Explain an overpayment to an employee
This article describes how to explain a salary payment that has been paid out of your bank account to an employee if the amount was larger than they were due to receive. It also describes how to explain the money paid back by the employee.
If the overpayment relates to a director, find out how to explain an overpayment to a director.
You’ll need to split the bank transaction and explain each part using the appropriate ‘Type’ and ‘Category’ as detailed below.
Please note:
- You’ll need to have level 6 access or above to your FreeAgent account to explain and split bank transactions.
- You can only split bank transactions that are currently unexplained. If the bank transaction has already been explained, you'll need to remove the explanation before following the steps below.
Explaining the overpayment
1. Navigate to the relevant transaction
Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.
Choose the relevant bank account from the list and click on the transaction that relates to the overpayment to open up the payment options.
2. Split the bank transaction
Next, you'll need to split the bank transaction into the amount which is the salary payment and the amount which is the overpayment.
To do this, click on ‘Adjustments’ and select ‘Split transaction’ from the drop-down menu.
To explain the proportion that is a salary payment, select ‘Money Paid to User’ from the ‘Type’ drop-down menu and enter the amount that the employee should have received.
Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.
Next, select the relevant user from the ‘Payment to’ drop-down menu and select ‘Net Salary and Bonuses’ from the ‘Reason’ drop-down menu.
Select ‘Save and add another’ at the bottom of the screen.
3. Explain the remaining balance
To explain the remaining balance, select ‘Other Money Out’ from the ‘Type’ drop-down menu and enter the remaining balance in the ‘Value’ field.
Next, select ‘Payment from Contra Account’ from the ‘Category’ drop-down menu and select ‘Save and finish’ at the bottom of the screen to complete the process.
Explaining the money paid back
When the overpayment has been paid back to your business, you'll need to explain the transaction as follows.
Select ‘Other Money In’ from the ‘Type’ drop-down menu and ‘Receipt into Contra Account’ from the ‘Category’ drop-down menu.
Select ‘Explain transaction’ to complete the process.