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Managing Payroll in QuickBooks Online

Managing payroll is one of the most important aspects of your business. If not done right, it could negatively impact your employees since they may not be paid the right amount. It could also result in interest and penalties if payroll taxes are not filed and paid on time.

There are four main aspects of managing payroll: setting up your employees with the proper deductions and benefit elections, processing payroll by ensuring the hours paid are correct and on time, generating payroll reports to gain an insight into total payroll costs, and filing payroll tax forms and making payments on time. By the end of this chapter, you will be able to set up your employees, pay your employees, generate key payroll reports, file payroll tax forms, and make payroll tax payments. If you do not understand how payroll works, it is highly recommended that you use the full service payroll option offered by Intuit QuickBooks.

In this chapter, we will cover the following topics:

• Setting up payroll
• Running payroll
• Generating payroll reports
• Filing payroll tax forms and payments

Setting up payroll

The most important aspect of ensuring an accurate payroll is to set up the payroll properly before you run your first payroll. Setting up a payroll involves gathering information about your employees, such as their names, mailing addresses, and social security numbers. As an employer, you will need a federal tax ID number and a separate bank account for payroll checks and payroll taxes. You will need to determine what benefits you will offer employees, how often you will pay employees (for example, weekly, bi-weekly, or monthly), and the payment method you will use (for example, paper check or direct deposit).

In the following sections, we will provide you with a checklist of information you need to have handy to complete your employer profile and set up employees. First, we will show you how to set up payroll in QBO.

Payroll setup checklist and key documents

As discussed, the key to ensuring the accuracy of payroll checks, payroll tax forms, and payments is to ensure your payroll is set up properly. To set up a payroll, you will need to gather information from your employees. Also, you will need to have certain documents and information handy to complete the employer information section.

The following table shows a summarized checklist of the information required to set up your payroll:

Employee info	Employer info
Hire date	Federal tax ID (FEIN)
Form W-4: Employee withholding info	State employer ID number (if applicable)
Salary or hourly rate	Bank account information
Sick or vacation accrual rate	Employee benefits
Payroll deductions and contributions	Employee travel reimbursement policy
Payment method	Other compensation: bonuses, commissions
Direct deposit authorization (if applicable)	Other deductions: wage garnishment

Table 15.1: Checklist of employee and employer info needed to set up payroll

The following is a brief explanation of the employee information required to set up payroll:

• Hire date: This is the official start date for an employee. This information will be used to determine benefits eligibility as well as vacation and sick pay.
• Form W-4: This is an official form issued by the Internal Revenue Service (IRS) to gather employee withholding information, which determines the amount of federal tax withheld from paychecks. You can download this form from IRS.gov and include it in your employee new hire packet.
• Salary or hourly rate: This is the agreed-upon salary or hourly rate for an employee.
• Sick or vacation accrual rate: The number of hours an employee can earn toward sick or vacation leave.
• Payroll deductions and contributions: These are the deductions or contributions for health care, 401(k), or other benefits an employee has agreed to participate in.
• Payment method: Most employers will pay their employees in the form of a check or direct deposit. If the employee signs up for a direct deposit, they will need to complete a direct deposit authorization form. 
• Direct deposit authorization: If an employee would like their paycheck to be electronically deposited into their bank account, this form gives the employer the authority to do so. Employers must keep this form on file along with other payroll information.

The following is a brief explanation of the employer information required to set up payroll:

• Federal employer identification number (FEIN): Employers are required to have a federal tax ID number before they can process payroll for employees. This number is used by the IRS to keep track of employee and employer payroll tax payments and filings. If you don’t have a FEIN, you can apply for one at IRS.gov.
• State employer ID number: If you live in one of the eight states that are subject to income tax, you will need to apply for a state employer identification number. Similar to the FEIN, the state employer ID number is used to keep track of payroll taxes.
• Bank account information: As discussed, you need to set up a separate bank account to keep track of payments made to employees in the form of payroll checks or direct deposits. Also, all payroll tax payments made to the IRS or your state need to be made out of this account. Since most payments are made electronically, you will need the routing number of your financial institution and the full account number.

  Similar to your business checking account, you will need to add the payroll bank account to your chart of accounts list in QuickBooks. Refer to Chapter 5, Customizing QuickBooks for Your Business, where we cover how to add an account to the chart of accounts list.

• Employee benefits: Details regarding benefits provided to employees will need to be entered into QuickBooks. This includes the employee and employer portions of health care, 401(k) plans, and sick leave and vacation pay.
• Employee travel reimbursement policy: If employees travel on behalf of your business and incur expenses, such as business meals, airfare, and hotel costs, you need to set up your payroll to reimburse employees for these.

  A simpler way to handle employee reimbursements is to process the payments outside of payroll. This would involve setting up an employee as a vendor and writing a check to reimburse them for business expenses paid with personal funds.

• Other compensation: If you pay bonuses or commissions, or make other forms of payment to employees, you will need to include this information in your payroll setup.
• Other deductions: On occasion, you may receive wage garnishments for employees who owe back taxes or child support. These are court-ordered requests that you cannot ignore. Instead, you must set up the garnishment amount as a deduction for the employee. These requests will typically have an end date that is based on the total outstanding amount. Be sure to set these payments up exactly as they are outlined in the letter. If you don’t, you could be subject to penalties as a result.

Now that you have a better understanding of the key documents and information required to properly set up payroll, you are ready to complete the payroll setup.

Setting up payroll in QBO

Setting up payroll in QBO can be done in six easy steps:

1. Click on Payroll on the left menu bar to navigate to the Payroll Center, as shown in Figure 15.1:

   

   Figure 15.1: Navigating to the Payroll Center

2. Activate the payroll by clicking on the Get started button, as shown in Figure 15.2:

   

   Figure 15.2: Clicking the Get started button to begin setting up payroll

3. On the next screen, you will have the option of selecting a payroll plan, as indicated in Figure 15.3:

   

   Figure 15.3: Intuit QuickBooks payroll plans

   Note: Pricing is based on the current rates and it is subject to change.

   The following is a brief explanation of each QBO payroll plan:

   • Core: This plan is ideal for employers who prefer to manage their payroll in-house. The subscription fee includes updated payroll tax tables that are used to automatically calculate payroll taxes and payroll checks for you—no manual calculation required! With this plan, you can process payroll checks, electronically make payroll tax payments, and file payroll tax forms. This plan also includes next-day direct deposit.
   • Premium: This plan includes all of the features outlined in the Core plan plus workers’ comp administration, an HR support center, a QuickBooks expert who will review your payroll setup, and the ability to allow employees to track time using their mobile device. When setting up payroll, links will be available for applying for certain state ID numbers that are required.
   • Elite: This plan is ideal for employers that prefer to outsource their payroll duties. It includes white-glove customized setup, payroll processing, completion of tax forms, and automated payroll tax payments. In addition, Intuit will process all year-end tax forms and filings such as mailing and filing W-2 forms. Unlike the Core and Premium plans, you get the ability to track projects from any mobile device, tax penalty protection, access to a personal HR advisor, and 24/7 product support, which can be beneficial if there is an issue with a payroll or an individual paycheck. Voids and corrections must be made by the payroll service.

   QuickBooks Payroll is available in all 50 states and all payroll plans include the following key features:

   • Unlimited payroll runs
   • Calculated paychecks and taxes
   • Automated taxes and forms
   • Workforce portal
   • Custom user access by setting permission levels
   • Garnishment and deductions management
   • Payroll reports

   It is advised to check local payroll tax filing requirements to confirm that the payroll subscription you have chosen can handle all necessary filings.

4. After selecting the plan you want, the payroll welcome message should appear on your screen, as indicated in Figure 15.4:

   

   Figure 15.4: Payroll welcome page in QBO

   Before you proceed to the next step, you will see a couple of questions pop up on your screen. First, you need to indicate whether you have paid employees this year. If you have, you will need to gather the year-to-date payment information for each employee so that you can enter it into QuickBooks; otherwise, the W-2 forms will be incorrect at the end of the year. Second, you will need to enter the date of your next payroll (in other words, the first payroll you plan to run in QBO).

   When you are done, click the Get started button.

5. The following screen will appear:

   

   Figure 15.5: Adding an employee

   To add a new employee, enter their first and last name, hire date, and email address. Check the box under the email address to invite the employee to an online portal where they can view and print their pay stubs and W-2 forms.

6. Complete the employee payroll information, as indicated in Figure 15.6:

   

   Figure 15.6: Completing employee information

   A brief explanation of the employee information required follows:

   • Create a pay schedule: Create a pay schedule based on when you pay employees. You can create one pay schedule for all employees (for example, every other Friday) or multiple pay schedules—one for hourly employees and one for salary employees. Click on the + Create pay schedule link in step 2 (shown in the preceding screenshot) to get started.
   • Employee pay rate: In step 3, set up the hourly rate or annual salary for an employee. You can also set up other payment types, such as overtime, sick leave, and vacation. Click on the Add additional pay types link and follow the onscreen prompts.
   • Employee deductions: Add all applicable employee deductions in step 4. This includes health benefits, 401(k) contributions, and wage garnishments. Click the Add deductions link to get started.
   • Employee withholdings: Enter the employee withholding information from the W-4 form completed by the employee. This information will determine the amount of federal and state income tax that will be deducted from the employee’s payroll check.
   • Payment method: From the drop-down box, select Check or Direct deposit as the payment method. If an employee opts for direct deposit, use the completed direct deposit authorization form discussed previously to complete the routing number and account number of the financial institution.

   Pro Tip: It’s a good idea to request a copy of a voided check from employees to verify the bank routing and account number the employee has provided. If the deposit account is not a checking account, employees can request a letter from their financial institution that includes this information.

7. Click the Next button to save the information you have entered.
8. After entering the employee information, your screen should resemble the following screenshot:

Figure 15.7: Employee listing in the Payroll center

Within this screen, you can review all employees you have added, their pay rate, and the method of payment for their paycheck. In addition, you can add more employees by clicking the Add an employee button located on the right side of the screen.

In this section, we have shown you how to add employees and their tax deductions, tax withholdings, and payment methods. Be sure to complete steps 1 through 6 for all employees. Once you have set up all of your employees, you are ready to run payroll. The number of payroll schedules created in step 6 will determine how often you run payroll. If all employees get paid on the same day, you will run the payroll based on the number of times employees are paid (for example, weekly or bi-weekly).

In the next section, we will show you how to run your payroll in five easy steps.

Running payroll

After setting up your employees, you are ready to run your first payroll. It’s important to run payroll so that your employees are paid on time and to ensure you meet all of your payroll deadlines to the state and local tax authorities.

Running payroll in QBO can be done in six easy steps:

1. Click on Workers on the left menu bar to navigate to the Payroll Center:

   

   Figure 15.8: Clicking on Workers to navigate to the Payroll Center

2. Click the Let’s go button as indicated to create paychecks for employees:

   

   Figure 15.9: Clicking the Let’s go button to run payroll

3. On the next screen, you will select employees and enter the payroll hours, as indicated in Figure 15.10:

   

   Figure 15.10: Selecting employees to run payroll for

   A brief explanation of the payroll processing screen follows:

   • Bank account: From the drop-down menu, select the payroll bank account you created in the previous section on setting up your payroll. Once you select the account, the current balance will appear to the right of the account name.
   • Pay period: The Pay period field will automatically be populated based on the payment schedule you created in the previous section on setting up the payroll.
   • Pay date: This field will automatically be populated based on the payroll schedule you created.
   • TOTAL PAY: The grand total of the payroll (including wages and taxes) will appear in the upper right-hand corner of the screen.
   • EMPLOYEE: Select all employees or specific employees to pay by putting the green checkmark in the box to the left of the employee column.
   • PAY METHOD: A symbol representing the payment method (direct deposit or paper check) will appear in this field.
   • SALARY: For salaried employees, the salary amount for the pay period will automatically appear in this field.
   • REGULAR PAY HRS: For hourly employees, you will need to enter the number of hours worked for the pay period.
   • MEMO: Enter in this field any additional information that you want to document regarding the payment.
   • TOTAL PAY: This column includes the total gross pay for each employee.
4. Click the Next button to save the information.
5. After entering the payroll hours, you can review the total payroll cost on the next screen:

   

   Figure 15.11: Reviewing payroll details and submitting

   The preceding screenshot provides a high-level overview of the current payroll being processed. As you can see, the total payroll cost is $4,463.23. This comprises $340.15 in employer payroll taxes, employee payroll taxes of $1,375.31, and net pay of $2,747.77 for two employees. Paper checks will be issued to these employees on 10/25/2019.

   Click the Next button to save the information.

6. On the next screen, you will submit payroll for processing, as indicated in Figure 15.12:

   

   Figure 15.12: Clicking the Submit payroll button to process payroll

   Here, you can do a final review of each employee’s payroll check. Once you are satisfied, click the Submit payroll button as indicated to process the payroll checks. If employees have opted for direct deposit, they will be able to view their paystubs by logging in to the employee portal you invited them to during the setup process. If employees elected to receive a paper check, you will follow the onscreen prompts to print payroll checks.

   Watch this Intuit video tutorial, which recaps how to run payroll: https://youtu.be/dH2HPSIRDTQ.

Now that you have learned how to properly set up employees and run payroll, it’s time to learn how to generate payroll reports. QuickBooks includes several summaries and detailed reports that will give you insight into total employee costs and employer costs.

Generating payroll reports

By now, you know that QBO includes a library of preset reports that provide business owners with an insight into every aspect of their business. There are several summaries and detailed reports you can generate to gain insight into your payroll costs, payroll deductions and contributions, vacation and sick leave, and payroll taxes. These reports will help you to complete payroll tax forms and make payroll tax payments to the appropriate state and federal tax authorities.

Follow these steps to generate payroll reports:

1. Click on Reports on the left navigation bar, as indicated in Figure 15.13:

   

   Figure 15.13: Navigating to the Reports Center

2. Scroll down to the Payroll section and you will see several reports, as indicated in Figure 15.14:

   

   Figure 15.14: Payroll reports available in QBO

3. The following is a brief description of the information you will find on five key payroll reports:
   • Paycheck List: This report includes a list of paychecks that have been issued. You can use this report to edit check numbers, print pay stubs, and more.
   • Payroll Deductions/Contributions: This report details payroll deductions by employee as well as employer contributions made for each pay period.
   • Payroll Summary by Employee: This is a comprehensive report that includes wages, deductions, and taxes totaled by the employee or payroll period.
   • Total Payroll Cost: This report includes all costs associated with paying employees, such as total pay, net pay, deductions, and taxes.
   • Vacation and Sick Leave: This report details the total vacation and sick pay that has been used as well as the remaining balance left.
4. To generate a report, simply click on the report and select the pay period you would like to see data for. Similar to other QBO reports, you can save payroll reports as PDF files or export them to Excel. Refer to Chapter 11, Report Center Overview, for step-by-step instructions on how this works.

One of the key benefits of generating reports is that the information you need to file payroll tax forms and make payroll tax payments is included. In the next section, we will discuss your options for filing and making payroll tax payments.

Filing payroll tax forms and payments

Employers are required to file payroll tax forms and make payroll tax payments at both the federal and state level. The due dates will vary by employer and are generally based on the dollar amount of the payroll and other factors specific to your business. The IRS.gov website (http://IRS.gov) is the best resource for finding out what the federal requirements are. At the state level, you should contact the Employment Development Department (EDD) to learn what the requirements are for your state. As discussed in the Setting up payroll section, you will need to obtain a state employer ID number. Once you do so, you should receive information about filing and paying state payroll taxes, if applicable.

There are a few key reports that you should generate to assist you with completing payroll tax forms:

• Payroll Tax Liability: This report provides you with the details of how much payroll tax you are required to pay and how much you have already paid to state and federal tax authorities.
• Payroll Tax Payments: This report provides you with the details of all tax payments you have made.
• Payroll Tax and Wage Summary: This report shows total and taxable wages that are subject to federal and province/region/state withholding.

  Pro Tip: If you sign up for the payroll QuickBooks Elite plan, Intuit will file all of your tax forms and submit all payroll tax payments for you. However, if you sign up for the Core or Premium plans, you will be responsible for filing all paperwork and making all payroll tax payments before the due date.

As discussed, it’s important to file all payroll tax forms and mail payroll tax payments before they are due. Otherwise, you could be subject to hefty penalties and fines if you do not. Contact the IRS to get information about federal forms and due dates, and contact the EDD in your state for information regarding the state forms and due dates.

Summary

We have met our goal for this chapter of showing you how to manage your payroll from start to finish. To recap, you now know what information is required to set up employees and how to set them up. We covered how to enter the hours for each pay period and submit payroll for processing. You know what payroll reports are available so that you can gain insight into your total payroll costs, and finally, we discussed the importance of filing payroll tax forms and submitting payroll tax payments on time. You are now equipped to add employees, run your payroll, run payroll reports, and use this information to file your payroll tax returns. Be sure to consult with a CPA, HR professional, or a payroll expert to ensure payroll is set up properly. Otherwise, you run the risk of encountering errors, which could result in steep penalties.

In the next chapter, we will cover how to manage 1099 contractors. While these folks are not employees, you will need to set them up in QuickBooks to properly track payments for reporting purposes.

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