Payroll Setup

1. Payroll Setup Chapter 5

2. Objectives • Activate the payroll feature and configure payroll preferences • Set up payroll accounts in the Chart of Accounts • Enable the data file for payroll processing • Use the Payroll Setup Interview to add payroll items, vendors, employee defaults, employee records, and year-to-date amounts • Understand the accounting behind the scenes of payroll items • Add payroll items in the Payroll Item list • Edit payroll items in the Payroll Item list • Release, deactivate, and reactivate employees 1

3. Payroll Options in QuickBooks You have five choices for using QuickBooks to track your payroll: • Prepare your own payroll manually in QuickBooks without the use of any tax tables (not recommended) • Prepare your own payroll in-house using QuickBooks Standard Payroll • Enhanced Payroll is similar to Standard Payroll, but includes additional features such as state payroll forms and workers’ compensation tracking. • Use Intuit’s Assisted Payroll to process payroll in-house with QuickBooks completing all the tax filings, deposits, and W-2s • Use Intuit’s Complete Payroll Service which provides complete outsourcing of your payroll For detailed information on the differences between these options, from the Employees menu, select Add Payroll services, and then select Learn About Payroll Options 1

4. Checklist for Setting up Payroll • Gather information about each of your employees, like, name, address, Social Security Number, and W-4 information • Activate the Payroll function in Preferences • Set up payroll accounts in the Chart of Accounts • Enable your QuickBooks file for payroll processing • Use the Payroll Setup Interview • Add additional payroll items directly into Payroll Item List • Edit payroll items to modify the vendor information and the way it affects the Chart of Accounts • If setting up mid-year, enter year-to-date information for each employee and enter year-to-date liability payments • Verify payroll item setup, employee setup, and the vendor list • Proof your setup. 2

5. Activating Payroll • Select the Edit menu, and then select Preferences • Scroll down and click Payroll & Employees • Click the tab labeled Company Preferences and select Full payroll features 3

6. Payroll Accounts • Payroll Liability Accounts • Payroll Expense Accounts 5

7. Payroll Items 5

8. Enabling Payroll Processing • There are two ways to enable your data file for payroll Processing • Enable Payroll Processing using the Internet • Enable Payroll Processing without an Internet Connection 6

9. The Payroll Setup Interview • The Payroll Setup Interview is a set of windows similar to the Easy Step Interview that walk you through the setup of payroll • This Interview is optional, but very helpful and works even if you have existing payroll • Starting the Payroll Setup Interview: • Select the Employeesmenu, select PayrollSetup 9

10. Setting up Compensation and Benefits Payroll Items 11

11. Medical Insurance If your company provides benefits, there are three options for allocating the costs between the company and the employee: • The company could pay the entire expense • The company and employee could share the expense • The employee could pay the entire expense If the costs are shared between the company and the employees, or if the employees pay for the entire cost via payroll deductions, use a Deduction Item to track the deductions 14

12. Medical Insurance Payroll Deduction When you receive the bill from the provider of benefits: • Enter it in QuickBooks just like any other bill • Code the bill to the appropriate expense account, (in this case, Health Insurance Expense) • Then just pay this bill normally Set up a Payroll Deduction Item for the benefit, (in this case, Medical Insurance) and use the same expense account for this Payroll Item as you use to code the bill (Health Insurance Expense): • This deduction reduces the Health Insurance Expense account each time you withhold from employees’ paychecks 14

13. 408(k) SEP IRAs Employee Deduction and Company Match Items • If you have a 408(k) SEP IRS plan, you can set up Payroll Items to track the employee contributions (salary deferral) to the plan 18

14. Paid Time Off Payroll Items • The Payroll Setup Interview will walk you through creating items to track and pay vacation or sick pay • If you have a “Paid Time Off (PTO)” policy instead of separate sick and vacation time you can use either Sick or Vacation time to keep track of PTO. 22

15. Setting up Employees • After you have set up your Payroll Items, you can set up each employee’s payroll record. • To add additional employees, click Add New after completing the first employee • After adding all employees, click continue. 25

16. Payroll Tax Item Setup 30

17. Vendors for Payroll Tax and Withholding Items To set up vendors for payroll liabilities, continue with the payroll Setup Interview 31

18. Setting up Year-to-Date Payroll Amounts • If you are setting up your own payroll in the middle of the fiscal year, you’ll need to enter the year-to-date payroll information for each of your employees before entering your first paychecks • Click Yes in the “Determine if you need to enter payroll history” window of the Payroll Setup Interview. 32

19. Custom Fields for Payroll • To finalize the Payroll Setup Interview, determine if you need to add Custom Fields • Custom Fields allow you to track more detailed information on employees 33

20. Setting Up Employee Defaults • The Employee Defaults feature allows you to define defaults for your employee records so that each time you add a new employee, you don’t have to enter the same information over and over • To setup Employee Defaults: • In Employee Center, select the Related Activities drop-down and select Employee Defaults 36

21. Setting Up Employee Defaults (Contd.) • Set default settings for taxes • Set Default settings for sick/vacation time 36

22. The Accounting Behind the Scenes — Payroll Items • Payroll Items define the relationship between Items you put on paychecks and the Chart of Accounts • Using Payroll Items, QuickBooks tracks the detail it needs to calculate paychecks, look up taxes in the tax table, prepare detailed reports, and prepare your payroll tax forms • Payroll Items are set up so that QuickBooks automatically makes all the accounting entries when you process paychecks and payroll liability payments 40

23. Payroll Items • Salary WageItems are used to track payments of gross wages to salaried employees • Hourly WageItems are used to track payments to hourly employees • CommissionItems are used to track payments of commissions • Bonus Items are used to track bonuses paid to employees • AdditionItems are used to track amounts added to paychecks beyond gross wages • DeductionItems are used to track deductions from paychecks 41

24. Payroll Items (Cont.) • Company ContributionItems are used to track additional money that the company contributes as a result of a paycheck • Federal TaxItems are used to track Federal taxes that are withheld from paychecks or are paid by the employer: • Federal Withholding, Social Security Employee, and Medicare Employee are employee taxes • Federal Unemployment, Social Security Company, and Medicare Company are company taxes 42

25. Payroll Items (Cont.) • State TaxItems are used to track State taxes that are withheld from paychecks or paid by the employer and are difference for each State: • State Withholding, State Disability, and/or State UnemploymentTax • Other TaxItems are used to track other State or local taxes that are withheld from paychecks or paid by the employer 42

26. Based on Quantity • Deduction Items, Addition Items, and Company Contribution Items can be used to withhold or contribute a percentage of gross or net pay, or a fixed amount • However, sometimes you want these Items to calculate a percentage of some other number 42

27. Based on Hours • For Deduction Items, Addition Items, and Company Contribution Items you can withhold or contribute a fixed amount or a percentage of gross pay • QuickBooks gives you the option of including or excluding sick and vacation hours when calculating the employee’s deduction, addition, or company contribution 43

28. Adding Payroll Items from the Payroll Item List • Although most items are setup in the Payroll Setup Interview, you’ll probably need to set up a few items in the Payroll Item List. • You can also edit existing Payroll Items. 43

29. Releasing Employees • A released employee no longer appears in the Select Employees to Pay window when you run your payroll • Open the Employee Center and double click the released employee. • Select Employment Info from the Change tabs drop-down list and enter the Release Date 53

30. Deactivating Employees • To deactivate an employee, select the employee in the Employee list and then select Make Inactive from the Employee menu at the bottom of the list • This removes the employee from the list, but it doesn’t delete the employee from your company file • To view deactivated employees, select All Employees from the Employee Center’s View menu. • Deactivated employees show an “ x “ icon • To reactivate an employee, right click the employee’s name and choose Make Active 54

31. The Employee Contact List report • To view all employees, including deactivated employees, display the Employee list and click the Include inactive box • Select the Reports menu, select List, and then select Employee Contact List 56

32. Chapter Review • Activate the payroll feature and configure payroll preferences • Set up payroll accounts in the Chart of Accounts • Enable the data file for payroll processing • Use the Payroll Setup Interview to add payroll items, vendors, employee defaults, employee records, and year-to-date amounts • Understand the accounting behind the scenes of payroll items • Add payroll items in the Payroll Item list • Edit payroll items in the Payroll Item list • Release, deactivate, and reactivate employees 57