Payroll Accruals


Why do we accrue payroll expenses?

Governmental Accounting Standards Board Statement 34 issued in June 1999 requires accrual accounting for all government activities and generally requires all capital assets to be depreciated. Governmental Accounting Standards Board Statement 35 is an amendment of GASB Statement No. 34. It means that GASB 34 also applies to public colleges and universities.

There are two types of payroll accruals

Generated offsets for each payroll

When payroll expenses are passed from the labor ledger to the general ledger, offsets are generated to balance the accounting entries. Generally this offset occurs in object code 9050 (Salaries Payable) which is very similar to object code 9041 used to record accounts payable liabilities. The following shows sample entries from the offset definition table, which dictates the offset balance type and object code used for a given document type.

Fiscal

Year

Chart   

Document

Type

Balance

Type

Object

Code

2014

BL PAY AC 9050
2014 BL PAYA AC 9050
2014 BL PAYC AC 8000
2014 BL PAYD AC 8000
2014 BL PAYE IE 9891
2014 BL PAYN AC 9050
2014 BL PAYR AC 8000
2014 BL RETR AC 8000


Below are sample entries created when payroll M005013114 was posted from HRMS/Peoplesoft on 1/27/2014:

Account    Object    Doc Type Doc Number Debit Credit
10-200-00 2400 PAY M005013114 $10,000  
10-200-00 9050 PAY M005013114   $10,000

 The following entries, reversing the liability and crediting cash, were then created when payroll M005013114 was paid on 1/31/2014:

Account    Object    Doc Type Doc Number Debit Credit
10-200-00 9050 PAYD M005013114 $10,000  
10-200-00 8000 PAYD M005013114   $10,000
Month-end biweekly payroll accruals

At the end of each month there are bi-weekly payroll expenses earned but not yet reflected in the university’s accounting ledgers.

Based on the partial payroll calendar below, bi-weekly payroll B002010314 had a period end date of 12/21/2013 and was posted as a January payroll (fiscal period 07). However, this entire payroll was earned in December. Bi-weekly payroll B003011714 had a period end date of 1/4/2014 and was also posted as a January payroll. Of the 10 working days (Monday-Friday) covered by this payroll, seven days occurred in December and three days occurred in January. For the December monthly operating statements, payroll expenses were accrued for the 17 working days earned in December but not yet posted. The accrual was based upon the last available bi-weekly payroll processed.

Group Pay Run ID

Pay Period

Begin Dt

Pay Period

End Dt

Check

Date

Period

Fiscal

Year

 BW1  B041122013  11/24/2013  12/7/2013  12/20/2013  06  2014
 BW1  B002010314  12/8/2013  12/21/2013  1/3/2014  07  2014
 BW1  B003011714  12/22/2013  1/4/2014 1/17/2014  07  2014

For a full payroll calendar visit the Payroll site.

 

In this example the base for the accrual estimate was bi-weekly payroll B041122013.

    Last Biweekly Payroll of Period X (Number of Days to Accrue / Number of Days in a Biweekly Pay Period)
    Amounts from B041122013 x (17 / 10)

The following diagram shows the earn codes selected by the bi-weekly payroll accrual program:

Earn Code Description Selected?

Example

Object Code

RGN   

Regular Pay

Nonexempt Staff

Y 2500
RBP

Regular Pay Biweekly

Professional

Y 2480
RGH    Regular Pay Hourly  Y 3000/3500
RGP    Regular Pay PERF  N 3050
RGW    Regular Pay Work-Study N 3800
OOR    Overtime Only Hourly  N 3200
FSI Flat Rate Stagehand-Infl Y  3000
FSR Flat Rate Stagehand-Reg Y  3000

For bi-weekly staff, leave earn types are also accrued – sick, vacation, military, injury, etc.

Currently overpayments, cancellations, and hand-drawns are processed with off-cycle payrolls and would be excluded. Also, clearing account expenses and supplementals are excluded from the calculation. At this time, retroactive adjustments processed with bi-weekly payrolls would be included in the payroll accrual calculation.

When generating the accounting entries, the program will list as part of the document number the payrolls that are being accrued and reversed. In December, the document number used was ACCR-0203, indicating that the accrual was for bi-weekly payrolls B002010314 and B003011714.

Accruals are posted with a document type of “PAYA” and reversed using document type “PAYN”. Both of these document types have an offset object code of 9050 and do not affect cash.

To prevent overdrafts and to retain the budget to actual to encumbrance comparison, payroll accruals and reversals are accompanied by offsetting encumbrance transactions:

Example Accruals from December:

Account Object

Balance

Type

Doc

Type

Doc

Number

Debit Credit
1912610    2500    AC    PAYA    ACCR-0203 $10,000  
1912610 9050 AC PAYA ACCR-0203   $10,000
1912610 2500 IE PAYE ACCR-0203   $10,000
1912610 9891 IE PAYE ACCR-0203 $10,000  


The accrual records estimated payroll expenses in the month earned.

Example Reversals from January:

Account Object

Balance

Type

Doc

Type

Doc

Number

Debit Credit
1912610    2500    AC    PAYN ACCR-0203    $10,000
1912610 9050 AC PAYN ACCR-0203 $10,000  
1912610 2500 IE PAYE ACCR-0203 $10,000  
1912610 9891 IE PAYE ACCR-0203   $10,000

The accrual reversals offset the actual payroll expenses that were booked by HRMS/Peoplesoft when payrolls B002010314 and B003011714 were posted to January.