Hi Alec,

Thanks for posting in the Community!

You're on the right track with setting up your leave category in your QuickBooks Online Payroll file.  You can check and try the Custom payment set up in your leave category settings and can select the Deduct hours from and the Transfer hours to a specific category. Here's how to check it:

1. Click on the Payroll Settings.
2. Click on Leave Categories.
3. Select the Annual leave category.
4. Click on Custom for Payment set up.

This option allows the user to deduct hours from an arbitrary pay category and transfer them to another arbitrary pay category when leave is taken.

Once done, go back to your pay run and recalculate the annual leave taken.

If you need further information about the set up, I recommend contacting our Customer Care Team to further help check your payroll settings in a secure form.

Post again in the Community if you have further concerns about your QuickBooks Online file.