The Complete Guide To Doing Payroll In QuickBooks
How To Set Up Your QuickBooks Payroll & Start Paying Your Employees
QuickBooks is a leader in the accounting industry because of its feature-packed software, which helps you balance the books, track expenses, and even pay your employees.
One of the standout features of QuickBooks Desktop is its payroll. This software makes it quick and easy to pay your employees on time each pay period while providing adding benefits to you such as calculating payroll taxes and even filling out tax forms.
Unfortunately, though, the purchase of your license or the monthly subscription fee for QuickBooks Desktop doesn’t include payroll. QuickBooks Enhanced Payroll is an add-on that costs an additional $50/month + $2/month per employee. You can pay for a year in advance and receive a discounted rate of $500/year + $2/month per employee. The good news, though, is that you may be able to give QuickBooks Payroll a test drive through a 30-day free trial before you make the commitment. You may also qualify for discounts, which are available through the QuickBooks Payroll website.
Some more good news? Once you’re signed up for a subscription, QuickBooks Payroll can be accessed easily through your QuickBooks Desktop dashboard — no additional downloads are required. Within minutes, you can set up and process your payroll.
In this guide, we’ll walk you through all of the steps to get your payroll off the ground in QuickBooks Desktop, from helping you gather the proper documentation to submitting your first payroll successfully. Ready to pay your employees? Let’s get started with QuickBooks Payroll.
Are you using QuickBooks Online? Check out our guide How To Do Payroll In QuickBooks Online to get started.
What You Need To Do Payroll In QuickBooks
To make the process of setting up QuickBooks payroll as quick and easy as possible, gather the necessary documentation and information first before you even get started with the software. We’ll go through everything you need to set up and process payroll. Later on in this post, we’ll go step-by-step through the process so you’ll know exactly when to use these documents and information.
- W-4s: For tax purposes, you’ll need a completed and signed W-4 for each employee.
- Pay Rates: What does each employee make within your company? Are they hourly, salaried, or commission-only?
- Pay Schedule: How often do you pay your employees: weekly, bi-weekly, monthly, or on another schedule?
- Basic Employee Information: You will need basic information for each employee, including their legal name, address, birth date, hire date, and termination date (if applicable).
- Deductions: If your employees have certain deductions, you should know the type of deduction and the amount. Some common paycheck deductions include wage garnishments, employee contributions to retirement accounts, and health insurance premiums.
- Sick Time & Vacation Hours: What are your company’s policies on sick time and vacation hours? Before setting up payroll, you should know this policy, as well as have documentation of current balances for each employee.
- Compensation & Additions: To set up payroll, you’ll need information about compensation and paycheck additions for each employee. Some of the most common include mileage reimbursements, travel reimbursements, cash advances, or Flexible Spending Accounts.
- Direct Deposit Information: If you offer direct deposit, you’ll need the routing and account numbers for each employee that prefers direct deposit over receiving a paper check. Have each employee fill out a direct deposit authorization form and provide a voided check to help make the process error- and hassle-free.
- Company Bank Account Information: If you’re going to use direct deposit, you’ll also need to have your business bank account information handy so that funds can be drawn from your account and paid to your employees.
- Tax Information: It’s no secret that you have to file and pay taxes. To simplify the payroll tax process, make sure you have information on hand, including your state ID numbers and Federal Employer Identification Number (FEIN).
- Prior Payroll Information: If you’ve currently been paying your employees, have your prior payroll information on hand so that payroll taxes can be accurately calculated.
- QuickBooks Payroll Subscription: Unfortunately, QuickBooks Payroll does cost an additional fee each month. Make sure that you have signed up for the plan that’s best for your business. This can be done directly through the software or by visiting the QuickBooks Payroll website.
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How To Set Up QuickBooks Payroll
Sometimes, QuickBooks Desktop can get a bit confusing.
Fortunately, when it comes to payroll, Intuit has really simplified the process with a step-by-step payroll setup tool that walks you through the process. Let’s go through this process together so you can have your payroll up and running in no time.
If you’re still feeling uncertain before you get started, you can always practice using a sample company file like I’m using for this guide. This allows you to practice and test out payroll to get the hang of the system before running your own payroll. Whether you’re using your own company file or a sample, follow these steps to get started.
Step 1: Open QuickBooks Payroll Setup
Once you’ve gathered all of your documentation, it’s time to get started with setting up your payroll. Start by opening the QuickBooks Payroll Setup tool. This can be done by selecting “Employees” at the top of your screen, then selecting “Payroll Center” from the dropdown menu. Once the Payroll Center opens, select the menu option “Payroll Setup” to get started.
Step 2: Set Up Compensation
Once you’ve opened the Payroll Setup tool, the first step is to enter and/or confirm information about your company’s benefits and compensation.
For compensation, there are several options that may be used by your business. Those include:
- Overtime Rate: Overtime pay for hourly employees.
- Regular Pay: Hourly pay for employees.
- Salary: Used for employees that receive a salary.
- Bonus: Used for any bonus payments.
- Mileage Reimbursement: Used if you reimburse employees for miles driven.
You have three options in this menu. You can delete any type of compensation not used by your company. You can also add any additional compensation that’s not already on your list. You can also edit entries on your list. If you choose to edit entries, you can change how the compensation is shown on paychecks, make the payroll item active or inactive, select the account type, and change the account name.
Once you’ve confirmed these entries, click Continue, and you will move on to the next section: Employee Benefits.
Step 3: Set Up Employee Benefits
In this section, you’ll add and edit employee benefits offered by your company. You’ll also add pay additions (such as mileage reimbursements or cash advances) and deductions (such as wage garnishments.) Some options include:
- Insurance Benefits: Workman’s Comp
- Retirement Benefits: 401(k), Simple IRA, 403(b), 408(k)(6)SEP, 457(b)
- Paid Time Off: Sick Hourly, Sick Salary, Vacation Hourly, Vacation Salary
- Miscellaneous: Direct Deposit, Health Insurance
Now that you have all of your compensation, benefits, additions, and deductions added, it’s time to add the numbers for each employee.
Step 4: Set Up Employees
Remember those W-4s and pay rates from earlier? It’s time to pull those out because we’re going to set up your employees.
To set up a new employee, start by selecting the “Add New” option. In this section, you’ll need to provide the following information:
- Legal name
- Contact information
- Employee type
- Social Security Number
- Hire date
- Release date
Pay Rates & Schedules
After entering this information, you’ll need to input the employee’s pay rate and schedule. You can also set overtime rates or add a bonus, as well as mileage reimbursement and health insurance costs.
Next, you will input how sick pay is calculated. You will need to enter information, including how many hours of sick pay the employee receives, when these hours begin (i.e., at the beginning of each year), what happens to unused sick hours, and current balances. Once you’ve entered this information, you will do the same for vacation pay.
If your employees are receiving their pay via direct deposit, the next step is to add this information.
You can set up direct deposit for up to two accounts per employee. You also have the option to provide your employees with prepaid cards that can be used to receive their direct deposits. Cards can be requested through the setup tool. If you opt not to use direct deposit, you can pay your employees with a paper check.
State Tax Withholdings
After setting up direct deposit information, you will answer some tax questions about the employee. These include:
- State subject to withholding
- State subject to unemployment tax
- Did the employee live or work in another state?
Confused as to how to fill this out? Fortunately, QuickBooks has help menus throughout the setup process, making it easier for you to ensure that your payroll is set up correctly.
Federal & State Tax Information
For this section, pull out the employee’s W-4. Use the information provided on the form to enter the employee’s filing status, number of allowances, extra withholding amounts, and other withholdings and credits.
Once you click “Next,” you will provide the same information for the state.
After wrapping up this section, you’ll be able to save the employee’s information. The employee’s name, social security number, and a summary should now appear in the Employee List.
If there is missing information or an error, the error will appear on the Employee List. Review each entry for error notifications and correct each as needed. The summary section in the Employee List will specify the exact error, so you don’t have to fumble around trying to figure out what is incorrect or missing.
You can revisit the Employee List as needed to update employee information, correct errors, add new employees, or delete employees as needed.
Step 5: Set Up Payroll Taxes
Paying taxes is a burden that we just can’t avoid. However, you can make the process a little less painful by using QuickBooks Desktop to calculate and even file and pay your payroll taxes. Let’s walk through how to set up your payroll taxes.
When you enter the Federal Taxes section, you’ll notice that QuickBooks has already set up several different taxes. This includes federal withholding, federal unemployment, Medicare for the company and the employee, and Social Security for the company and the employee.
The rates for these taxes are already set, so you don’t have to worry about calculating rates. However, you do have the option to Edit each type of tax by changing how it is shown on paychecks, editing the expense account, or editing the liability account. In most cases, you won’t be making any extensive edits in this section.
The next section is State Taxes. In this section, you may have to make some edits. There are several state taxes already set up for you, including state withholding and employee disability. The description shows the current rate.
However, if these rates need to be corrected, simply click on the tax that requires the correction, select “Next,” and make the necessary changes. If you’re unsure of the rates, click the link marked “Explain,” and QuickBooks provides more information. Once all changes have been made, save your changes and proceed to the next section.
In this section, you’ll set up your required tax payments. In the Scheduled Payments column, the types of payments are listed. In the Description column, the method of payment and the frequency of payments are listed. You can edit information such as the frequency or the payee by highlighting the payment and selecting the Edit option.
Step 6: Enter Year-To-Date Payrolls
If you’re paying employees for the first time, you can skip over this section. However, if you have employees that have been paid in the current year, you’ll be required to input year-to-date payrolls in order to make sure that tax payments and paychecks are accurate.
This section may take a bit of time depending on the number of employees you’ve paid and the number of checks issued.
Fortunately, QuickBooks has detailed instructions right on the page, and the tool is pretty easy to use. You will input information such as the check date, pay period, check number, employee pay, and tax withholdings. This step will need to be completed for every employee that has been paid in the current year prior to using QuickBooks Payroll.
Next, you’ll need to enter payroll tax payments that have already been made.
QuickBooks will calculate the amount you’re required to pay, compare it to the total you’ve already paid, and show your remaining balance.
Finally, you’ll enter non-tax payments such as workman’s comp and health insurance. Again, QuickBooks will calculate the amount owed and use what you’ve already paid to show any remaining balance due.
Step 7: Finish Up & Prepare To Run Your First Payroll
Congratulations! If you’ve done all of the steps as outlined and have entered all employee and tax information correctly, your payroll is now set up and ready to go. At this point, you are ready to run your first payroll. You also have the option to go back through the tool and make any additions or corrections as needed.
Though the setup is pretty lengthy, it’s important to make sure that you take your time to accurately enter all information to ensure that your employees are all paid the correct amount on time and that payroll taxes are accurately calculated, so you know exactly what needs to be paid and when to pay it.
How To Do QuickBooks Payroll
Now that you have everything set up, it’s time to process your first payroll. Just follow each step, take your time, and you’ll have your employees paid in no time!
Step 1: Set Pay Schedule
The first step you need to take is to make sure that your pay schedules are accurate. In the Payroll Center, your pay schedule(s) should appear based on the information you added when setting up your employees. The Payroll Center shows information including:
- When to process payroll by
- The payroll status
- Payroll schedule (frequency)
- Pay period
- Check date
If any of this information is inaccurate, you can use the payroll schedules button to edit, delete, or add a new payroll schedule.
Step 2: Start A Scheduled Payroll
Select your payroll schedule and click the Start A Scheduled Payroll option. In this section, you can review the payroll schedule, the number of employees being paid, the bank account being used to pay employees, the balance of that account, and check options. Check to make sure all information is correct and make edits as needed before selecting Continue.
Another thing to note is that if you’re running payroll off schedule, the Payroll Center also offers the option to run an unscheduled payroll.
Step 3: Check For Accuracy
Once you click Continue, you’ll be able to see a detailed breakdown of each employee’s paycheck. You’ll see gross pay, deductions, taxes, total hours, and other information for each employee. You’ll also be able to see accumulated totals for all employees. Check to ensure accuracy, then select Create Paychecks.
Step 4: Print Checks
Once you’ve selected Create Paychecks, you’ll see a pop-up that shows the number of paychecks available for printing and the number available for direct deposit. You’ll now have the option to print paychecks or paystubs. Once you return to the Payroll Center, you’ll see that the information for your next payroll is listed under the Create Paychecks section. The payroll that was just processed will be listed in the Recent Payrolls section.
Step 5: Explore Other Payroll Center Options
There are lots of options available directly in the Payroll Center. Some other tasks you can complete include:
- Setting up direct deposit
- Add employees
- Edit or void paychecks
- Create termination checks
- Print paychecks
- Run reports
- Pay taxes and liabilities
- File forms
If you don’t want to mess up your company file, using one of QuickBooks’ sample companies is an easy way to get the feel of the payroll system without worrying about making a potentially costly mistake.
If you get stuck at any point, go back through this guide or take advantage of the in-software support options to properly set up and process your payroll.
Tackle Your QuickBooks Payroll With Ease
Running payroll for the first time can be a little intimidating. But with QuickBooks, it’s all very straightforward and simple — even if you’re brand new to payroll and accounting. Just make sure to take your time, follow the steps in this guide, and utilize the help and support resources available to you within the software. Good luck!