The cycle of payroll processing runs from period end to period end. The cycle of finance processing tends to run from calendar month to calendar month. Often, the period end date of the last payroll period does not coincide with the calendar month end, especially for pay frequencies other than Monthly. This means that payroll costs for the entire month are not available to be included in the General Ledger Batch. Accruals are a means of projecting payroll costs for the rest of the month and including these projected costs in the General Ledger batch.
The accrual values are reversed when the next General Ledger batch, containing the actual values, is processed.
To calculate the accruals each month:
Work out how many days fall between the end of the calendar month and the last period end date of the month.
Work out the proportion of a whole period's payroll costs that these days are equivalent to.
Express this amount as a percentage.
For example, a company that operates Monday to Friday and is paid weekly, the number of days in a period is five. Accruals are calculated as follows:
If one working day falls between the last period end date and the end of the month - GL Accrual = (1 / 5 ) * 100 = 20%
If three working days fall between the last period end date and the end of the month - GL Accrual = (3 / 5) * 100 = 60%
Or, if a company operates 7 days a week and pays fortnightly, the number of days in a period is 14. Accurals are calculated as follows:
If two working days fall between the last period end date and the end of the month - GL Accrual = (2 / 14 ) * 100 = 14.29%
If nine working days fall between the last period end date and the end of the month - GL Accrual = (9 / 14) * 100 = 64.29%
Different and multiple Pay Frequencies
If you process several different pay frequencies, e.g. Weekly, Fortnightly and Monthly, a different Accrual table should be created for each. This is because the percentage assigned to the number of days between the month end and pay period end will be different. E.g. 1 day of accrual for a Weekly frequency (Monday - Friday) would be 20%, whereas 1 day of accrual for a Fortnightly frequency (Monday - Friday) would be 10%.
If you have multiples of the same frequencies, e.g. more than one Weekly frequency, separate Accrual tables are required if they have different period end dates. If the pay frequencies use the same period end date, the same Accrual table can be used. If they do not share the same period end date, a separate Accrual table should be created.
Add a GL Accruals Table
As the percentage to be accrued each month is based on the number of days in each pay period, and the number of working days between the month end and pay period end, Pay Frequency and pay period end date must be considered when setting up Accruals.
Accrual values may differ from year to year. Remember to check accrual values and update them as necessary.
Go to General Ledger Integration, Maintenance, Accruals.
Click Add.
Enter a Code and Description.
Select at least one option in Pay Frequencies.
In the grid, click into the Amount field on the July row and enter the accrual value for July.
Repeat step 5 until accrual values are entered for all months.
Click OK to save.
You can attach an Accruals table to GL Batch (General Ledger Integration, Maintenance, Batches, Batches) or select it when processing the batch.
Processing a GL Batch with Accruals
Accruals are normally applied to the last pay period in the month. However, you can select an earlier period if it has not been posted.
To process accruals correctly, you need to:
If your accruals are calculated on a single pay period, you will need to run at least two batches each month.
A batch that includes all periods except the one you want to apply the accrual to.
A batch that includes one pay period and the accruals.
To include accruals in a batch:
Select the parameters.
Tick Process Accruals.
Click Process.
A pop-up screen will appear showing the accrual percentage for each period end date included in the batch based on the pay frequency linked in the Accruals Table. Click OK.
Post the batch after the batch file has been uploaded to your finance system.
Posting the batch saves accrual values to the payroll database and flags them to be reversed when the next General Ledger Integration batch is generated. You should only Post the Batch if all the values are correct.
The Process Accruals checkbox is available for any Batch with an associated Accrual Table.
To Unpost a Batch:
Make sure that the Batch you want to un-post is selected in the Batch field.
Check that there are no entries displayed for the Batch in the Batch Process grid. The Un-Post button is disabled if there are current batch entries. Use the Clear Batch button to remove the entries and enable the Un-Post button.
Click the Un-Post Batch button. A message is displayed to confirm that the last posted batch should be un-posted.
Select Yes to reverse the last batch that was posted.
The Batch Entries for the un-posted batch are displayed in the Batch Process grid.