diff --git a/erpnext/setup/doctype/party_type/party_type.py b/erpnext/setup/doctype/party_type/party_type.py
index be8652f153b..6730d1cbdce 100644
--- a/erpnext/setup/doctype/party_type/party_type.py
+++ b/erpnext/setup/doctype/party_type/party_type.py
@@ -26,13 +26,27 @@ class PartyType(Document):
 @frappe.validate_and_sanitize_search_inputs
 def get_party_type(doctype, txt, searchfield, start, page_len, filters):
 	cond = ""
+	account_type = None
+
 	if filters and filters.get("account"):
 		account_type = frappe.db.get_value("Account", filters.get("account"), "account_type")
-		cond = "and account_type = '%s'" % account_type
+		if account_type:
+			if account_type in ["Receivable", "Payable"]:
+				# Include Employee regardless of its configured account_type, but still respect the text filter
+				cond = "and (account_type = %(account_type)s or name = 'Employee')"
+			else:
+				cond = "and account_type = %(account_type)s"
 
-	return frappe.db.sql(
+	# Build parameters dictionary
+	params = {"txt": "%" + txt + "%", "start": start, "page_len": page_len}
+	if account_type:
+		params["account_type"] = account_type
+
+	result = frappe.db.sql(
 		f"""select name from `tabParty Type`
-			where `{searchfield}` LIKE %(txt)s {cond}
-			order by name limit %(page_len)s offset %(start)s""",
-		{"txt": "%" + txt + "%", "start": start, "page_len": page_len},
+        where `{searchfield}` LIKE %(txt)s {cond}
+        order by name limit %(page_len)s offset %(start)s""",
+		params,
 	)
+
+	return result or []