May, 1998—
Using a Payroll Service
If you’re using a payroll service to process your payroll, most likely you won’t use QuickBooks to
calculate your paychecks. However, you still need to keep track of your payroll expenses in QuickBooks,
and it’s a good idea to set things up so that you can create payroll reports for each employee.
Configuring QuickBooks for using a payroll service is a simple, three-step process.
Once you’ve configured QuickBooks, you’ll need to follow one of three methods for entering payroll data.
The first method will give you the most detail, but it requires the most data entry. The second method requires
a little less data entry, but doesn’t provide full reports. If you don't need any reports, follow the third method.
Configuring QuickBooks for Using a Payroll Service
To configure your file so that you can create payroll reports in QuickBooks, follow these three steps:
- Set up the following accounts in your chart of accounts.
- Choose File •
Preferences and scroll down to Payroll and Employees. Set the Payroll Preferences to Payroll reports only.
- Choose File •
Payroll Info. Set the fields in the Payroll Info screen to reflect your payroll expenses and payroll liabilities accounts.
Method 1: Produces Most Detailed Payroll Reports
If your payroll service creates paychecks drawn on your company’s bank account you must enter each paycheck into your bank account. The following method provides the most detailed reports.
- Enter each paycheck using the Write Checks function. Fill out the check with all the details of the paycheck as shown below. Choose Activities •
Write Checks.
- Next, enter the payroll tax deposits using Write Checks.
- If you enter your payroll transactions as shown in steps 1 and 2, you can now generate the following detailed report.
TIP: To help prevent data entry mistakes, memorize payroll transactions for employee and for the payroll tax deposit. Then, each time you record payroll, use the memorized transactions. All you need to do is change the figures, but each line is already filled in by the memorized transaction.
Method 2: When Detailed Reports Aren’t Needed
If you don’t need detailed payroll reports and you don’t want to enter all the details of each paycheck, you can use journal entries to record the totals for all payroll expenses. Then, you can enter the net pay only on each paycheck. This method saves time during data entry, but you won’t be able to produce payroll reports by employee.
Follow these steps.
- Enter a journal entry to Debit gross wages and employer tax expense. Enter each employee’s amounts on separate lines as shown. Credit Net Pay Clearing for total net pay, and Credit Payroll Liabilities for the combined employee and employer taxes. To make the payroll reports show figures for each employee, enter the employee name the name field as shown.
- Enter each paycheck using the Write Checks function. Enter the net paycheck only and code it to Net Pay Clearing. Choose Activities •
Write Checks.
- Next, enter the payroll tax deposit as shown.
- To check your work, verify that the Net Pay Clearing account has a zero balance. It must always zero out after you finish entering the payroll data.
Method 3: If No Payroll Reports are Required
If the payroll service uses their own account (i.e. not one of your company bank accounts) for the paychecks, record your payroll as follows.
- Set up the following accounts in your chart of accounts. You don’t need any payroll liability accounts if you use this method.
- Choose File •
Preferences and scroll down to Payroll and Employees. Set the Payroll Preferences to No Payroll.
- Record the payroll in QuickBooks by taking the figures from the payroll reports and creating a journal entry as shown.
TIP: If you need full job cost reports, including job costs of payroll
expenses, consider using QuickBooks Pro payroll. Especially if you have hourly employees who work on
several jobs during a pay period.
The reason is that by the time you enter all the necessary job-costing information into QuickBooks, you
will have done just about as much work as if you used QuickBooks to do payroll yourself. So why not just use
QuickBooks to do your payroll? At least consider using QuickBooks to "shadow" the payroll service.
If you have hourly employees who work on several jobs, use the timesheets in QuickBooks Pro, and transfer
their timesheets to the paychecks. This function makes job-costing of payroll nearly automatic.
For detailed instruction on using Payroll in QuickBooks or QuickBooks Pro, see Volume
2 of the Mastering QuickBooks Video Learning System. To order your copy
of the video, click here.
