How do I record advances or prepayments I've given an employee?

You'll find that the CRA frowns upon the practice of giving an advance to an employee without applying the appropriate taxes. In fact, in their publication (CRA site) they refer to advances and state in Chapter 6:

If you pay part of your employee’s salary before the usual payday, you have to deduct Canada Pension Plan (CPP), employment insurance (EI), and income tax from the total advance.

In addition, each province has its own "employment standards" which may affect your ability to provide advances to an employee.

Nonetheless, you can track advances in our service - though you should consult the CRA, a tax professional or accountant to see how this may impact your business.

Scenario 1: I want to provide an advance to an employee net of taxes and other deductions

To add an advance to an employee's payrun, you can add a new earnings type during your regular payrun. Here's how:

  1. RUN PAYROLL -> **USE A SPECIAL RUN FOR THIS OFF CYCLE-RUN->SALARIED (or TIMESHEET if processing for time-based employees). Adjust and approve your staff's regular earnings as you normally do.
  2. Once approved, click the "add other" button next to the employee you wish to provide an advance for.
  3. In the pop up, select "Earnings Advances" and type in the amount of the advance. Click "add" and close the popup if you have no other earnings to add.
  4. Repeat for any additional employees and process your payrun as normal.

Your employee's paystub will reflect the "earnings advances" and they will receive the extra pay (taxed and subject to deductions as normal wages). 

When you are ready to reclaim the advance here's how:

  1. RUN PAYROLL -> SALARIED (or TIMESHEETS). Adjust and approve as normal. Click "add other" next to the employee you wish to reclaim the advance from.
  2. In the pop up, select "Earnings Advances" and type in the amount you are reclaiming as a negative number. Click "add" and close the popup if you have no other earnings to add.
  3. Repeat for any additional employees and process your payrun as normal.

Now your employee's wages will be reduced accordingly and the "earnings advance" line item will be debited the amount you are reclaiming. On their paystub they will see a negative amount in the "earnings advances" field.

Scenario 2: I already paid an employee an advance and forgot to deduct taxes

This is not a supported method of doing payroll according to CRA and please remember that the CRA may issue penalties so please talk to a tax adviser on the implications of providing an advance without first deducting taxes.

While we want you to be fully compliant with CRA rules,we know that it doesn't always happen that way.  In that case we at least want your records to be correct, so here is how you do it:

Create a new earnings called Advance- no tax (or something like that), enable it and make it NOT subject to taxes.  Run a SPECIAL payroll using this new earning with a positive amount.   Pay your employee.


To take the advance back run your regular payroll and enter the advance no tax earning as a negative amount. This will take the amount already paid off net, but will keep taxable income the same.

 

Employee created advances

If your employee uses the PayChequer advance service (provided by ZayZoon) - you do not need to record or account for these advances. Funds are automatically send and recouped from the employee directly.

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