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Setting Up Compensation Types in QuickBooks Payroll

Paying your employees requires precision and patience. Those qualities are critical in the payroll setup process.

Whether you process your payroll manually or in QuickBooks, and even if you have Intuit handle the whole thing for you, you’ll have to go through employee and company setup. This task is so complex that you may want to take a QuickBooks training course to learn its intricacies well.

You should have pulled together all of the information you’ll need before you get started. This includes general information about your payroll preferences, compensation levels and benefits information.

We’ll look at compensation level setup here. Start by going to the Employees menu and selecting Payroll Setup. Your current windows will close as QuickBooks opens the setup wizard.

Click Company Setup | Continue, and then click the Add New button to open this window:

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This is one step in the Payroll Setup wizard. You can define all compensation types from here.

Start by clicking Salary, then Next. In the field next to Show on paychecks as, enter the word or phrase that should appear. Answer Yes or No to the questions about overtime for salaried employees, then click Finish.

To establish pay rates for hourly workers, click Add New again and check the box next to Hourly wage and overtime, then Next. Provide a name that will go on paychecks for those employees, and then indicate whether these individuals ever work at time-and-a-half or double-time rates. Enter the word or phrase that should appear and click Finish.

If you ever offer a Bonus, award, or one-time compensation, check that box, then Finish. QuickBooks just needs to know if this will be a necessary option.

Go through the same process for the remaining three compensation types. When you put a check mark in the box next to Commission and click Next, QuickBooks will ask whether you pay a dollar amount per units sold/produced, or a percentage of sales (or other amount). Your options for Tips are reported cash tips (employees reports the amounts to you), reported paycheck tips (tips appear on paychecks) and allocated tips (not a common occurrence).

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You’ll need to indicate how tips are reported in QuickBooks payroll.

Check the box next to Piecework if you pay by the number of units completed. When you’re done, click Finish. You can set up multiple types of compensation if, for example, there are employees that are paid more than one overtime rate. You’ll also be able to come back and edit these compensation types.

There are many other elements of employee paychecks that you’ll need to set up. It gets tricky once you start getting into benefits, so if you’re attempting this one your own, a QuickBooks class is really in order. QuickBooks’ documentation only goes so far, and you want to be doubly sure that you’re establishing your payroll foundation accurately, since you’ll be dealing with multiple tax agencies and benefits providers.

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