I did not realize just how spoiled I was! For most of my career, I received my health insurance through Wespath. They would bill me around the 20th of the month for the current month with the payment due at the end of the month. Example, the invoice received on June 20th is for the month of June and due on June 30th. Apparently it’s more common for that June invoice to be for the next month…July.
This changes all my assumptions around accounting for health insurance payroll withholdings. In most places I’ve worked, the employer and the employee split the health insurance bill. The employee would pay their share through payroll withholding.
So…when I was billed in June for June, all the payroll withholdings for June accumulated in a liability account. When I paid the bill, I zeroed out the liability account and the rest of the premium (the church’s share) was expensed. Now I’m paying the June bill for July in June…before any payroll withholdings can take place. Won’t that lead to a negative liability? What do I do with this?
The Solution
In the video, I show you two options to consider instead of having this negative liability. In short, I had to give up on this idea of a payroll liability connected to the employee’s share of the health insurance. I instead had to record the withholding as if the employee were reimbursing me (reducing the expense). This is the key.
When you pay the bill, the whole amount is expensed. Whenever the employee receives a paycheck, their share is withheld to reimburse that expense.
Why I like this method best
- No Negative Liabilities: A liability should tell you how much you owe, not how much your employee owes you. When a liability is negative, that is exactly what it’s telling you.
- Likely more Accurate: If your employee quits unexpectedly halfway through the month, they may not have earned enough to cover the withholdings for health insurance. The chances of you recovering the cost may be low. Whether or not they quit, the employer always carries that risk. This is why I would treat it all as an expense that is only reduced when reimbursed through a payroll withholding.
Useful Links
- QuickBooks Guide to mapping accounts: https://quickbooks.intuit.com/learn-support/en-us/help-article/payroll-processes/set-payroll-account-preferences/L9oiYu7wu_US_en_US