QuickBooks - Setting Up Payroll Items

Payroll Items are the key to tracking payroll expenses and liabilities in QuickBooks.

In a previous blog I talked about setting up customized payroll in QuickBooks. At that time I mentioned that in order to complete the process, it was necessary to set up the necessary Payroll Items. QuickBooks uses Items to control how transactions are recorded in the Chart of Accounts, but Payroll Items are a separate menu item under the Lists menu.

The purpose of this blog will not be to discuss the details in setting up Payroll Items. It will be to simply outline this feature of the software. Detailed instructions can be found in the QuickBooks Manual provided on the Downloads page.

Setting up a Payroll Item is a two-step process. First, the Item must be created in QuickBooks, and second, the Item must be customized so transactions using it are directed to the correct account in the Chart of Accounts.

There are six types of Payroll Items using the EZ Setup feature:

• Compensation (such as wages, salaries, bonuses, and commissions)

• Insurance Benefits Deductions (such as health, dental & vision insurance, and HSA deductions)

• Retirement Benefits Deductions (such as 401(k), SEP, and SIMPLE plans)

• Paid Time Off (sick time, vacation time, and holidays)

• Other Additions (such as expense reimbursements, non-taxable company contributions)

• Other Deductions (such as garnishments, union dues)

After creating a Payroll Item, the user must then double-click on the Item in the Payroll Items list in order to edit it. At this point the user can select which account in the Chart of Accounts any transaction using this item will be recorded in.

However, in order to set up payroll tax withholding items, the user must use the Custom Setup. Payroll taxes are deducted from an employee's paycheck and held by the employer until the funds are deposited with the appropriate tax agency. Therefore, the deduction creates a liability for the employer. So each payroll tax item should be linked to a liability account so the employer can track undeposited taxes on its balance sheet.

The above explanation is obviously very general because the process can be complex. But if the process is customized properly, then an employer can use QuickBooks Payroll successfully.