To reimburse an employee for an expense they've incurred on behalf of your business, you can set up a new pay item. This lets you reimburse the employee in their next pay.
If you're reimbursing an employee for something they've purchased for your business, we'll also show you how to record that purchase.
Let's step you through it.
1. Set up a clearing account
You'll need to create a liability account to be used as a temporary holding account for the value of the employee purchase. This account will be credited when you reimburse the employee, then debited the same amount when you record the purchase.
Go to the Accounting menu > Chart of accounts.
Click Create account.
For the Account category, leave Detail account selected.
For the Account type, choose Credit card.
Give the account aa Account number that suits your account list.
For the Account name, enter something like "Employee Reimbursements" or similar.
For the Tax code, choose N-T.
When you're done, click Save.
This account will be linked to a new wage pay item we'll create in the next task.
2. Create a new pay item
From the Payroll menu, choose Employees.
Click the employee to be reimbursed.
Click the Payroll details tab.
Click the Salary and wages tab.
Under the Allocated wage pay items, click the dropdown arrow and choose Create wage pay item.
Set up the earning:
Enter a Name to describe the reimbursement.
Choose the applicable ATO reporting category. If unsure, check with your accounting advisor or the ATO.
For the Pay basis, select Salary.
Select the option Override employees' wage expense account.
In the field that appears, select the liability account created earlier.
Under Exemptions, click the dropdown arrow and choose PAYG Withholding. This will prevent tax being calculated on the reimbursement.
When you're done, click Save.
The pay item will now appear on the employee's next pay.
3. Exempt the reimbursement from superannuation
To ensure the reimbursement pay item you've just created isn't included in the superannuation calculation:
From the Payroll menu, choose Pay items.
Click the Superannuation tab.
Click the Superannuation Guarantee pay item.
Under Exemptions, click the dropdown arrow and choose the Employee Reimbursement wages pay item created above.
Click Save.
4. Pay the reimbursement
You're now ready to reimburse the employee. You can include it in their regular pay or do a stand-alone pay just for the reimbursement.
Go to the Payroll menu and choose Create pay run.
Choose the Pay cycle for the employee you're reimbursing.
Choose the pay period and payment date, then click Next.
Click the arrow to open the employee's pay.
Enter the amount of the reimbursement against the pay item you created earlier.
Finish processing the pay as normal. Need a refresher?
Is this a one-off reimbursement?
After paying the reimbursement, you can remove the pay item from the employee. This prevents the pay item showing in the employee's pay, but keeps the pay item for future use (if you need to reimburse an employee again, you can modify and assign the pay item to them).
To unlink the pay item from the employee
Go to the Payroll menu and choose Employees.
Click to open the employee's record.
Click the Payroll details tab.
Click the Salary and wages tab.
Under Allocated wage pay items, click the delete ( ) icon to remove the reimbursement pay item.
Click Save.
5. Record the purchase
The last thing to do is record a spend money transaction to account for the purchase. This achieves the following:
the purchase can be allocated to the applicable expense account
the applicable tax code can be assigned based on what was purchased and how it needs to be accounted for, and
the Employee Reimbursement liability account is returned to a zero balance.
Let's take you through it:
Go to the Banking menu and choose Spend money.
In the Bank account field, choose the Employee Reimbursement liability account.
If you've set up a supplier for whoever the purchase was made from, choose them in the Contact field.
Enter a Description of transaction.
Select whether the amounts are Tax inclusive or Tax exclusive.
In the Account column, choose the applicable expense account for this purchase.
Enter the Amount of the purchase.
Enter a Description of the purchase.
Choose the applicable Tax code. If you're not sure, check with your accounting advisor.
When you're done, click Record.