Adjust a Pay Processed against the Incorrect Engagement Type

Overview

Depending on your business, you might have some employees who have been set up as 'Labour Hire'. It's important to note that these employees' wages will be reported to the ATO as 'PSI' (Personal Services Income) rather than 'SAW' (Salary and Wages).

If your employees' income should be reported as SAW, please ensure they are set up as Casual, Part Time, or Full Time in the 'Employment' section of their profile.

IMPORTANT: The Engagement Type that employees tick on their TFN Declaration is not used in the STP Submission. Please always check the Employment section of their profile for this setting. 

Reverse the Pay Assigned to the Incorrect Engagement Type

If an employee has been paid under the incorrect Engagement Type, you will need to reverse the amounts that were paid under the incorrect engagement type. To do this:

Before you Start 

If you've already finalised the STP Update/s and locked your Tax Year, please do these steps first:

1. Config > Payroll > Tax Years > untick the checkbox in the 'Payroll Locked' column for the relevant FY > Save
2. Go to Payroll > Process Payroll > STP Update > tick the checkbox next to the employee's name > With Selected... > Revert Finalisation > Go

Once you've done the above, move on to the following steps: 

1. Ensure that the employee's Engagement Type is set as the type that they have been incorrectly paid under. Go to Users > Employees > select the employee > Employment > select the incorrect Engagement Type > Save.

2. Create the lump sum payment. Go to Payroll > Process Payroll > Process Payroll > select the Pay Cycle or set the Report Settings criteria.

3. Click Add Lump Sum Pay, then complete the fields in the popup window and click Save.

4. Recalculate the Pay by ticking the checkbox next to the employee's name > go up to the 'Create Pay Run' field > Recalculate Pay > set the relevant pay date > Apply.

5. Expand the employee pay in the Process Payroll report. Click +Add Pay Record for any additional items required and manually set the values for each line as required. You’ll need to ensure that you use the exact pay items that were processed in the original, incorrect pay.

6. Enter the Units as negative values to reverse what was paid under the incorrect Engagement Type. You will need to manually overwrite the tax value that calculates with the actual value you need to reverse.

7. The negative values will create a Recoverable Deduction. Leave this as is. 

8. Create the Pay Run, then lock it and mark it as paid.

You will need to repeat the above process for each employee whose pay needs adjusting. We recommend including all negative adjustments in one pay run.

Reprocess the Pay under the correct Engagement Type

Once you have reversed the incorrect amounts, you will need to create another pay run to reprocess the pay in the correct Engagement Type.

1. Go to Users > Employees > select the employee > Employment > select the correct Engagement Type > Save.

2. Go to Payroll > Process Payroll > Process Payroll > select the Pay Cycle or set the Report Settings criteria > Add Lump Sum Pay.

3. Complete the fields as required and ensuring that the Start and End Dates match those in the original pay, then click Save.

4. Recalculate the Pay by ticking the checkbox next to the employee's name > go up to the 'Create Pay Run' field > Recalculate Pay > set the relevant pay date > Apply.

5. Expand the employee pay in the Process Payroll report and +Add Pay Record for any additional items required and manually set the values for each line as required. You’ll need to ensure that you use the exact pay items that were processed in the original, incorrect pay.

6. Enter the Units as a positive number to offset the amount that was reversed in the previous pay run.

7. Check the values of each item added to the pay match the figures that were adjusted in the negative pay run. The total of this pay run should offset the total of the reversal pay run. You may need to manually overwrite the tax value so that it matches the tax figure in the negative pay.

8. Apply the Recoverable Adjustment amount that was generated from the previous negative pay, so the Net Wages are nil.

9. Once the amounts are confirmed, tick the checkbox to select the employee pay and add them to an existing pay run or create a new pay run.

10. Lock the pay run and mark it as paid. 

Regenerate the STP Update (if applicable)

If you have had to revert a finalisation to make adjustments, you can now go back and regenerate the STP Update for each employee. 

1. Go to Payroll > Process Payroll > STP Update > tick the checkbox next to the employee's name > With Selected... > Regenerate > Go
2. Confirm that the earnings are now showing as expected ('S' for Salary and Wages or 'PSI' for Labour Hire).
3. Tick the checkbox next to the employee's name > With Selected... > Finalise > Go
4. Tick the checkbox next to the employee's name > With Selected... > Submit to ATO > Go

You can also lock the Tax Year again in Config > Payroll > Tax Years once all adjustments have been finalised.