Overview

Some organizations choose to bill grants or contracts for PTO as it is earned, rather than when PTO is actually paid through payroll. In order to properly allocate earned PTO you will need to set up your allocation so that the appropriate expense is allocated. In some cases, the summarized payroll journal entries often post both worked-time wages and PTO paid to the salary expense account, which can result in misaligned grant reporting.

This article explains how to use CostAllocation Pro (CAP) to:

  • Adjust salary expense for PTO that has been paid

  • Record and allocate PTO earned as an accrued expense to customers and classes

  • Update the PTO liability for PTO earned less PTO paid

  • Allocate all costs based on employee time data

This approach allows organizations to allocate PTO accrued, without requiring additional manual journal entries outside of CAP.

Starting Point: How Payroll Is Typically Booked

Many payroll systems post PTO paid as salary expense. A simplified example payroll entry may look like this:

  • Debit Salary Expense: 100

  • Debit Salary Expense for PTO Paid: 100

  • Debit Payroll Taxes: 25

  • Credit Cash: 225

Under this structure:

  • Salary expense includes both worked time and PTO paid

  • No PTO liability exists

  • PTO earned is not recorded as an expense

If PTO is billed to customers as it is earned, this creates a mismatch between billing and accounting.

Target Accounting Outcome

After applying the CAP workflow described below, the books should generally reflect:

  • Salary expense for time worked only

  • PTO expense for PTO earned

  • A PTO liability equal to earned but unused PTO

  • All salary and PTO expenses allocated by customer and class using time data

CAP Configuration Overview

This workflow uses three separate CAP expense categories:

  1. PTO Earned (Accrual)

  2. PTO Paid Reclassification

  3. Salary Allocation (Worked Time Only)

Each category serves a distinct purpose and works together to achieve the desired result.

Step 1: Record and Allocate PTO Earned

Purpose

Record PTO as it is earned and increase the PTO liability, while allocating the expense based on time worked.

CAP Setup

  • Debit Account: PTO Accrual Expense

  • Credit Account: PTO Liability

  • Allocation Basis: QB Time hours by employee

Important notes:

  • The PTO liability account should be selected in the credit GL mapping.

  • Credit-side accounts in CAP do not receive allocation percentages, which is expected.

  • PTO earned amounts should be entered as positive values in the employee cost table.

Result

  • PTO expense is allocated to customers and classes based on hours worked

  • PTO liability increases in total

Step 2: Reverse PTO Paid Out of Salary Expense

Purpose

Remove PTO paid from salary expense and apply it against the PTO liability.

CAP Setup

  • Debit Account: PTO Liability

  • Credit Account: Salary Expense (General Operating)

Important notes:

  • The salary expense account should be selected in the credit GL mapping so it does not receive allocation percentages.

  • PTO paid amounts should be entered as positive values in the employee cost table.

Result

  • Salary expense is reduced by the amount of PTO paid

  • PTO liability is reduced

  • No customer or class impact occurs on this entry

Step 3: Allocate Salary for Time Worked Only

Purpose

Allocate only worked-time salary to customers and classes.

CAP Setup

  • Debit Account: Salary Expense

  • Credit Account: Salary Expense

Important notes:

  • Only salary related to hours worked should be entered

  • PTO paid should be excluded from this amount

Result

  • Salary expense is allocated based on time worked

  • Net salary expense remains unchanged in total

  • PTO paid is no longer part of the allocation base

End Result Summary

When all three CAP expense categories are run:

  • Salary expense reflects worked time only

  • PTO expense reflects PTO earned

  • PTO liability reflects earned minus paid PTO

  • Customer and class reporting aligns with PTO billing

  • No separate manual journal entries are required

  • Sample entry synced by CAP for PTO expense accrued.

  • Sample entry synced by CAP for reclassifying PTO paid 

Recommended Validation Checks

After running allocations, it is generally a good idea to review:

  • Profit and Loss (total): confirm salary and PTO totals are reasonable

  • Profit and Loss by customer or class: confirm alignment with billing

  • Balance Sheet: review PTO liability movement

  • CAP reconciliation: confirm payroll cost pool clears to zero

Important Considerations

  • This workflow is more advanced than a typical CAP setup and should be documented internally

  • Consistency month to month is important

  • Grantor acceptance of accrual-based PTO should be confirmed

  • Auditors may request a written explanation of the methodology

Additional Resources

For more guidance on payroll and benefit allocations, visit costallocationpro.com or contact support for assistance with testing and configuration.