Payroll Service Tips in QuickBooks: How to Enter Payroll Prepared by an Outside Company

Payroll Service Tips in QuickBooks: How to Enter Payroll Prepared by an Outside Company

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Entrepreneur Magazine agrees that outsourcing your payroll is a good idea for many small businesses. The time savings alone is worth it, let alone the avoiding the headaches, potential government fines for payroll mistakes, and upset employees when payroll is late. But while you may have the pleasure of dodging these chores, you may be wondering how to enter payroll on into your Quickbooks when it is prepared by an outside company. No worries – we have a few payroll service tips for you here.

Payroll Service Tips #1: Identify the Problem:

The biggest obstacle to entering the payroll expense is that the checking account for payroll never matches up to your total salaries paid. This happens for one of two reasons:

  1. The amount you pay your payroll provider is lower than your salary expense because of employee deductions. This happens to small businesses that handle their own payroll taxes.
  2. The amount you pay is higher because employer-paid payroll taxes are tacked on. This happens to companies that pay payroll taxes through the payroll service.

Payroll Service Tips # 2: Know the Terms

In order to enter payroll correctly, you’ll need to be very clear on the difference between gross payroll and net payroll.

  • Gross Payroll is the total amount you pay your employees before deductions.  This will be entered as your payroll expense.
  • Net payroll is what your employees are paid after deductions. This is a mixture of payroll expense and payroll liabilities that need to be paid sometime in the future. For example, state and federal payroll taxes, medical insurance, 401(k) contributions, etc. These items are not categorized as payroll expenses because your employee is paying them rather than you.

Payroll Service Tips #3: Understand the difference between payroll liabilities and expenses

In order to enter payroll correctly, you must know the difference between payroll liabilities and payroll expenses. This is a very common mistake made by both business owners and bookkeepers.

  • Payroll liabilities are line items deducted from your employees check that will later be distributed.  Payroll taxes, 401k contributions, medical insurance premiums, etc. should all be considered payroll liabilities if they are deducted out of your employee’s checks.  The reason being is that you will withhold them from your employee’s checks (setting up the liability) and later distribute them to some other entity, “i.e” the government, the investment company, the insurance company, etc. When the withholdings are distributed, the liability zeros out.
  • Payroll expenses are costs to the employer related to payroll.  Gross wages, employer payroll taxes, and payroll service fees are all examples of payroll expenses. These are paid by the employer, not the employee.

Ask for your accountant’s help to enter the payroll entry

The payroll amount deducted from your checking account will need to be allocated to several accounts.  Ask your accountant to help you set up the allocation.  PayTech offers payroll allocations and reconciliation to federal and state payroll reports as part of our standard monthly accounting services. We will handle these entries for you or teach you how to enter the breakdown on your own.

If you’re struggling with your current payroll provider and are looking for a company that is more intuitive, places a high value on customer service, and is incredibly professional, then you need to check out . We’ve been helping numerous companies around the US to simplify their payroll and take the “pain” out of payroll.

We also offer extensive help in the Human Resources and Accounting fields. Our HR and accounting teams work seamlessly with our payroll advisors to ensure that your company operates smoothly. We know that you put a lot of hard work and sacrifice into your business. In just a flash an accounting error could cost your thousands in taxes and fines or an HR complaint could put you in a  legal battle that cripples your business (and personal life). We’ve got all of the safety precautions mapped out for you so you can rest easy knowing you’re covered. We know you’ve got a lot to focus on, let us take these time-consuming tasks off your plate. Check us out online today.


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