We have taken the stance that vacation pay is taxable at the time it is being paid not at the time it is being expensed/withheld. Most NV1 users have their vacation pay setup as E=YV (taxed when paid) and to prevent confusion we have continued this with payroll records that contained the E=AV paycodes.
Yes. You can change the expense account as you had mentioned. Leave the withheld as is and set the vacation pay accounts to No.
You and Bob have had some rather lengthy discussions about this issue (in the pre-release forumn) in the past and we believe this method solves more problems than it creates.