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Producing an owner's draw (payroll service or outsourced payroll)

Follow these instructions to set up and produce an outsourced payroll file for principals who take draws instead of a payroll check. Owners and principals may choose to take a draw when they work on projects but are tax exempt because they are defined as a Chapter S, LLC, or Sole Proprietor.

Because the owner's pay is not part of the actual gross payroll handled by the payroll service, you need to remove the amount from the vendor invoice that you send to the payroll service vendor.

Setting up an owner’s draw in outsourced payroll involves five main steps:

Step 1: Set up a company preference for Principal time.
Step 2: Set up the employee settings for your principal.
Step 3: Create a payroll file.
Step 4: Remove the owner's amount from the vendor invoice.
Step 5: Pay the owner's draw.

See Producing an owner's draw (in-house payroll) if you run payroll in-house.

Step 1: Set up a company preference for Principal time

From the Company menu, click Preferences.
On the Income Statement Accounts tab, make sure that there is at least one specific expense account for Principal time.

Note:

A single account for Billable, Nonbillable, Marketing, and Overhead is recommended.

Step 2: Set up the employee settings for your principal

From the Setup menu, click Employees.
Click the owner, and click Edit.
On the General tab, make sure that Principal is selected as the Manager Type.
On the Pay Information tab, select the Hourly check box and enter an hourly rate appropriate for costing to projects. This will ensure that your principal's pay will not affect the payroll variance account.

Step 3: Create a payroll file

From the Manage menu, click Payroll.
Multi-company only. Select a company.

Create a payroll file for your payroll service vendor.

Note:

In addition to the payroll service file, Ajera automatically creates a vendor invoice for you to pay your service. The time that your principal has entered will show as a line item and be associated with the expense account specified in Company > Preferences.

Step 4: Remove the owner's amount from the vendor invoice

From the Manage menu, click Vendor Invoices.
On the Existing tab, open the vendor invoice created for your payroll service vendor.
Enter a negative dollar amount that is equal to the amount shown for the principal’s time, and enter the same expense account. This will remove the cost from the Principal expense account but not change the cost against the project.

Step 5: Pay the owner's draw

Pay the owner's draw with an Account Payable check. The appropriate equity/capital account will be debited.