How to Reimburse an Employee Purchase through Payroll

Sometimes, employees pay out expenses from their own pockets on behalf of the company.  In that situation, you would like to reimburse your employees.

Thanks for RandyW, one of our power users in Sage City, who kindly provides us 2 methods to tackle this entry.

  1. Setup the employee as a vendor, and enter the purchase and payment like working with any other vendors.

  2. Setup a new ‘Reimbursement’ income and use it in the employee paycheque.

In the blog today, we will spend more time on method two.

In our example, we have a truck driver who pays the gasoline on behalf of the company when he delivers goods.

First, we need to setup the reimbursement income by going to Setup, Settings, Payroll, Income.  We are going to name the new income gasoline.  Do not forget to link the new income with an expense account under Setup, Settings, Payroll, Linked Accounts, Incomes.  In our case, we use expense account 54110 – Gasoline Expense

Next, we go to individual employee record, Income tab and make sure there is a check mark under the Use column for Gasoline.

Then, we can start doing the paycheque. We are going to put $106 ($100 gasoline + $6 GST) for the gasoline reimbursement.  As you can see from the Payroll Journal Entry report, the $106 goes into the Gasoline Expense account.

Finally, we need to record the GST.  Open the vendor payable invoice and enter the first line as usual. Then, add a last line (no tax code used) with a negative dollar amount for the total of the reimbursement.  For both lines, we are going to use the same account, which is 54110 Gasoline Expense.  You will end up doing a zero paycheque with GST amount taken away and put it back to the GST Paid on Purchase account.

  • Hi 

    Good question, editing this response, after review with my colleague who agrees that it may be best to "only do this particular reimbursement on the purchases module rather than through payroll. This is not going affect their T4 anyway, so there is no reason to do it through payroll."  
    Warm Regards,

  • Hello!   Hoping someone can help clarify something on this. (Thanks for this walk-through BTW!)  So I have to put the total of expenses to be reimbursed onto the paycheck.  I followed your steps and have made the income line for expenses.   BUT.... our expense sheets they submit are made up of a lot of different expenses we need to track separately in the expense GLs.   So....I'm stuck trying to figure out how I now break down the whole expense reimbursement amount into the different expense categories??    I was thinking just make an invoice with all the line items going where they should go and just "paying" that invoice from....somewhere to offset?  But where ever I "pay" that from will now be affecting my GLs for a second time.       Alternatively, if I just make an invoice from the employee to assign the expenses to the GLs they belong to, how can I then offset the invoice against the payroll reimbursement line I have made?

  • Dave, the first setup screen provided above shows no tax,cpp nor ei is deducted

  • The only problem I see with this is that the expenses the employee is being reimbursed for will be treated as earned income and the employee pays tax on it. Essentially the employee will not be reimbursed for the full amount paid for those expenses. Employees should not be charged income tax on reimbursement of expenses.

  • Hi Roger,

    Thanks for your suggestion.

    As always, there is more than one avenue to reach the same destination.

    Your suggestion will put the whole reimbursement to a reimbursement expense account first.  Then, when you do the purchase journal, you only need to put a positive $100.00 to the gasoline account and negative $106.00 to the reimbursement account.  With no tax code used for the line of reimbursement account, the journal will debit the gasoline expense account ($100.00) and GST paid on purchases account ($6.00), and credit the reimbursement account ($106.00).  

  • using the gas expense account for both lines on the purchase invoice causes visibility of the 100$ expense to be lost

    would it not be better to use a 'reimbursement' expense account to track reimbursements

    a non-zero balance in the account would indicate that someone has not been / over reimbursed ?