How to Handle Employee Pay Adjustments or Negative Net Pay in QuickBooks Desktop Pro/Premier Payroll

To handle employee pay adjustments or negative net pay in QuickBooks Desktop Pro/Premier Payroll, run a payroll checkup diagnostic tool, access the tool under the Employees menu, and generate a payroll summary report. These tools detect payroll discrepancies that affect paycheck accuracy and tax calculations.

These issues are caused by a variety of payroll setup problems and data entry errors, such as miscalculated payroll items, manual check edits or overrides, excessive deductions (e.g., 401(k), health, child support), employee classification errors, unreconciled advances or loans, and incorrect hourly rates or salaries.

Improper handling of pay adjustments or negative net pay results in several consequences, such as payroll tax filing errors, inaccurate financial reporting, incorrect year-to-date (YTD) balances, employee pay discrepancies, regulatory non-compliance, and payroll processing disruptions.

QuickBooks blocks the payroll process and prevents a paycheck creation if the net pay is negative, such as low earnings to cover total deductions. Before making adjustments to the prior paychecks, make sure all changes are accurately recorded and reflected in the system to maintain compliance and data integrity.

Why Handle Employee Pay Adjustments or Negative Net Pay in QuickBooks Desktop Pro/Premier Payroll?

This section defines the corrective actions required to resolve pay discrepancies and negative net pay conditions in QuickBooks Desktop Pro/Premier Payroll.

Adjustments in QuickBooks Desktop Pro/Premier Payroll are applied to correct payroll discrepancies, enforce valid net pay calculations, and ensure compliance with system rules that prevent negative paychecks.

1. Adjustments correct payroll errors such as overpayment or underpayment in a prior period.
2. Adjustments ensure accurate tax calculations and avoid errors on IRS forms like 941, W-2 etc.
3. QuickBooks blocks a paycheck with a negative net amount to avoid negative net pay errors.
4. Adjustments maintain accurate financial reports such as Profit & Loss and Balance Sheet.
5. Adjustments are necessary for items like insurance premiums, garnishments, or missed hours.
6. Adjustments prevent overdeductions that cause negative balances or complaints.
7. Adjustments simplify year-end reconciliation and reduce errors during W-2 preparation.

What Can You Do With Payroll Liability Adjustments?

• Use a single liability adjustment transaction to modify multiple payroll liabilities simultaneously by selecting the relevant payroll items in the Payroll Item column.
• Use only one effective date for a liability adjustment.
• Use a separate adjustment transaction for each period if adjustments cover more than one period.
• Select and review the appropriate payroll reports after completing the transaction to verify adjustment accuracy.

Steps to Handle Employee Pay Adjustments in QuickBooks Desktop Pro/Premier Payroll

Use payroll liability adjustments in QuickBooks Desktop Pro/Premier Payroll to correct inaccurate employee liabilities, including year-to-date (YTD) and quarter-to-date (QTD) totals.

Why make liability adjustments:

• Fix a payroll item with the wrong tax tracking type.
• Correct Year-to-date wages, taxes, and deduction items.
• Change the amount for company contribution items such as HSA or 401(k) company match.

Step 1: Find Payroll Discrepancies

Payroll discrepancies result from data entry errors, configuration issues, employee misclassification, system malfunctions, or incorrect payroll item setups. Identifying these discrepancies is important to ensure accurate tax calculations, reconcile payroll liabilities, and maintain integrity in financial reporting.

Run a Payroll Checkup

Payroll Checkup requires QuickBooks Desktop Basic, Standard, or Enhanced Payroll. The tool functions only with these versions.

Note: 

• Change your computer’s system date to the last day of that year. This is necessary to run a payroll checkup for a previous year.
• Payroll Checkup will only correct wage base discrepancies.
  • Create and save a backup copy of your company file.
  • Navigate to Employees > choose My Payroll Service.
  • Select Run Payroll Checkup.
  • Click on Data Review (Fix the identified errors to proceed to the next step).
  • Under the Review your payroll data window, choose No to allow the Payroll Checkup to create wage-based discrepancy adjustments.
  • Click Continue and Finish.

Create a Payroll Summary Report

The payroll summary report lists total payroll wages, taxes, deductions, and contributions. To determine the YTD amount of the incorrect payroll item for each employee, create a payroll summary report for the current calendar year.

Note: This report bases its data on paycheck dates, not pay period dates.

1. Move to Reports > choose Employees and Payroll.
2. Select Payroll Summary.
3. Adjust the date range appropriately.
4. Click on Total only in the Show Columns dropdown menu.

Create a Payroll Summary Report by Employee

Run a payroll summary by employee to see the payroll wages, taxes, deductions, and contributions totalled by employees.

1. Navigate to Reports > select Employees and Payroll.
2. Choose Payroll Summary.
3. Adjust the date range appropriately.
4. Click Employee in the Show Columns dropdown. 
5. Select the Customize Report tab > click Filters.
6. Under the Choose Filter section, scroll down to select Name from the filter list.
7. Select the employee from the Name dropdown menu.
8. Choose OK.

Step 2: Adjust Payroll Liabilities

Adjusting payroll liabilities fixes tax calculation errors, resolves discrepancies between Overpaid and Underpaid Amounts, updates company contributions, and maintain accurate year-to-date records.

1. Navigate to Employees > select Payroll Taxes and Liabilities.
2. Choose Adjust Payroll Liabilities.
3. Under the Date and Effective Date fields, click on the last paycheck date of the affected month or quarter.
4. Select Employee Adjustment from the “Adjustment is for:” section. This corrects employee year-to-date (YTD) information. Click the employee’s name. This applies even if the item being adjusted is company-paid.
5. In the Item Name column, choose the payroll item adjustment as required.
6. Write down the amount of the adjustment:
   • Enter a positive amount to increase if the item is under-withheld.
   • Enter a negative amount to decrease if the item is over-withheld.
7. Type the amount in the Income Subject to Tax column to make a wage base adjustment.
8. Under Memo, enter a note about the adjustment for reference.
9. Select Accounts Affected and click OK:
   • Choose Do not affect accounts to leave balances unchanged for the liability and expense accounts. The adjustment will only change the year-to-date amounts on your payroll reports.
   • Select Affect liability and expense accounts in case you want the transaction to reflect in the liability and expense accounts.
10. Click the OK tab to close the Affect Accounts window.
11. Select Next Adjustment if you have additional employees to enter an adjustment for.
12. Otherwise, click OK to save the changes.

Step 3: Verify Liability Updates

Check if the liabilities are updated or not; if it’s not, update them by generating the payroll summary report and by running the payroll liability balances report.

• Run the payroll summary report again to check if everything is accurate.
• Run the payroll liability balances report to check if the amounts to be paid are correct.

A list of payroll reports available for the product follows:

QuickBooks Desktop Payroll Reports

Access Payroll Reports

Payroll reports in QuickBooks Desktop Payroll display employee information, including wages, taxes, and deductions.

Follow the steps to access them:

1. Move to Reports > select Employees & Payroll.
2. Choose the required report.
3. Customize Report if applicable.

For Worker’s Compensation, sick, vacation, or time off reports, follow the steps below:

Workers’ Compensation Report

Pull up reports for your Workers’ Comp info, so you can prepare forms for state agencies or insurance companies.

1. Navigate to Reports > select Employees & Payroll.
2. Choose the report you want to view:
   • Workers Comp Summary
   • Workers’ Comp by Code and Employee
   • Workers Comp Detail
   • Workers Comp Listing
3. Set the date range to get the info you need.

Sick, Vacation, or Time Off Report

Access and customize your employees’ sick and vacation balances or time off reports:

1. Head to Reports > choose Employees & Payroll.
2. Select Employee Contact List or Time off List.
3. Opt for Customize Report.
4. Click the Display tab, and choose the following info for Columns:
   • Sick limit
   • Sick available
   • Sick used
   • Vacation limit
   • Vacation available
   • Vacation used
5. Choose OK.

Note: Select a Date Range to run a report for a specific period.

Adjustments for Negative Amounts in QuickBooks Desktop Pro/Premier Payroll

During payroll liability adjustments, enter positive amounts to increase liabilities and negative amounts to decrease them.

1. Navigate to the Employees menu > click Payroll Taxes and Liabilities.
2. Choose Adjust Payroll Liabilities.
3. Select either Employee or Company Adjustment in the field.
4. Complete the Item name, Amount, Wage Base, Memo, etc.
5. Click the Accounts Affected, and click OK.
6. Select Do not affect accounts to leave balances unchanged for the liability and expense accounts.
7. Choose Affect liability and expense accounts to enter an adjusting transaction in the liability and expense accounts.
8. Select OK.  

Best Practices to Handle Employee Pay Adjustments or Negative Net Pay in QuickBooks Desktop Pro/Premier Payroll

Follow the best practices when handling Employee Pay Adjustments or Negative Net Pay in QuickBooks Desktop Payroll. 

• Always review the pay stub to ensure it reflects changes clearly for the employee.
• Verify the paycheck and timesheet details to understand why the adjustment or negative net pay occurred (e.g., deduction error, missed hours, overpayment).
• Clearly describe the reason for any adjustment directly on the paycheck for transparency and audit purposes.
• Select the correct liability account and enter the adjustment date carefully.
• Confirm and recalculate tax liabilities after making any adjustments to ensure accuracy in tax filings.
• QuickBooks doesn’t allow a negative net paycheck, so don’t force it.
• Check payroll summary reports, liability balances, and tax forms monthly to catch discrepancies.

Disclaimer: The information outlined above for “How to Handle Employee Pay Adjustments or Negative Net Pay in QuickBooks Desktop Pro/Premier Payroll” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.