How to Manage Salary Advance, Deduction, and Backpay Using Individual Transaction

There are times when employees may need early access to their salary. For example, to prepare for festive celebrations, manage urgent expenses, or settle final payments when resigning before month end.

In Worksy, you can manage salary advances through Individual Transaction. This method can also be applied to process backpay, such as salary adjustments or increments that need to be paid outside of the regular payroll run.

In this article, we’ll guide you through processing an ad-hoc salary advance that's paid outside your company’s regular payroll cycle. Follow the step-by-step guide below.

Overview:

• Step 1: Create a pay cycle for advance salary
• Step 2: Create the Payroll Items
• Step 3: Add the individual transaction for advance salary
• Step 4: Process the advance salary payroll
• Step 5: Add the advance salary deduction
• Step 6: Process the Month-End Payroll

Step 1

Create a pay cycle for advance salary.

1. Go to Settings > General > System Labels > Payroll > Pay Cycle.
2. Add a new Pay Cycle specifically for Advance Salary.

Alternatively, you may also use Mid Month as the pay cycle.

Refer to this article for details: How To Create Pay Cycle?

Step 2

Create the Payroll Items.

1. From the left menu, go to Settings > Payroll > Payroll Items. Then, create two payroll items:
   • Earning
   • Deductions
2. In each payroll item, under Government Statutory:

• Tax Category : None
• Untick all other statutory checkboxes.

This ensures that advance salary and its deduction are not taxed or included in statutory contribution calculations.

Refer to this article for details: Creating/Edit Payroll Items

Step 3

Add the individual transaction for advance salary.

1. On the left menu, go to Payroll > Transaction > Individual Transaction.
2. Select the employee and click Edit (top right).
3. Choose the correct Transaction Month and Pay Cycle created for advance salary.
4. Go to the Earnings tab. Under Transaction Details, click Add.
5. Enter the following details:
   • Date: cannot be same as Month End's payment date.
   • Payroll Item: select the Advance Salary item you created
   • Amount: enter the advance salary to be paid
6. Click Update, then Save to confirm the transaction.

Step 4

Go to Payroll > Process > Monthly. Process payroll for advance salary using Advance Pay Cycle.

1. Select the payment date that matches with advance salary item and the relevant payroll policy. 
2. Leave all checkboxes unticked since this is an ad-hoc, then process accordingly.
3. The advance salary will then appear in the employee’s payslip as below:

Now, for the deduction of advance salary in the month-end payslip:

Step 5

Add the advance salary deduction.

1. On the left menu, go to Payroll > Transaction > Individual Transaction.
2. Select the employee and click Edit (top right).
3. Choose the correct Transaction Month and set the Pay Cycle = Month End.
4. Go to the Deductions tab. Under Transaction Details, click Add.
5. Enter the following details:
   • Date: cannot be same as Month End's payment date.
   • Payroll Item: select the Advance Salary Deduction item you created
   • Amount: enter the deduction amount
6. Click Update, then Save to confirm the transaction.

Step 6

Process the Month-End Payroll.

1. Run the payroll as usual under the Month End Pay Cycle.
2. The advance salary deduction will appear in the employee’s payslip.
   
   

Tip: Always test the advance salary payroll with one employee first. Once confirmed that it works as intended, you can proceed with other employees.

We hope this explanation clarifies the matter. If you require additional assistance, do not hesitate to contact our support team.