Producing an owner's draw (in-house payroll)

unavailable in ajeraCore unless you have the Payroll add-on

Follow these instructions to set up and process in-house payroll 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.

Setting up an owner’s draw in in-house payroll involves four main steps:

• Step 1: Set up a pay to use for the owner’s draw.
• Step 2: Set up a pay to reverse out the pay generated from timesheet entries.
• Step 3: Set up employee information for the owner’s draw.
• Step 4: Produce a paycheck.

See Producing an owner's draw (outsourced payroll) if you use a payroll service.

Step 1: Set up a pay for the owner's draw

You set up this pay to create a tax-exempt pay for the owner’s draw.

1. From the Company menu, click Payroll > Pays.
2. Click the New button.
3. Enter a description to identify the owner’s draw pay.
4. Select Other in the Type field.
5. Clear the Track hours/units check box.
6. Select a calculation method of Flat Amount.
7. Select the equity account in the Expense Account field.
8. Select all the employer and employee tax exempt check boxes.

Step 2: Set up a reversing pay

This step will pay amounts (and associated taxes) from timesheet entries that need to be reversed out so that their effect on payroll nets to zero. In this step, you set up a reversing pay. You may or may not want to include the owner on your quarterly report.

1. From the Company menu, click Payroll > Pays.

2. Click the New button.
3. Enter a description to identify this pay as the owner’s draw reversing pay.
4. Select Other in the Type field.
5. Select the Track hours/units check box.
6. If you want to exclude the owner from the quarterly report, select the Include in quarterly report check box. To include the owner in the quarterly report, ensure that the check box is blank. In this field, you do the opposite of normal because you are creating a reversal.
7. Select the Include in regular pay calculation check box.
8. Select the payroll variance account for the Expense Account field.
9. Select the employer and employee tax exempt check boxes if they are also selected on the Regular Pay. Typically, these check boxes are not selected.

Step 3: Set up employee for owner's draw

1. From the Setup menu, click Employees.
2. Click the owner, click the Pay Information tab.
3. In the Pay Period Salary Amount field, enter or change the salary amount for the owner, as needed. You may want to change the salary amount to be a reasonable amount for project costing. The standard hourly rate for salaried employees is calculated as (salary / number of hours in the pay period). Projects are charged this amount for the owner’s time.
4. In the Additional Pays table, add the Owner's Draw pay, entering the normal salary amount for the employee.  

Step 4: Produce a paycheck

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

3. Create a paycheck for the owner. Pays are created based on the time entered, as well as the Owner’s Draw pay, which is automatically added to the paycheck.
4. On the Pays tab for the owner’s paycheck, enter the Reversing Pay. Enter the negative hours and the negative amount that equals the timesheet pays. The amount in the Reversing Pay should be reversing all of the pays except the Owner’s Draw.
5. Select the Taxes tab. Only taxes not marked as exempt on the Regular and Reversing pays are calculated. Verify that no other taxes are being calculated. On occasion, some self-adjusting taxes may be calculated; you will need to delete those lines.
6. Pay the check. Pays that you add on the paycheck (pays not generated from timesheet entries) use the employee’s department. In this scenario, expenses for the reversing pay will be reflected in the owner’s department on the financial reports. The equity is reported on the balance sheet.