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    Set up and pay sick or vacation

    Article ID: 1000665


    QuickBooks allows you to set up two types of paid time off accruals (vacation and sick pay) that can be used when paying employees.

    Expected Outcome

    You will be able to set up the payroll items and then use them on a paycheck.


    You have an employee and would like to pay them for sick or vacation time.


    When you need to pay vacation or sick time, there are multiple steps you will need to take. These are the main steps described below:

    • Set up the payroll items
    • Add the vacation/sick information to the employee profile (only if you accrue time)
    • Set up the vacation/sick defaults (recommended if sick/vacation is the same for all new hires)
    • Add the item to a paycheck

    If you use PTO (paid time off) instead of sick or vacation, use the vacation item. You can rename this item to PTO in your payroll item list.

    To set up the sick and/or vacation payroll item(s):

      1. From Lists on the top menu bar, choose Payroll Item List.
      2. Click Payroll Item (bottom left corner) and choose New.
      3. Select Custom Setup and click Next.
      4. Select Wage and click Next.
      5. Select either Annual Salary or Hourly Wages depending on whether you have salaried or hourly employees, and click Next.
      6. Select Sick Pay or Vacation Pay, and click Next.
      7. Name the item (e.g., Hourly Sick Pay), and click Next.
      8. Choose the expense account that you want this item to report to, and click Finish.

    To set up or access the sick and vacation defaults (including accuring on sick, vacation and overtime hours):

    1. Click on Edit on the top menu bar.
    2. Select Preferences.
    3. Click Payroll & Employees.
    4. Click on the Company Preferences tab.
    5. Click on the Sick & Vacation button.
    6. You can fill in defaults that will flow to the setup of each new employee.
    7. Be sure to check the Do not accrue boxes at the bottom if you do not want time accrued when paying sick/vacation/overtime.

    To set up and add sick/vacation accruals to an employee profile:

    1. From the Employee Center, double click the employee's name.
    2. Click the drop-down arrow on Change Tabs and select Payroll and Compensation.
      • QuickBooks 2013 and higher: Click Payroll Info tab.
    3. Click the Sick/Vacation button.
    4. In the Hours Available as of box of the Vacation section, enter the amount of hours available for the employee to use.
      Note: This is the hours available as of today regardless of the date field. The date field defaults to the employee's hire date in QuickBooks. (After you have started paying the emloyee, the Hours Available as of date will update to the pay period end date of the employee's most recent paycheck.)
    5. In the Accrual period drop-down box, select how often the employee will accrue vacation. There are 3 different ways to accrue sick and vacation in QuickBooks:
      • Beginning of Year: Grant a certain number of hours in the beginning of year.
      • Every Paycheck: Accrue certain number of hours per paycheck.
      • Every Hour on Paycheck: Accrue hours on every paycheck.
    6. In the Hours Accrued field, enter the amount of hours that will be accrued (based on your selection in step 5). For example, you give 80 hours of vacation per year and it is accrued biweekly. You would enter 3.08 hours (80 hours/26 pay periods = 3.08 hours). Enter the total amount of vacation hours the employee can have in the Maximum number of hours window.
    7. Check the Reset hours each new year box if you do not carry over unused vacation hours (and the balance restarts at zero each calendar year).
    8. Click OK twice.
    Sick pay and vacation pay in QuickBooks is accrued on the day in which employees work, not on the day of the paycheck itself. For example, if an employee works on June 4th and gets paid on June 6th, the employee will accrue sick/vacation time on June 4th, even though the paycheck was created on June 6th.

    To pay an employee for sick or vacation time:

    1. When creating the check, open the Preview Paycheck window.
    2. Under Earnings, click on drop-down arrow in the Item Name column.
    3. Choose the sick or vacation item you created.
    4. Enter an hourly rate in the Rate column for hourly employees and the number of hours in the Hours column.
    5. For salaried employees, enter the number of hours worked next to the regular salary earnings item in the Hours column and the number of hours paid for sick/vacation time next to the sick/vacation salary earning item in the Hours column. QuickBooks will divide the salary rate accordingly once the correct number of hours are entered.
    6. Continue to create paychecks as normal.
    Sick and Vacation hours used are based on the pay period end date of the paycheck, and not the paycheck date. In addition, Sick and Vacation hours available as of date will update to the most recent paycheck pay period end date for the employee.

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