Friday, May 6, 2011

Payroll and Tips (Run Screaming Away, NOW!)

Okay, so I rank payroll and tips up there with sales tax and analytical accounting in my list of "not so favorite" things to deal with.  But I did learn an interesting tidbit about how tips are impacted by tax sheltered (TSA) deductions in Dynamics GP.  Take the following example:

Adam Smith (Setup)
  • Pay Code-HOUR
    • $15/hr
  • Pay Code- TIPS
    • Reported Tips
  • Deduction- HEALTH
    • $10/fixed amount per pay period
    • Tax Sheltered from Federal and FICA
Adam Smith (Payroll 5/15)
  • Gross Pay
    • HOUR- $150
    • TIPS- $50
  • Deductions
    • HEALTH- $10

Now, here is where it gets interesting.  Let's say that when the deduction (HEALTH) was set up (Setup>>Payroll>>Deduction), it was left as the default Based on Pay Codes- All (noted in screenshot below).

Here is what happens when you review a payroll summary for the employee:
  • Gross Pay $200
  • Federal Wages $142.50
  • Reported Tips $50
  • Federal Tips $47.50

Huh?  Well, because you said that the deduction is based on all pay codes (including the TIPS code), then GP prorates the tax sheltered deduction across all pay codes (wages and tips).  So, in this example, tips accounted for 25% of the gross and wages were 75%.  So the $10 deduction was allocated 25% ($2.50) to reduce the taxable tips, and 75% ($7.50) to reduce the taxable wages.

Easy enough to change if you don't want it to reduce tips, simply change the Based on Pay Codes setting for the deduction to Selected, and insert all pay codes except the tips pay codes.  Viola! It will only prorate across the included pay codes.

Christina Phillips is a Microsoft Certified Trainer and Dynamics GP Certified Professional. She is a supervising consultant with BKD Technologies, providing training, support, and project management services to new and existing Microsoft Dynamics customers.

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