Solution Summary

Off-setting the purchase of the item being salary sacrificed is achieved by allocating the purchase to a Salary Sacrifice payable liability account.  A payroll deduction category is then setup and linked to this account.  When the employee's pay is processed the salary sacrifice is posted to the payable account. Over a period of time, the salary sacrifice deducted from the employee's pay will provide a full reimbursement for the purchase of the item.

Setting up a salary sacrifice agreement

The first stage of this process involves setting up the following:

Salary sacrifice liability payable account

1. Go to the Accounts command centre and click Account List.
   
2. Click the Liabilities tab.
   
3. Click New. The Edit Accounts window is displayed.
   
4. Set up the ledger account as per the Edit Accounts window shown below, selecting an Account Number and Account Name that best suits your Accounts List.
   
   
   

Deduction payroll category

1. Go to the Payroll command centre and click Payroll Categories.
   
2. Click the Deduction tab.
   
3. Click New. The Deduction Information window is displayed.
   
4. Setup the Deduction Payroll Category as per the Deduction Information window shown below:

Note: An explanation of the Calculation Basis options can be found in our support note Payroll categories.

1. Click Employee and select the employee to whom the salary sacrifice applies.
   
2. Click Exempt and select the PAYG Withholding option.

Purchasing the laptop computer (or other item)

The purchase of the laptop computer can be made by either the employee or the business. In either instance, the same journal postings are recorded as follows:

1. Go to the Banking command centre and click Spend Money.
2. Click Pay From Account then set the adjacent Account field to your bank account.
3. Set the Card field to the supplier, or if being reimbursed, set it to your employee.
4. Enter the transaction details including the Amount.
5. Set the Acct # field to the liability payable account that is linked to the Salary Sacrifice Computer liability account.
6. Enter the transaction line details. Refer to the example Spend Money window as shown below.
7. Check the transaction details then click Record.
   

Notes:

• Apply the GST Tax Code if the business can claim the GST input tax credit for the purchase. Similarly, apply the N-T Tax Code if the purchase isn't to be reported on the BAS.
  
• Your accountant or the ATO will be able to confirm your GST liabilities on items purchased for the purpose of salary sacrifice.
  
• Where a business claims the GST input tax credit, the item's GST exclusive price becomes the total salary sacrifice amount to be deducted from the employee's pay.

Notes:

• The laptop has been purchased from a supplier, and the GST Tax Code has been used as this business is able to claim an input tax credit.
  
• The tax exclusive value of the purchase is $1500. This represents the total salary sacrifice amount to be deducted from the employee's pay.

Entering a paycheque to include the salary sacrifice

A sample paycheque is shown below. Note the Salary Sacrifice Computer line entry and how it reduces the employee's Net Pay.

How can I tell when the salary sacrifice amount has been repaid?

Use the Find Transactions window to keep track of the Salary Sacrifice liability payable account balance as this will show how much is still to be paid by the employee. The balance of this account is reduced each time a paycheque is recorded, and eventually the Ending Balance will become zero.

The example Find Transactions window shown below highlights that there is still $1300 left for the employee to pay for the laptop.

Access the Find Transactions window as follows:

1. Click Find Transactions along the bottom of any command centre.
   
2. In the Search by field, select Account and specify the Salary Sacrifice payable liability account created earlier in this support note.
   
3. In the Dated From and To fields, specify a date range which spans the Salary Sacrifice payable liability account's life activity, in other words from when the salary sacrifice began up to the current date.
   
4. The Ending Balance will be displayed.

What do I do when the salary sacrifice amount has been repaid?

When the Ending Balance becomes zero for the Salary Sacrifice payable liability account, disable the Deduction Payroll Category as follows:

1. Go to the Payroll command centre and click Payroll Categories.
   
2. Click the Deductions tab.
   
3. Click the zoom arrow next to the Salary Sacrifice Computer category.
   
4. Click Employee and deselect the employee to whom the salary sacrifice applied.
   
5. Click OK to return to the command centre.

When processing your next pay run, you will notice the salary sacrifice Deduction Payroll Category will no longer appear for the employee's pay.

Setting up your Payment Summaries so the correct Gross Wage is reported

Note: For more information on using the Payment Summary Assistant, refer to our support note Preparing and printing Payment Summaries.

1. Go to the Payroll command centre then click Print Payment Summaries.
   
2. Follow the on-screen steps and advance to the Payment Summary Fields window.
   
3. Highlight Gross Payments in the Payment Summary panel.
   
4. Select the payroll categories that make up the Gross Payments. This would include the salary sacrifice Deduction Payroll Category. Refer to the image below.
   
5. Continue following the on-screen steps to finalise and print the Payment Summaries.

Note: The Gross Wages value will be reduced by the negative value of the salary sacrifice Deduction Payroll Category.