April 2001

Here is your complimentary copy of The Desktop Accountant, our periodic newsletter with tips and tricks for using QuickBooks and QuickBooks Pro.

For a printable (pdf) version of this newsletter, click here (april2001.pdf - 323 KB).

News and Views

The Sleeter Group's 2001 QuickBooks & Accounting Technology Workshops and Conferences - QuickBooks has changed and so has QuickBooks consulting. Small business owners are increasingly interested in web-based accounting solutions and are now demanding complex system integrations. To help you prepare to handle your clients' evolving needs, we have significantly expanded this year's topics to include up-to-the-minute, detailed information about the new technologies your clients will need in the coming months. Our workshops and conferences provide you with QuickBooks and Accounting Technology information you won't find anywhere else. For a complete list of topics, dates, locations and registration information visit our website at www.sleeter.com/2001Conferences.html.

The Intuit Developer Network – Mark My Words – This is Hot! This is probably the most important step Intuit has taken in the past 10 years! The Intuit Developer Network helps third-party developers integrate their applications with Intuit's software products. In early 2001, Intuit will finalize its application programming interface (API), which will allow developers of custom solutions to integrate their programs with QuickBooks. More information on the Intuit Developer Network can be found at http://developer.intuit.com/

How do you view your business? Can you see the big picture?
I am extremely impressed by a new product that is just becoming available to small business owners who use QuickBooks. So impressed that we will be presenting this solution at our upcoming conferences in 2001. RareVision is a web-based service that acts as your personal financial analyst, giving you in-depth and at-a-glance views of your business. Beginning this spring, our network of certified QuickBooks consultants will use this product to help their clients view and analyze their QuickBooks data in ways that they’ve never dreamed of. For more information on the solution, take the tour at www.rarevision.com.

This Month's Newsletter Topics are:

"Accruing Worker’s Compensation” and “Job Costing Enhancements"

I hope you enjoy our newsletter! Drop me an e-mail with your comments.

Worker’s Compensation

Depending on the state in which you pay wages, you’ll have different needs for tracking worker’s compensation. Some states require employers to obtain private worker’s compensation insurance, and other states have a labor tax. Usually the employer pays 100% of the worker’s compensation insurance premiums, but the labor tax is sometimes shared between the employer and the employee. This section presents methods of tracking worker’s compensation for four different types of businesses.

The first two types of businesses don’t need to provide full job costing of payroll expenses. In this case, it’s best not to accrue worker’s compensation premiums because the benefit is not worth the extra setup and complication. However, some businesses must provide full job costing of payroll including worker’s compensation. The last two methods show how those businesses can track worker’s compensation by accruing it with each paycheck.

Note: If your state has a labor tax instead of worker’s compensation, use Method 3 on page 4 and refer to the labor tax comments throughout the section.

Method 1: Each Employee has only one rate; No Job Costing

If each employee in your company works under only one rate and you do not use job cost reporting, no special setup is necessary. Create a Payroll Summary report and set the date range to agree with your worker’s compensation coverage period. Use the gross wage amounts to complete your worker’s compensation report.

Method 2: Employees have more than one rate; No Job Costing

If some of your employees earn wages in more than one worker’s compensation category, you’ll need to create separate hourly and/or salary Wage Items for each worker’s compensation rate.

Example Wage Item names:

Admin - Rate 1
Framer – Rate 2
Forman – Rate 2
Line Worker – Rate 4

Then, on paychecks and timesheets use the appropriate wage item to pay each employee according to the category in which they worked. The wages paid in each category will then be tracked separately.

Figure 1 Paycheck Detail – hours allocated to worker’s compensation rates.

Create a Payroll Item Detail report for a breakdown of wages by rate. If you track sick and vacation hours in QuickBooks you will have at least 3 wage items for each rate. In this case, customize the report using Modify Report and filter for selected payroll items to create a separate report for each rate. Memorize each report for future use. (See Figure 2 and Figure 3)

Figure 2 Filter Screen. Filtered for Selected Payroll Items

Figure 3 Payroll Item Detail Report – Filtered by Worker’s Compensation Rate

Method 3: Each employee has only one rate; Job Costing

If you use detailed job cost reports it is best to accrue worker’s compensation through payroll.

Worker’s Compensation Payroll Item Setup

Step 1.                           From the Payroll Item list, select New from the payroll item menu, or press Ctrl+N.
Step 2.                           Select “Custom Setup” and click “Next”.

Figure 4 Select Setup Method.

Step 3.                           Choose “Other Tax” as shown in Figure 5 and click Next.

Figure 5 Payroll Item Type.

Step 4.                           Choose “Tax is Paid by the Company” and click Next.

Figure 6 Other Tax.

Labor Tax Note: If your state charges a labor tax and the employee pays a portion of this tax, create two “Other Tax” items following the steps detailed in this section. Name the first item “Labor Tax Employer” and the second item “Labor Tax Employee.” For the “Labor Tax Employee” item select “Tax is paid by the employee.” The two items are otherwise identical.

Step 5.                           Enter “Worker’s Compensation” in the Name field. Click Next.

Figure 7 Item Name.

Step 6.                           Complete the next screen per Figure 8 and then click Next.

Figure 8 Agency and Account Information.

Step 7.                           Leave the tax tracking type set to “none”. Click Next.

Figure 9 Tax Tracking Type.

Step 8.                           Worker’s Compensation is calculated on gross wages and is not based on quantity. Leave the “Based on Quantity” box unchecked and click Next.

Labor Tax Note: If your state charges a fee based on the hours an employee works instead of gross wages, select the “Based on Quantity” box below. Enter the number of hours when creating each employee’s paycheck.

Figure 10 Calculate based on quantity screen.

Step 9.                           Enter the most common worker’s compensation rate in the default field. In this case employees are charged a rate of 1.25%. Company officers are charged 1.50%. You can override the default rate on each employee’s setup screen.

Figure 11 Default Rate and Limit.

Step 10.                       Select the compensation items that are subject to worker’s compensation charges. Click Next.

Consult your state or private provider’s specific guidelines regarding profit sharing, commissions and other special compensation items.

Figure 12 Taxable Compensation.

Step 11.                       Most worker’s compensation premiums are calculated based on the total gross wages, before any deductions. Therefore, deselect all pre-tax deductions by clicking in the column to the left of each payroll item (Figure 13). Click Finish.

Figure 13 Pre-tax Deductions.

Adding Worker’s Compensation to the Employee Setup

Step 1.                           Open the employee list by selecting the List menu and then selecting Employee list.
Step 2.                           Double-click the employee’s name to edit the employee record (Figure 14).

Figure 14 Employee List.

Step 3.                           Click the Payroll Info tab and then click Taxes.

Figure 15 Employee Setup Screen.

Step 4.                           Click the Other tab and select “Worker’s Compensation” from the drop down menu on the second line (see Figure 16).

Figure 16 Employee Taxes Screen.

Step 5.                           Since Jim Moen is an employee, accept the default employee rate of 1.25%.

Figure 17 Employee Taxes Screen.

Labor Tax Note: Select “Labor Tax Employer” from the drop down list and enter the employer portion in the rate field. Then, select the “Labor Tax Employee” rate and enter the employee portion.

Step 6.                           Repeat these steps for each employee covered under the worker’s compensation policy. Override the default rate for each employee as appropriate.

Paying Worker’s Compensation Premiums

After you’ve entered your paychecks, QuickBooks will show your worker’s compensation premiums as liabilities in the Pay Liabilities screen. To pay the liabilities, follow these steps:

Step 1.                           Select Pay Payroll Liabilities from the Employee menu.
Step 2.                           Enter the dates of coverage in the “from” and “through” fields of the date range screen. Academy Glass files a worker’s compensation report at the end of each calendar quarter.

Figure 18 Payroll Liabilities Date Range.

Select the “Worker’s Compensation” payroll item (see Figure 19).

Labor Tax Note: Select both “Labor Tax Employer” and “Labor Tax Employee” from the menu. Since both items point to the same vendor name QuickBooks will create one check that includes both the employer’s and the employee’s portion.

Step 3.                           Click Create.

Figure 19 Pay Liabilities.

Step 4.                           QuickBooks creates a check for the amount due (Figure 20).

Occasionally, you may need to adjust the amount to agree with the worker’s compensation report. For example, Academy Glass received a miscellaneous credit of $15 to be applied to the first quarter of 2001.

Note: Do not use this method to apply overpayments from prior periods or estimated pre-payments. Instead refer to “Processing Pre-payments” below.)

To record this adjustment, follow these steps:

Step 5.                           On the payroll liability check, click the Expenses tab and enter the credit amount as a negative number.
Step 6.                           Code the adjustment to the “Worker’s Compensation” expense account. Click Recalculate to adjust the net amount of the check. If the adjustment is significant, consult your accountant regarding possible adjustments to your job cost reports.

Figure 20 Liability Check Edit Screen.

Method 4: Employees Have More Than One Rate; Job Costing

If you use job costing and some of your employees earn wages in more than one worker’s compensation category create an Other Tax item for each rate. Make each item “based on quantity.” (See Figure 10) Then, add all applicable Other Tax items to each employee’s record. Because the items are “based on quantity” QuickBooks will not automatically accrue worker’s compensation. Instead, manually enter the employee’s total wage base for each worker’s compensation rate when creating the paychecks. QuickBooks will calculate and accrue the proper amount by multiplying the wage base by that item’s rate. To determine each employee’s wage base by rate, use the steps detailed in Method 2 on page 2. Filter the report by employee to determine the wage base by rate and employee.

Processing Prepayments

Some insurers require companies to pay an estimated premium at the beginning of the coverage period to be applied to the actual, calculated premium when filing the report.

To handle this situation, follow these steps:
Step 1.                           Code the prepayment check to an “Other Current Asset” account called “Prepaid Worker’s Compensation”.
Step 2.                           Accrue worker’s compensation as described in methods 3 and 4 above.
Step 3.                           At the end of the period, complete the worker’s compensation report and generate a payroll liability check.
Step 4.                           On the Liability Check edit screen, click the Expenses tab and enter the amount of the prepayment as a negative number. Code the adjustment to “Prepaid Worker’s Compensation.”

Figure 21 Liability Check Edit Screen.