Payroll Setup
Chapter 6
Objectives
• Activate the payroll feature and configure payroll
preferences
• Set up payroll accounts in the Chart of Accounts
• Use the Payroll Setup Wizard to add payroll
items, vendors, employee defaults, employee
records, and year-to-date amounts
• Understand the accounting behind the scenes of
payroll items
• Use the Custom Setup Wizard to add and edit
payroll items
• Release, deactivate, and reactivate employees
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Payroll Options in QuickBooks
•
You have four choices for using QuickBooks to track
your payroll:
1.
2.
3.
4.
•
Prepare your own payroll manually in QuickBooks without the
use of any tax tables (not recommended)
Use Intuit’s Do-it-Yourself Payroll Service which provides the
tax tables
Use Intuit’s Assisted Payroll Service which provides payroll tax
preparation in addition to the tax tables
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
Payroll services, and then select Learn About
Payroll Options
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Checklist for Setting up Payroll
1.
2.
3.
4.
5.
6.
7.
8.
9.
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
Using the Payroll Setup Wizard, set up payroll items, payroll
vendors, employee defaults, employee records, and year-to-date
payroll figures
Add additional payroll items not covered by the Payroll Setup
Wizard
Edit payroll items to modify the vendor information and the way
the items affect 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
Use the Payroll Checkup wizard and compare reports with your
accountant’s or payroll service’s reports
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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
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Payroll Accounts
• Payroll Liability
Accounts
• Payroll Expense
Accounts
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The Payroll Setup Wizard
• The Payroll Setup Wizard is a set of
windows similar to the Easy Step Interview
that walk you through the setup of payroll
• This Wizard is optional, but very helpful
and works even if you have existing
payroll
• Starting the Payroll Setup Wizard:
– Select the Employees menu, select Payroll
Services, and then select Set up Payroll
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Payroll Items Setup Using
Payroll Setup Wizard
• Payroll Items define the relationship between Items you
put on paychecks and the Chart of Accounts
• QuickBooks uses Payroll Items to track each kind of
compensation, withholding tax, employer tax, addition,
and deduction from paychecks
• You will add the Payroll items that you need for your
company, such as payroll taxes, wages, benefits and
other payroll items
• Payroll taxes:
– Start Payroll Wizard
– Click Set up payroll taxes
• Wages, benefits, and others Payroll items
– Start Payroll Wizard:
– Click Set up wages, benefits, and misc. Payroll Items
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Setting up Wages, Benefits, and
other Payroll Items
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Entering Vendors for Payroll
Items
To set up vendors for payroll liabilities, continue
with the payroll Setup Wizard
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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 Payroll wizard, select the Enter default
payroll setting for new employees
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Setting Up Employee Defaults
(Contd.)
The order in which you enter Additions,
Deductions and Company Contributions affects
how they are calculated on paychecks
If you enter the addition before the
deduction…
Salary Regular
$1,000.
Tips (Addition)
$100.
(Addition to Gross)
401(k) deduction
2%
(Deduction from Gross)
QuickBooks calculates the 2% deduction on a
gross of $1,000 + $100, or $1,100. The
deduction would be $1,100 * 2% = $22.
Salary Regular
$1,000.
Tips (Addition)
$100.
Total Gross
$1,100.
401(k) deduction (2%) $22.
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Setting Up Employee Defaults
(Contd.)
• Set default settings for taxes
• Set Default settings for sick/vacation time
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Setting up Employee Records
• After you have set up your Payroll Items
and Employee Defaults, you can set up
each employee’s payroll record:
– On the Payroll Setup window click Setup
Employees
– In the Employee Setup window, click Add
Employee
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Setting up Employee (Contd.)
• Select Personal Info from the Change
tabs drop-down list and enter personal
information
• Select Employment Info from the Change
tabs drop-down list to enter Hire, Release
Date or Type
• Select Payroll and Compensation Info
from the Change tabs to enter earnings,
taxes, sick and vacation times
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Setting up Year-to-Date Payroll
Amounts
• If you were setting up your own payroll in
the middle of the year, you would click Set
Up YTD Amounts in Payroll Wizard
window
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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
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Payroll Items
• Salary Wage Items are used to track payments of gross
wages to salaried employees
• Hourly Wage Items are used to track payments to hourly
employees
• Commission Items are used to track payments of
commissions
• Bonus Items are used to track bonuses paid to
employees
• Addition Items are used to track amounts added to
paychecks beyond gross wages
• Deduction Items are used to track deductions from
paychecks
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Payroll Items (Contd.)
• Company Contribution Items are used to track
additional money that the company contributes
as a result of a paycheck
• Federal Tax Items 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
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Payroll Items (Contd.)
• State Tax Items 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 Unemployment Tax
• Other Tax Items are used to track other
State or local taxes that are withheld from
paychecks or paid by the employer
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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
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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
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Payroll Item Types
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Creating a New Payroll Item
•
When you create a new Payroll Item,
QuickBooks gives you two setup options:
1. Easy Setup: If you select this option,
QuickBooks will take you to the payroll item
setup section of the Payroll Setup Wizard
2. Custom Setup: If you choose this option,
QuickBooks will open the Custom Setup
wizard
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Using the Custom Setup Wizard
• The Custom Setup wizard allows you to:
– Enter information and to edit fields not
available in the Payroll Setup Wizard
– Add Payroll Items
– Add an Earning (Wage) Item
– Edit Payroll Items
– Add Medical Insurance Deduction
– Add 401(k) Employee Deduction and
Company Match Items
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Medical Insurance
• If your company provides benefits, there are
three options for allocating the costs between
the company and the employee:
1.The company could pay the entire expense
2.The company and employee could share the
expense
3.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
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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
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401(k) Employee Deduction and
Company Match Items
• If you have a 401(k) plan, you can set up a
Deduction Item to track the employee
contributions (salary deferral) to the plan
• If 401(k) Deduction Item was created
during the Payroll Setup wizard, but you’ll
need to edit the Item to connect it to the
correct liability account
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Releasing Employees
• A released employee no longer appears in the
Select Employees to Pay window when you run
your payroll
• Select the Lists menu and then select
Employee List
• Click on employee name and then select Edit
Employee from the Employee menu at the
bottom of the window
• Select Employment Info from the Change tabs
drop-down list and enter the Release Date
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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
• Deactivated employees show an “ x “ icon
• To reactivate an employee, click on the “ x “ icon
in the Employee List
• To view all employees (including deactivated
ones), click Show All
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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
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Mid-Year Payroll Setup
• If your payroll start date is not December
31, you’ll need to enter the year-to-date
payroll information for each of your
employees before entering your first
paychecks
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Chapter Review
• Activate the payroll feature and configure payroll
preferences
• Set up payroll accounts in the Chart of Accounts
• Use the Payroll Setup Wizard to add payroll
items, vendors, employee defaults, employee
records, and year-to-date amounts
• Understand the accounting behind the scenes of
payroll items
• Use the Custom Setup Wizard to add and edit
payroll items
• Release, deactivate, and reactivate employees
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CHAPTER 6: Payroll Setup
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