and Monday is a public holiday, they must be paid for that day. Again, this would just go through as ordinary wages, not as holiday pay. However, if a public holiday falls on a day that the part-timer doesn t normally work, then they don t get paid for it. Assuming an employee has the day off, you pay public holidays at the base rate, not including loadings, overtime or penalty rates. If a public holiday occurs during an employee s annual leave, you should adjust their holiday pay accordingly. For example, if an employee takes 2 weeks annual leave but a public holiday falls during the time they re away, you should record their pay for that period as being 9 days leave plus one day s regular pay. How do I record payments for personal or carer s leave? You record payments for personal or carer s leave in exactly the same way as you record payments for annual leave. However, here are some extra comments: Instead of entering the hours or amount paid against Holiday Pay, you enter the hours or the amount against Personal Leave. Don t forget to look up the employee s entitlement balance to see whether they have accrued enough hours. 16 Understanding Employee Entitlements using MYOB software Veechi Curtis

17 Depending on company policy, the employee may need to supply you with a medical certificate before you can pay them. An employee is allowed to take part of a day as personal leave (for example, if they go home in the middle of the day because they re not feeling well). This is easy in MYOB, because you record any personal leave taken in hours, not days. Always click the arrow next to Personal Leave and record notes regarding the nature of the leave taken and whether a medical certificate was supplied. Tip If the amount shown in Base Hourly or Base Salary doesn t reduce automatically when you enter a figure against Personal Leave, then you need to check the setup of your Personal Leave category. Go to Payroll Categories, click the Wages tab, and double-click the Personal Leave category. Check that the option to Automatically Adjust Base Salary or Base Hourly Details is clicked Can I pay more holiday or personal leave than the employee is due? Yes. For example, if an employee is owed five days annual leave but they want to take eight days, then it is entirely up to their supervisor whether to grant this leave, or not. If you process a pay that includes more leave than an employee is actually due, their entitlement will show as a negative figure for a few weeks until the employee has worked enough to make the entitlement figure positive once more. How do I record the payment of long service leave? To record the payment of long service leave, first go to your Payroll Categories list, click the Wages tab and highlight your Long Service Leave category (you can create a new category by this name if you can t see it in the list). Click Employee to select the name of the employee taking long service leave. When you come to pay this employee long service leave, the long service leave category should appear in their pay transaction. All you have to do is enter the amount of the payment. You may need to adjust both the amount of PAYG tax and/or the amount of super ask your accountant for advice if you re not sure how. Catering for RDOs and Other Types of Leave Of course, annual and personal leave aren t the only types of leave that employees are entitled to receive. Other types of leave include rostered days off, time-in-lieu, long service leave and compassionate leave, to name but a few. Although the basic principles behind any kind of leave are the same, the next few pages of this document deal with some of the idiosyncrasies you might encounter. Veechi Curtis Understanding Employee Entitlements using MYOB software 17

18 How do I track entitlements for rostered days off? A typical scenario for rostered days off (RDOs) is when an employee is only meant to work 38 hours a week under their award, but instead they work 40 hours a week and on the last day of every fourth week, they get the day off. Here s how to get MYOB software to track RDOs: 1. For each employee who receives RDOs, go to the Wages section of their card and make sure that the Hours in Weekly Pay Period are set to 38. (Remember that although the employees work 40 hours per week, you re only going to pay them for 38.) 2. Go to Payroll Categories, click the Wages tab and then click New. Name this category Rostered Day Off and as the Type of Wages select Hourly. Set the pay rate to Regular Rate Multiplied by Click Employee to select all employees that receive RDOs. Click OK to record your changes. 4. Click the Entitlements tab and then New. Name this category RDO Accrual and as the Linked Wages Category select the new wages category you just created, Rostered Day Off. 5. If this is a typical RDO setup (38-hour working week, with one RDO every four weeks), select Equals 2.0 Hours per Pay Period as the Calculation Basis. If you have a different working week structure, refer to the advanced tip below for how the correct number of hours. 6. Click Employee to select all employees that receive RDOs. Click OK to record your changes. 7. With your setup complete, read on to the next question about how to pay employees for RDOs when they take them. Advanced tip If the number of hours in your working week is different from the example above, you calculate the correct number of hours per pay period by working out the number of hours in a working day and dividing this by the frequency of the RDO in weeks. How do I pay RDOs? Assuming a typical RDO setup (a 38-hour working week, with one RDO every four weeks), managing RDOs is really quite straightforward. For the first three weeks out of the four-week pay cycle, go to Process Pay as normal and simply accept the standard pay that comes up. The total hours worked should be 38 (even though the employees actually worked 40 hours) and the number of hours against RDO Accrual should be 2.0 hours. On the fourth week, you need to edit each employee s pay. Change the total hours worked to equal 30.4 hours (that is, 7.6 hours a day for four days). Enter 7.6 hours against Rostered Day Off, and change the RDO Accrual to 1.6 hours. (Why? Because if an employee normally works 0.4 extra hours per day, in the week that they only work four days, they only accrue 1.6 hours as an RDO.) You can see how this looks in Figure Understanding Employee Entitlements using MYOB software Veechi Curtis

19 Figure 4: An employee pay transaction showing payment of an RDO Warning Remember that an employee only receives RDOs if they work extra hours over and above their agreed weekly hours. Therefore, when an employee takes annual leave, they don t accrue RDO hours. You must remember to manually adjust RDO accruals (simply edit this figure) when recording employee pays that include annual or personal leave. Can MYOB software track time-in-lieu? Yes. Many businesses choose not to pay overtime; rather, they let employees accumulate additional hours worked as time-in-lieu. Employees then use up this time-in-lieu by working a shorter week later on. You can keep track of time-in-lieu using this method: 1. Go to Payroll Categories and click the Wages tab. Create a new category called Timein-lieu Paid. As the Type of Wages select Hourly. 2. Still in Payroll Categories, click the Entitlements tab. Create a new entitlement category called Time-in-lieu Accrual. As the Type of Entitlement select User-Entered Amount Per Pay Period. As the Linked Wages Category, select the wages category Time-in-lieu Paid. 3. When an employee accumulates time-in-lieu, complete their pay as normal but enter the number of hours time-in-lieu worked against the Time-in-lieu Accrual category. 4. When an employee later uses their time-in-lieu hours, complete their pay as normal but enter the number of hours taken against the Time-in-lieu Paid category. This method works a treat. The employee can see from their payslip how much time-in-lieu they re owed and at any time, you can view time-in-lieu details for all employees by generating an entitlements report. Veechi Curtis Understanding Employee Entitlements using MYOB software 19

20 What about compassionate leave? Compassionate leave is different from other types of leave. Employees don t accumulate more and more compassionate leave the longer they work for you. Instead, according to the National Employment Standard, permanent employees are entitled to two days paid compassionate leave if a member of their household or immediate family gets a life-threatening injury or illness, or dies. Casual employees are also entitled to compassionate leave, but the leave is unpaid. In terms of recording compassionate leave in MYOB, you re probably simply best to record the leave taken as Base Hourly or Base Salary, and make a note in the employee s log regarding the leave taken. There s little point in setting up wages or entitlement categories for compassionate leave, as compassionate leave entitlements don t build up over time an employee who has worked for you for 15 years is entitled to the same amount of compassionate leave as an employee who has worked for you for 15 days. Reporting for Employee Entitlements Now that you ve been tracking employee leave entitlements so faithfully using MYOB software you re ready to reap the benefits. The next questions in this document deal with how to analyse how much leave you owe to employees and also how to fix up balances when they go wrong. How can I see how much holiday or personal leave employees are due? The best choice of report depends on what you re looking for: For a quick summary of how much an individual employee is owed in leave Go to Reports, click the Payroll tab, and highlight the Entitlements Balance Summary report. Click the Customise button, select the Employee name up the top, along with the date range (simply select the current month if you re only interested in their current balance). Then click Display. Alternatively, for a quick peek at employee entitlements, go to the Payroll Details tab of an employee s card and click the Entitlements side menu. The figures in the Total column show how much leave is outstanding. For a quick summary of how much all employees are owed in leave, sorted by the type of leave, rather than by employee Go to Reports, click the Payroll tab, and highlight the Entitlements Balance Summary report. Click the Customise button, then select the date range (simply select the current month if you re only interested in the current balance). Click the Finishing tab and ask to sort by Entitlement, rather than by Employee. Then click Display. For a detailed breakdown of an employee s total leave owing, and what transactions make up this leave Go to Reports, click the Payroll tab, and highlight the Entitlements Balance Detail report. Click the Customise button, select the Employee name up the top, along with the date range (start with the first day of your payroll year, which is always July 1 and go right up to your current date). Then click Display. 20 Understanding Employee Entitlements using MYOB software Veechi Curtis

21 How can I check whether the leave report is correct? As mentioned above, the Entitlements Balance Detail report provides the most information about how an employee s entitlements have built up over time, showing not only how much leave was accrued each week, but how much leave an employee has taken. Figure 5 gives you an idea of how this report looks. Figure 5: A sample Entitlements Detail report If this employee has been with your business or organisation for many years, you may need to print up a separate report for each year. Depending on whether you ve purged the data in your MYOB company file or not, you may even need to restore backups from previous years in order to get all this info (which, by the way, is the logic behind the golden rule for managing leave entitlements, which is that you should print entitlement reports every year and keep them carefully archived). Classic mistake The Entitlements Balance Detail report shows a difference if the hours on an employee s pay transactions differ from the hours on their final leave balance. If you see a difference here, take the time to investigate the cause. The most usual cause is that someone has fiddled with the totals in the Carry-Over column in the Entitlements section of the employee s card. Adjustments made to the Carry-Over column aren t always sinister maybe you or another person responsible for payroll had reason to adjust the employee s entitlement balance. However, it is infinitely more preferable to make adjustments to entitlements by processing a payroll transaction, as this method supplies a full audit trail. Veechi Curtis Understanding Employee Entitlements using MYOB software 21

22 employee is wrong? So, you ve found that your figures for holiday or personal leave (or for any other type of leave, for that matter) aren t right. You want to fix them up so that they re correct from now onwards. How do you do this? 1. First, calculate the difference between how many hours of leave the employee is really owed, compared to what shows up in the employee s payroll records. For example, if you know the employee is owed 120 hours leave but the payroll record shows 30 hours, then the difference is 90 hours. 2. Go to Process Payroll, select to Process Individual Employee, and click Next. 3. Zoom in on this employee s pay and set all amounts to zero, including any hours showing up in leave accrual categories. 4. Still in the employee s pay, in the relevant leave accrual category (for example, Annual Leave Accrual), enter the number of hours that the employee s record is out by. You can enter this amount as a positive or negative number, depending on whether you need to increase or decrease the employee s entitlement. 5. When you record the pay, you ll get a message asking if you want to void this paycheque. Click OK to continue. 6. Return to Entitlements in the Payroll Details tab for this employee and check that the number of hours shown in the Total column is now correct. Advanced tip If employee entitlements get in a pickle, you may have to start from scratch. Ascertain the employee s start date (or the last date their entitlements were correct), calculate how much leave they would have accrued since this date and then deduct the total leave taken. This process may entail going back through records for several years, but you ll just have to grin and bear it. Why doesn t holiday or personal leave show up on my payslips? If you find holiday or personal leave isn t showing up on your pay advices, there are two simple settings that you can check: Go to Payroll Categories and click the Entitlements tab. Double-click the entitlement that should be showing up on the pay advice (for example, Annual Leave Accrual) and ensure that the box marked Print on Pay Advice is checked. Next, go to the Setup menu, select Preferences and then click the Reports & Forms tab. Make sure that the box marked Include All YTD Amounts and Entitlement Balances on Paycheque Stubs is checked. 22 Understanding Employee Entitlements using MYOB software Veechi Curtis

23 Making Provisions for Leave For most small businesses, it s overkill to make accounting provisions for holiday and personal leave owing. However, many auditors expect community and non-profit organisations to make proper provisions for leave, at least on an annual basis. The last part of this document explains exactly how to do just that. How do I make provisions for leave in my Balance Sheet? Here s how to journal leave provisions in your Balance Sheet: 1. Print a Balance Sheet for the last day of your financial year and highlight the balances of all the leave provision accounts. Look for liability accounts called Provision for Long Service Leave, Provision for Holiday Leave and so on. If your organisation makes journals for leave on a monthly basis, rather than an annual basis, then you print up a Balance Sheet for the month just gone, rather than for the year just gone. 2. Print an Entitlements Balance Summary Report showing how much employee leave was accrued as at the last day of the financial year (or last day of the month, if you re doing this journal monthly). When customising this report, click the Finishing tab and ask to sort by Entitlement, rather than by Employee. 3. Have a chat to your accountant about whether any of these balances need adjusting. 4. Your accountant may want you to add 17.5% leave loading to the annual leave figure and may also want to adjust the long service leave figure (the final calculations for long service leave provisions often involve complicated actuarial adjustments). 5. For each leave provision, calculate the difference between the final figures on your Entitlements Balance Summary report and your Balance Sheet report. For example, if the leave report shows $5,000 outstanding in annual leave and the Balance Sheet shows $4,000, then the difference is $1,000. (Of course, if nobody has journalled leave provisions before now, then the difference is $5,000.) 6. Go to your Accounts command centre and record a journal entry that adjusts the provision. To increase the balance of a provision account, debit an expense account called Wage Provision Expense (create an account by this name if you don t already have one) and credit the provision account. To decrease the balance of a provision account, debit the provision account and credit Wage Provision Expense. You can see how this works in Figure 6, where I increase the Provision for Annual Leave by $1, Reprint your Balance Sheet and check that the balances of your provision accounts are now the same as the amounts shown on your Entitlements Balance Summary report. They are? Then well done! Veechi Curtis Understanding Employee Entitlements using MYOB software 23

24 Figure 6: Adjusting leave provisions Can I make leave provisions on a continual basis? Some businesses with larger payrolls like to make provisions on a continuous basis, so that the financial reports always reflect the correct amounts for leave owing. You can tweak MYOB software to make this happen, but bear in mind that this approach is technical and needs careful monitoring: you will have to remember to adjust provision accounts if there s a pay rise, if an employee leaves before becoming eligible for leave or if there s a change in the award conditions. Here s how it s done: 1. Go to your Accounts List and create a new liability account for each type of provision you wish to make, such as Provision for Annual Leave, Provision for Long Service Leave and so on. Also, create a new expense account called Wage Provision Expense. 2. Go to your Payroll Categories list and make sure you have a corresponding wages category for each of these provisions, such as Holiday Pay, Long Service Paid and so on. Click Optional Account for each of these categories and as the Override Account select the appropriate liability. 3. Now click the Entitlements tab and make sure you have an entitlement category for each of these provisions, such as Annual Leave Accrual, Long Service Leave Accrual and so on. Double-check that the Linked Wages Category for each entitlement is correct. 4. Next, click the Expenses tab in your Payroll Categories list and create a new category for each of these accruals, such as Annual Leave Expense, Long Service Leave Expense and so on. Select the appropriate liability account (as created in step 1) as the Linked Payable Account and select Wage Provision Expense as the Linked Expense Account. Make sure that the Calculation Basis is the same for both this expense and its corresponding entitlement. 5. For all payroll categories mentioned above, click Employee to select those employees eligible for leave. To see how this whole idea works in practice, go to Process Payroll. In a normal pay transaction, when an employee accrues leave, you end up debiting your wages provision account and crediting your leave provision account. When an employee takes leave, you end up debiting your leave provision account and decreasing the number of hours owing to the employee. 24 Understanding Employee Entitlements using MYOB software Veechi Curtis

25 Parental Leave The new parental leave scheme is now operating in Australia, meaning that eligible employees receive 18 weeks of Parental Leave Pay after the birth of a child. Despite the fairly convoluted rules around the way employees receive this payment, configuring Parental Leave Pay in MYOB is quite straightforward. This guide focuses on how to pay employees Parental Leave using MYOB, but for more general information about the scheme, visit How do I know if an employee is eligible for Parental Leave Pay? The good news is that it s Centrelink s job, not yours, to figure out whether an employee is eligible for Parental Pay. You don t have to worry about a thing. If you re obliged to make this payment, you ll receive a letter from Centrelink notifying you that this is the case. You may be surprised however to find out how many employees are eligible even casuals are eligible for Parental Leave Pay if they have been working for you for long enough, and working at least one day per week. Do I get reimbursed in full for Parental Leave Pay? Yes. The idea is that Parental Leave Pay shouldn t cost employers a cent. Although it s your job to receive the payment from Centrelink and then pass this payment on to the employee, you don t ever have to pay an employee until you ve received the Centrelink payment. In addition, you don t have to pay super, workers comp or payroll tax on Parental Leave Pay. How do I set up Parental Leave Pay in MYOB? The first thing to get your head around is that Parental Leave isn t an entitlement in the same way as Annual Leave or Personal Leave. Parental Leave isn t something that an employee accrues over time. Think of Parental Leave as simply being a government payment with you as the intermediary. The setup of Parental Leave in MYOB is straightforward: 1. In your Accounts List, create a new liability account called Parental Leave Owing. You ll use this to track the payments you receive from Centrelink and which you then distribute to the employee. In the ideal world, the balance of this account will return to $0.00 at the end of each pay run. 2. Create a new payroll category for Parental Leave Pay. Go to Payroll Categories, click the Wages tab followed by New and create a new Wages category called Parental Leave Pay. Choose Salary as the Type of Wages and then click the option to Override the Employees Wage Expense Account. Select your new Parental Leave Owing liability account as the Override Account, as shown in Figure 7. Click the Employee button and select the employee who will be receiving Parental Leave Pay. 3. Exempt this payroll category from superannuation. Go to Payroll Categories and click the Superannuation tab. Double-click the SGC Superannuation Guarantee category and click Exempt. Select the Paid Parental Leave category to exempt this category from super and click OK. Veechi Curtis Understanding Employee Entitlements using MYOB software 25

26 4. Exempt parental leave from accruing entitlements such as holiday or personal leave. You don t have to worry about exempting hourly employees as entitlements won t accrue on Parental Leave Pay. However, you do need to ensure no entitlements accrue for salaried employees. To make this adjustment, go to the Payroll Details tab of this employee s card, click the Entitlements side menu and deselect all entitlements. 5. Edit the employee s standard pay. Go to the Standard Pay side menu under the Payroll Details tab of the employee s card and set all pay amounts and entitlements to zero. Then enter the weekly or fortnightly amount for Parental Leave Pay currently $ a week as the amount against this payroll category. Figure 7: Creating a new payroll category for Parental Leave Pay How do I record the payment of parental leave? Assuming you ve set up Parental Leave Pay and edited the employee s standard pay, recording parental leave should be pretty much automatic. Go to process your pay run as normal, and double-click this employee s pay to review the details. You should find that the pay calculates an amount for Parental Leave Pay and deducts PAYG tax at the same rate as for a regular pay. However, your job is to check that MYOB doesn t calculate any superannuation on this pay, nor does it accrue any entitlements for Holiday Leave, Personal Leave or Long Service Leave. You can see what a Parental Leave payment looks like in Figure Understanding Employee Entitlements using MYOB software Veechi Curtis

27 Figure 8: Recording Parental Leave Pay What about receiving the payments from Centrelink? This bit is nice and easy. Simply go to Receive Money, enter Centrelink as the Payor and select Parental Leave Pay as the liability account. The tax code should be N-T. Just because an employee has received 18 weeks of Parental Leave Pay doesn t mean that they have to return to work. All employees are eligible for a minimum of 12 months unpaid parental leave (this period includes the 18 weeks during which they may receive Parental Leave Pay), and any permanent employee who has worked for you for a year or more can request a further 12 months unpaid leave. Your job as a bookkeeper is to keep track of how much unpaid leave an employee receives. Remember that you don t include any periods of unpaid leave if you re calculating an employee s entitlement to things such as long service leave or redundancy. For more info on this topic, check out the Fair Work Australia website at Do I include Parental Leave Pay on payment summaries? Yes. You include Parental Leave on payment summaries as part of Gross Wages. The only thing to be mindful of is what figures you use when calculating your workers compensation premiums or payroll tax payments. Remember that although the total of Wages on your Payroll Register Summary report includes Parental Leave Pay, you don t pay workers comp or payroll tax on this component. Instead you re usually best to refer to the wages figures on your Profit & Loss report when retrieving these figures. Veechi Curtis Understanding Employee Entitlements using MYOB software 27