Considering doing your own payroll inhouse? Be prepared for a grueling setup process. Even though the QuickBooks Payroll setup process is self-explanatory, some QuickBooks Training can help… or you should at least read some of these guides.
As I mention in my QuickBooks classes, payroll-processing is the most challenging element of the bookkeeper, particularly because you are dealing with taxes, accounting, deadlines and heightened responsibilities.
You have several options:
1. You can, of course, do it manually. This typically involves spreadsheets, tax tables and manually-prepared tax forms. And do not forget those lovely IRS penalties for every mistake made.
2. You can hire a payroll service such as ADP or Paychex — or a local payroll specialist — that will do it all for you. This usually costs $100-$250 monthly for companies with fewer than 10 employees. You can expect them to do it all for you, but this is costly, and you relinquish most of the control.
3. You can subscribe to a cloud-based solution that integrates with QuickBooks such as Intuit Online Payroll… and others not worth mentioning.
4. Or you can manage it from within QuickBooks using QuickBooks Payroll Service.
If you’ve never attempted it on your own, you might wonder why it’s so different from any other set of financial tasks that you do. Three words: Internal Revenue Service. The IRS and other taxing agencies are very exacting when it comes to payroll filings and taxes. Mistakes can result in hefty fines plus endless phone calls to the IRS or state to find out the whys and hows of such penalties.
That said, let’s take a look at the first hurdle you’ll have to jump when you’re starting out with QuickBooks Payroll: your company setup. We spend a lot of time in my QuickBooks Training courses on building this payroll foundation. It becomes the baseline for the complete payroll class.
Step 1: Compensation
What are the different ways that your employees get paid? There’s annual salary, of course, and hourly wages. But what about bonuses or other one-time payments? Commissions? Multiple overtime rates? Tips? Contractor wages? When I teach a QuickBooks Training class on this element, I ask people to brainstorm every possible way that an employee might receive compensation from you. We then work out all of the scenarios to prepare the attendees for that “real world” that always seems so much different than in the classroom.
As QuickBooks does elsewhere in the program, it simplifies your work here by using standard Windows conventions: step-by-step wizards, drop-down lists, checkboxes, etc. You’ll find these aids all throughout payroll setup. They help you set up the structure of your payroll accounts. And you can always go back and redo the payroll setup if a mistake is made.
Step 2: Insurance Benefits
Here’s where it really starts to get tricky, and where precision is critical, since you’re dealing with external service providers. Take health insurance, for example. We pay special attention to this in my QuickBooks courses, because a lot of mistakes and questions surge in this part of the setup. The Payroll Setup Wizard will ask you:
- Who pays for it?
- Who is the vendor?
- What is the payment frequency?
You’ll encounter questions like these for every other kind of insurance that is at least partially company-sponsored, like life insurance, health savings accounts and dental. You’ll also provide detailed information about who pays for what part (employee or employer) and when, how much, etc.
Step 3: Retirement Benefits
These, too, are complex, and I urge my students in my QuickBooks classes to gather all of the information they’ll need before they even begin company setup. This is crucial; it saves time and increases accuracy from the get-go. If you’ve been doing payroll manually or have performed a payroll-processing function in the past, it won’t be much of a problem, but if you’re new to this, you may find the process a bit formidable. You’ll just be filling in blank fields and making selections here, but precision is critical. I also believe that even if accounting and taxation are not your forte, you need to have some understanding (even if you need to attend a payroll training class) of the tax impact that retirement benefits have on payroll checks
Step 4: Paid Time Off
You’ll get a little breather here; this issue is fairly basic and straightforward. Do employees accrue vacation and sick time? Generic PTO? You’ll designate account types and names here, as you’ve done in previous sections. It is important to have the year-to-date current PTO hours accrued by employees handy (unless this is a new thing the company is doing at the same time you are setting this up).
Step 5: Miscellaneous
Here, too, I ask my QuickBooks course participants to brainstorm, to share information about any other additions and deductions that might come up or those they have had in current/previous jobs. Cash advances or mileage/travel reimbursement? Wage garnishment? Etc.
And that’s it for company setup. The software offers support for this process, but I always recommend that people get QuickBooks training if they’re going to tackle payroll on their own. Even if you outsource this important function, it’s good for you to understand the mechanics.
QuickBooks payroll is usually the most popular choice since it presents a good balance in costs and control, not to mention the flawless integration with other areas of QuickBooks such as job costing and billable hours.
If you are still deciding how to approach payroll in your business, the Intuit payroll website offers a great variety of options for payroll services. They range from $25 per month for a cloud-based service that integrates with QuickBooks to $99 per month (plus $2 per employee) for Full Service Payroll. The latter gives you the best of both worlds: the convenience of having it done for you along with the reliability of having it all in QuickBooks at your fingertips.
Hector Garcia, RTRP
QuickBooks ProAdvisor & Registered Tax Return Preparer
QuickBooks Training Courses, South Florida