How to replace a payroll check where pre or post-tax deductions were not set up correctly
- If you are going to correct this error through the Payroll Process module, you have to be in the same quarter and preferably in the same month as the original payroll check. Otherwise you will have to wait until the end of the year and edit the employees W-2. If the payroll check is in a prior quarter this will not work, and you have most likely already filed your 941.
- The check you are replacing was or will be cashed.
- The dollar amount of the check will change (unless Benefits are the only thing that needs to be corrected).
If you find that you have issued a payroll check where Deduction(s) and/or Benefit(s) have been calculated incorrectly and the check has been cashed or the Direct Deposit has been processed you can follow the steps below to correct it.
Step 1: You will want to edit your Deduction(s) or Benefit(s) so they are correctly marked as Pre or Post tax.
- Click on Setup
- Choose Deduction/Benefit List
- Edit the Deduction
We will use the Tax Free Health Insurance Deduction in the following example to demonstrate this resolution.
Notice the Category of Tax Deferred is correct yet there is No Effect on taxes. This lets us know this is set up incorrectly. You will need to check with your plan provider or a Tax Specialist to determine if your plan deductions/benefits qualify as pretax (or Tax Deferred). In this example, the deduction is supposed to be pretax.
We click Edit and note none of the taxes are checked.
A deduction will reduce the checked taxes by taking the deduction before applying these taxes. A benefit will add to taxable wages (but not increase the net pay) for any checked boxes.
Note If when setting up a new deduction or benefit, you select a deduction or benefit from the template then edit the Type (change a deduction to be a benefit or vice versa) the information in green will be incorrect as it doesn't change. We highly recommend you never change a Type but instead, if needed, delete that Item and then pull in the correct Item from the template.
We click edit and place a check in every box for which the deduction reduces taxable wages (e.g. Federal gross pay is reduced by the amount of the Tax Free Health Insurance Deductions if the box is checked) Note: some plans are not pretax for all tax types. In this example, the particular deduction is pretax for everything (yours may differ and you may need to leave some of the boxes unchecked).
- Once you have checked the correct boxes click Submit. (If they were checked and should not have been, uncheck them and remember to change your Category to Other, then click submit.)
Step 2: Void the original check (you can void the original check first if you prefer, the order doesn't matter).
Step 3: Now that you have corrected your deduction you can create a new Payroll to reissue your check.
How to date the new check
If the month in which the original check was written is still open and the same month's Bank Reconciliation has not been closed, you will want to use the same date as the original check.
If that month is closed or the Bank Reconciliation has been closed:
- If you are an independent organization, Support can reopen a closed month so the same date can be used.
- If you are under a Diocese who manages your ParishSOFT Accounting Settings, you can ask them to reopen your month and/or Bank Reconciliation for you. Some may have a policy against this.
- If re-opening the month and/or Bank Reconciliation is not feasible, you can use your current open month as long as it is in the same quarter. NOTE: this will affect your reported expenses for each affected month.
Compare the Replacement Net Check Amount with the Original Net Check Amount
You will create your replacement check exactly as you did the original check. However, when you calculate, the deduction or benefit you updated will take effect and your net check amount may be different.
Now you will have the correct accumulations in payroll but there may be a difference between the check that clears the bank and the replacement check. If the new check's net amount is the same as the original's, you are done with this process. When the original check comes through on the Bank Statement, to Reconcile you will mark both the original check and its voiding entry as well as the new check. If the two check's net amounts are different, continue with the next step.
When the Net Check Amount of the Replacement Check is different from that of the Original
- The new check amount is greater than the original check amount
- The new check amount is less than the original check amount
When the new check amount is greater than the original check amount
Step 4: If the new check amount is greater than the original check amount you will want to create a check to the employee for the difference. Do this in Ledgers and Payables starting with a bill. You may need to create the employee as a vendor to do so.
Once you have printed the Ledger check and given it to the employee you will need to Void it. While both the original payroll check and the Ledger check will clear the bank, you have recorded that same amount as the replacement payroll check (example, original payroll check of $100.00 and Ledger check of $20.00 and replacement payroll check of $120.00) so voiding the ledger check is a must in order for your account balances to be correct and you are able to reconcile your Bank Statement. See table below.
Step 6: On the bank reconciliation you will clear the two voiding journals against the replacement payroll check, and clear the two checks that were cashed (original payroll check and Ledger check) when they show on your Bank Statement. These may be in different months so make sure to clear them or leave them outstanding as needed.
Current Month Bank Reconciliation: The paycheck is not on the Bank Statement
In the first example (using a ledger check for the difference owed to employee) you will clear the two voiding journal entries AND the replacement check, leaving the two voided checks open to be cleared when they show on the bank statement. Hopefully this happens in the same month. If not leave the voided checks open (uncleared) until they do show on the statement. You will not have a difference if the checks don't clear that month.
Current Month Bank Reconciliation: The paycheck is on the Bank Statement
This example shows that the checks did clear in the same month. Mark all relevant entries.
When the new check amount is less than the original check amount
Step 4: If the new check is less than the amount of the original check you will need the employee to pay the difference but you can't record that payment as a deposit in ParishSOFT Accounting because the difference was already accounted for when the original check was voided and the replacement check was issued.
Instead when you do your bank reconciliation
The Bank Statement will show
- the original check
- the deposit (from the employee) for the difference
- (the replacement check will not be on the Bank Statement as it was never given to the employee to cash, but only created to correct the accums
The Bank Reconciliation will show
- the original check
- it's voiding journal
- the replacement check
- (the deposit will not show on the Bank Reconciliation because it was not recorded as a deposit. The deposit is the difference between the two checks)
Example: The original check was $120, the new check was $100, the employee paid back $20
The following shows how to Reconcile the Bank Statement when the employee paid back the difference.
The original check has not yet cleared and you have not deposited the check from the employee
The original check cleared as well as the refund check from the employee
This last example is when the original check has cleared and you have deposited the refund from the employee; remember you will not record that deposit in ParishSOFT Accounting in order to keep your account balances correct. See the table above.