Every day here at Dominion Systems, we assist our clients in navigating the elements of their payroll processes. The most frequent questions they have are in regards to adjustments. So, we thought we’d provide a few helpful tips and tricks to help you understand one of the more complex concepts in payroll.
Adjustments can be many different corrections
Adjustments can be one big correction, a few small changes or a complete “re-do” (void a check and then re-issue it) to correct an employee’s year-to-date data. The main thing is to make sure the adjustment correctly reflects what earnings, taxes, and deductions took place in order to show correct figures on the W-2. Common examples include:
- Manual checks
- Voided checks
- Accrual awards(or reductions)
Adjustments are not automatic
When hours and earnings are entered through a normal payroll, the system does the grunt work. An adjustment, on the other hand, has no way of knowing what it is correcting or calculating. When vacation hours are paid outside of the normal payroll, the vacation balance has no way of knowing to reduce these hours from the vacation bank. Practice the “If – then” method:
- If a direct deposit is stopped, then the payment must be voided.
- If a manual check withholds a deduction that needs to be paid to a vendor, then a vendor check must be manually created and sent (Vice-versa with a void).
- If you provided an employee with cash, check, cash equivalent or direct deposit, then an adjustment must also be completed
Ok…one thing is automatic
When you enter a type of earning that is taxable within an adjustment without allocating amounts to any taxes, the Federal and State taxes will be determined when the employee is filing their taxes at the mend of the year. However, employees and employers must pay their share of FICA (Social Security and Medicare) taxes with any payment.
How do adjustments account for the FICA? This happens through processing the payroll. In Dominion’s software the preview page will display a non-critical warning that will list the current FICA is and what the FICA taxes should be. This is simply a notification that the FICA has been automatically calculated and will be withheld from the employee’s current (or next) paycheck.
If an adjustment is entered for an employee that will not be getting paid again, the Social Security and/or Medicare will need to be manually moved (through an adjustment) from the Federal or State tax ‘buckets’ in order to compensate for the shortage of FICA. If this adjustment is not completed by your last pay of the year, you will then receive a critical warning in the preview that will not let you accept that payroll until that correction is made. If you are unsure how this works within your software it would be wise to contact your payroll software provider and inquire.
Adjustments can be reviewed
Whether you’ve saved an adjustment five minutes ago, last month, or last year, they are viewable. If you’re currently using Dominion Systems you can view adjustments by referencing the Adjustment Grid for any past or open payroll. To reference a past payroll in our software, click on Payroll to see the payroll history and click on the check date you wish to reference. Next, go to the Adjustment Grid to see what adjustments were processed within that payroll.
Adjustments can also be viewed in the Gross to Net and Employee Adjustment Register standard reports. While the Gross to Net standard report will show what specific part of the payroll totals were adjusted, the Employee Adjustment Register standard report will show the detail of each employee adjustment. Adjustments will also show in the customized reports, so long as you have selected “Include Adjustments” for the adjustment options. Again, if you are unsure how to access adjustments within your software you should contact your software provider.
Hopefully this post helps you better navigate adjustments within your own payroll but if you have any additional questions, Dominion Systems Client Solutions department would be more than happy to answer them for you!