TO:Financial Administrators

FROM:Karen A. O’Rourke

DATE:May18, 2016

SUBJECT:FY2016Accrual Process Document for Year-End PayrollRelated Accruals

Beginning with this yearend there will be several major changes to the payroll accrual process- both for those accruals processedCentrally and those at the tub level. Going forward these changes will be in effect for quarterly accruals as well as yea end accruals.

IT IS IMPORTANT THAT YOU READ THIS MEMO CAREFULLY AS IT DOCUMENTS AND HIGHLIGHTS THESE CHANGES.

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The first important change relates to the object code that will now be used to post payroll accrual entries. A new code-2196 (Payroll closing accruals)has been set up to specifically segregate the payroll accruals from the other types of accruals that relate to AP type transactions posted to object codes 2190 (AP) and 2191 (AP Closing Accruals).

The main reason that it was decided to isolate the payroll entries into their own code was for tracking purposes. Historically tubs have used object codes 2190 (AP), 2191 (AP Closing Accruals), 2750 (Accrued Expenses) and 2751(Misc Deposits + Other Liabilities) to record payroll related accruals, making it extremely difficult to isolate and review those related to payroll when performing the year end Universitywide payroll reconciliation of PeopleSoft to the General Ledger. It should also help with tub reporting and reconciling to separate the payroll activity from the AP and HCOM type transactions.

The two sections below will address:

1.)the process and accounting related to the Universitywideyear end system generated payroll accruals for the bi-weekly and the weekly payrolls and

2.) the process and accounting related to tub generated payroll accruals

FY2016University wide system generated Year-end Payroll Accruals Process

These accruals are done to record expenses for time worked in June in the proper fiscal year.

  • If these accrualswerenot done, amounts budgeted in FY2016 would be expensed in FY2017.
  • If these accruals were not done, these salaries would be expensed in FY2017 and be assessed the FY2017 fringe rates. Theseaccruals will enable the assessment of the FY2016 payroll portion with the FY2016 fringe rates.
  • The accrualsare required for GAAP financial statement reporting purposes.

There are two payrolls for which there will be FY2016University wide year-end payroll accruals:

Pay Run ID / Pay Frequency / Check Date / Pay Beginning-Pay End / Accrual based on check of: / Percentage of Accrual
BW070216 / Bi-Weekly / 07/08/16 / 06/05/16 -
06/18/16 / 06/24/16 / 9/10 or90%
WKLY070216 / Weekly / 07/08/16 / 06/12/16 – 06/18/16 / 06/24/16 / 4/5 or 80%

The accrual will debit the payroll expense object codes and credit the new object code set up to record accruals related only to payroll -2196 (Payroll closing accruals). The calculation will be done as follows:

  • Bi-Weekly
  • The check used for the accrual calculation will be the check for the pay period 06/05/16 - 06/18/16 (check date 06/24/16). By using the June 24thcheck to calculate the accrual, we are able to base the accrual on the FY2016 pay rate.
  • The accrual percentage of 90% will be applied to the total payroll in the payroll object codes of 6050, 6051, 6052, 6070, 6071, 6072, 6450 and 6452. The extra compensation codeswill not be included.
  • All accrual entries will be posted to object codes 6050, 6051, 6070, 6071, 6450 or 6452. There willbe no entries posted to the vacation codes of 6052 and 6072. Any entries to those codes that are part of the file being used to calculate the accrual will be added to those entries in 6050 and 6070. The accrual entries will then be posted to 6050 or 6070.
  • The prorating will be based on work days, not calendar days (i.e., 9/10).
  • The costing will be based upon the costing in the June check and will not reflect any FY2017 costing changes that were processed for the July8thcheck.
  • Weekly
  • The check used for the accrual calculation will be the June check for the pay period 06/12/16 - 06/18/16 (check date 06/24/16). By using the June 24thcheck to calculate the accrual, we are able to base the accrual on the FY2016 pay rate.
  • The accrual percentage of 80% will be applied to the total payroll in the regular payroll object codes (excluding the federal work-study codes 0139-0157). The extra compensation codes will not be included.
  • The calculation will be based on work days, not calendar days (i.e., 4/5).
  • The actual days worked in each period will not be taken into consideration.
  • The costing will be based upon the costing in the June check and will not reflect any FY2017 costing changes that were processed for the July 8thcheck.
  • Note that the weekly payroll includes all employees paid on a weekly basis (e.g., trade unions, temporaries, student temporaries, work study students, etc.).
  • Note the change in the posting date of the weekly payroll for the pay period 06/19/16 – 06/25/16 with check date of 07/01/16. Since this weekly payroll is entirely for FY2016 expenses, the payroll file will be posted to the GL in June 2016 as 6/30/16 entries.

The bi-weekly and weekly accruals will be processed via PeopleSoft file feeds to the General Ledger that mirror the process used for the quarterly payroll accruals.

  • The feeds will be posted by Friday, July 1st to the General Ledger in detail (by person, with name and ID #) to the coding strings used in the June 24th check.
  • The detail will be in the HDW bySaturday, July 2nd.
  • The journal source will be: PYRL003-PS Accruals.
  • The Journal Category will be: Pyrl PS Accruals.
  • Because this will be a file feed to the GL the detail will not be visible to people whose HDW reporting view allows them to see only payroll summary info. (If someone cannot see payroll codes at all, they will still not see this activity.)
  • Additional fields that are normally sent to the HDW with the payroll feed willbe included with the feed (e.g. HR department).

FY2016 Tub Generated Year-end Payroll Accruals Process

Payroll accruals can be processed by tub central finance offices and their departments/units during year end for a variety of reasons including:

  • for bonuses owed for work performance in FY16
  • for extra compensation owed for the last week of June not yet paid
  • for severance costs related to a severance agreement where the employee has been notified by June 30
  • for pay owed to faculty for teaching executive education coursesin FY16

The entry to post these costs should debit the payroll object code that will be used when the employee is paid in PeopleSoft and credit the new payroll accrual code 2196 (Payroll Closing Accrual). Tubs whose employees are not paid through PeopleSoft should debit the appropriate non PS payroll code and use this new code on the credit side.

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NOTE THIS IMPORTANT CHANGE TO THE ACCRUAL PROCESS FOR PAYROLL ENTRIES PROCESSED BY THE TUBS:

IF THE TUB DOES NOT POST THEIR PAYROLL ACCRUALS TO THE NEW OBJECT CODE 2196 THEY WILLBE REQUIRED TO REVERSE THE ENTIRE JOURNAL AND THEN REPOST THE ENTRY TO THE CORRECT CODE. In the past a number of tubs used the object codes 2191, 2750 and 2751 forsome or all of their payroll accruals. When an incorrect balance sheet object code was discovered the tubwas required to change only the coding of the balance sheet entry to the correct one, thus making it difficult to match up the debits and credits for the accruals. This caused major difficulties tracking the accruals when doing the PS to GL payroll reconciliation. Now when an incorrect code is discovered the tub will need to reverse the entire journal and repost it with the correct entries.

Just a reminder!There should be no accruals posted for the fringe benefit costs associated with the payroll accruals. The system will generate the FY16 fringe rate charge for the FY16 accrual when the nightly fringe allocation is run. When the accrual is reversed in July the FY17 fringe rate will be used. This results in the correct fringe rate being used for the FY16 payroll entry.

Below is an example of how the FB accounting works:

  • JUN-16 JVDR Salary object Code (6050)1,000.00
  • JUN-16 FB ALLOCDR REG FB(31.4%) 314.00

DR Vac FB (10.2%) 102.00

  • JUL-16JV ReversalCR Salary object code (6050)(1,000.00)
  • JUL-16 FB ALLOCCR REG FB (30.8%)( 308.00)

CR Vac FB (10.1%)( 101.00)

  • JUL-16 PS PyrlDRSalary object code (6050) 1,000.00
  • JUL-16 FBALLOCDRREG FB (30.8%) 308.00

DRVac FB (10.1%) 101.00

The net result is that the FY16 fringe rates are charged for the FY16 payroll entries and the FY17 (JUL-16) entries all zero out.

Should you have any questions on the year-end payroll accrual process please feel free to contact me at (karen_o’) or (49)6-3375.

1033 massachusetts avenue  3rd floor room 324  cambridge, massachusetts 02138