This article will discuss the method for recording the remuneration of an employee with a gift card through the Payroll Module. This method would also be useful for recording any other non-cash employee remuneration that ought to increase the employee's pay accumulations.
You must create an asset account to hold the debit for the purchase of the gift card which technically qualifies as a prepaid service. In Payroll, you must also create a Deduction for the Gift Card to later be used in the employee's time card. This is outlined in the first step under How the gift card is recorded in the Payroll Process.
After creating the Prepaid Gift Card asset account, record the gift card like any normal purchase; just use the Prepaid Gift Card asset account as the line item in the bill, and write a check to pay the bill: this will debit the Gift Card account and credit your checking account.
How the gift card is recorded in the Payroll Process:
Generally, the process will work like this: You give the employee the gift card. You will add the gift card amount to the employee's pay but also add an after tax deduction for the same amount. This ensures the gift card is included in the employee's accumulations, but also ensures they only get the money once, in the gift card.
- First, create a Deduction for the Gift Card (Setup>Deduction/Benefit List). We recommend using the Cafeteria/Flex Plan Deduction as a template for making it a pre-tax deduction.
- Next, designate the Prepaid Gift Card asset account as the "Liability" account that will receive the credit for the deduction on your Gross Pay account (Setup>Account Distributions).
- Then, add the Deduction to the employee's Deductions/Benefits list in the Ded/Ben tab of their employee record. Set the amount to the amount of the gift card.
- Finally, run the Payroll Process. Add the amount of the gift card to the gross pay entered in Step 3) Edit Timecards. In Step 4) Calculate, double-check that the Gift Card deduction is selected in the Calculation Options, before calculating the payroll. After calculation, you should note in Step 5) Review that the net pay amount of the check does not include the amount of the gift card as the Gift Card deduction should have reduced the gross pay amount by the amount of the gift card before normal payroll taxes were calculated. Finish the payroll process as normal and close the process.
Use Account Balance reports to confirm the results of your efforts:
- The checking account should have a credit from the gift card purchase and a credit for the net amount of the paycheck
- The Prepaid Gift Card account should have a debit from the purchase and a credit from the Paycheck deduction
- The Gross Pay expense account should have a debit for the gross amount of the paycheck (normal pay plus the gift card amount)
- The other payroll liabilities and expenses should be credited and debited as usual.