 QuickBooks Online 2024 Employee Section Payroll Process. Get ready because we're hiking on QuickBooks Online, our audit trail to success. Here we are online in our browser searching for QuickBooks Online Test Drive, looking for the result that has Intuit.com and the URL Intuit being the owner of QuickBooks, selecting the United States version of the software and verifying that we're not a robot. Opening the reports on the left hand side like we do every time we're in the favorites, we're going to be right clicking on the balance sheet to open link in new tab, right clicking on the profit and loss to open the link in the new tab. Going to that middle tab up top to check out the balance sheet, closing up the hamburger, and then tabbing to the right, first a word from our sponsor. 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And yes, I know six pack isn't spelled right, but three letters is more efficient than four. So I trimmed it down a bit, okay? It's an improvement. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Closing the hamburger, there's our profit and loss or income statement. Let's go back to the first tab. That's the data input process that we do every time. We're going to do our data input on the first tab. Look at the results on the reports to the tabs to the right. If I select the dropdown in prior presentations, we've been thinking about the bookkeeping process in general, which happens, of course, in cycles. And then within the cycle of the bookkeeping process, we have further cycles of the customer cycle or accounts receivable or sales cycle, the vendor cycle, or you might call it purchases or bills cycle. And then we have the employee cycle, which is our point of focus this time. Note that the employee cycle is basically kind of like part of the vendor cycle in that it's money going out for the purchases of this case services. However, due to the fact of regulation and taxation and whatnot, the employee cycle can get quite complex and therefore is a specialty field in and of itself. And the specialty field will be dependent largely on regulations that might have to do with taxes and other types of regulations, which will differ from place to place. So in the United States, we have payroll taxes that we have to deal with both on a federal level, and then you might have different taxes on the state level. You might have different tax implications and regulations in different locations in different countries, for example. So payroll, therefore, is one of the things that often is differentiating, will be different from place to place, more than many other things within the accounting realm, because in general, everybody's using the double-entry accounting system. The thing that makes payroll complicated is the different laws and regulations. Laws and regulations are going to differ from location to location. So the next thing we want to know about the payroll is that we have options on how we're going to deal with payroll. So we could deal with payroll by processing the payroll internally within QuickBooks so we can purchase the add-on feature and with just about any kind of software, it is an add-on feature to generally process the payroll within your accounting system. Or you can choose to run the payroll outside of your accounting system, possibly using a third-party provider like an ADP or a Paychex, those are just the large ones, but there's a lot of different payroll providers that you can work with so that they can help you to process the payroll and help you with the quarterly reports and that kind of thing, and you have different kind of needs in terms of how you're going to get that data into the QuickBooks system if you wanted to go that route. Before you even deal with payroll, if you're a sole proprietor, for example, and you're thinking about expanding, then the question is how do I want to expand? There's a few different ways that you could do it. You need more people involved, how could you do it? Well, one way is you could try to hire contractors. Remember that contractors are different than employees and from the United States IRS standpoint, they try to make it a very specific red-line difference between the two and the idea would be if the contractor is doing their own work and just completing a particular job, then you can hire them as a contractor, but if you are the one that's directing them on a day-by-day task-by-task basis, you would think they would have to be recognized as an employee in that case. The IRS typically likes the structure of an employee-employee relationship due to the fact that they can force the employer to act as their tax collector requiring them to make withholdings of their employee's wages, whereas if you're a contractor, the employee doesn't have as much of that burden, although they still might have to report 1099s, it's far less reporting and therefore the IRS has to go after the other person themselves instead of making the employer do it. So that's why you want to be careful if you're making the decision whether you're hiring someone as a contractor or an employee. If you want them as a contractor, you've got to make sure that they are qualified as a contractor. The other thing that you can do is you might say that you're going to hire a partner or put equity interests into the company and that way you can share the revenue, but obviously with that kind of system now you've taken on someone else that has a say in the decision-making in the business and so there's going to be a trade-off with that kind of method as well. So we're here of course focusing in on the situation where you've hired employees and if you hire employees, you've got to deal with the processing of the payroll. Let's first take a look at the Intuit website just to give you an idea that the payroll is something separate that you can add on. So for example, if I go to Intuit.com, the owner of QuickBooks, and we go into the QuickBooks section and then I'm going to go all the way down to the bottom of the page where we have the products and services and then you can go into the payroll down here and check out the options. So if I go into the payroll and then I look at the C plans and pricing, then it gives you an idea of the payroll plans and prices. Now if when you actually purchase the QuickBooks software, QuickBooks Online, it will typically through the purchase process have an add-on feature or a plus-up thing that will say, do you want to add payroll? And so then you can add it during that time as well when you make the purchase of QuickBooks. Just know that when you purchase the payroll of QuickBooks, it's going to be added on. It's an added-on type of thing that you'll have to pay for. So you're going to have to pay for it one way or the other. Now some people might still try to say they're going to process payroll without support from QuickBooks or some third-party provider. Not probably not a good idea generally because even if you're experienced in payroll and even if you only have a couple people that you're dealing with payroll for, it can get quite complicated because again you have the state needs, you have the federal needs and then you end up with these caps when you calculate the payroll that could be a little bit confusing. You also have to report the payroll on a year-to-date basis as well as a pay-by-pay basis and you have to make sure that you provide that information to each employee for each payment and so on and so forth. So it actually is one of those things where every calculation isn't that complex but when you start to add them together even with just a couple people, it becomes complex just due to the number of things that are happening. So software is clearly very helpful. We also don't generally want to mess up payroll because you kind of end up with a double hit from the IRS perspective if you don't pay your payroll taxes because if you don't pay your payroll taxes, that means that you withheld money from your employees and didn't pay the taxes. So when businesses run into cash flow issues, you really don't want to try to not pay your employees and their payroll taxes because the IRS can see it as you took their money in essence because you withheld it because they forced you to and you didn't pay it. So instead of just not paying your own taxes, it's kind of a double hit. So you want to be careful on the payroll making sure that you get the payroll process. It's also difficult to change payrolls. It's a little bit more painful to change from one payroll system to another, especially in the middle of the year. So whatever system you set up when you start payroll, you would like that to be the system that will be able to move forward with you as you grow and move forward. Okay, so the general item with payroll, if you're in QuickBooks, the payroll is in its own tab on the left-hand side. Here's what we might call the payroll center. If I hit the plus button up top, you've got the employees and the forms processed in the payroll, single-time activity, weekly timesheet, ad employee and ad contractor. But most likely when you're dealing with the payroll, you're probably going to be going down to your payroll center on the left-hand side. If you had not set payroll up, then you might have an option on the left to turn on payroll and purchase payroll. When we set up a new company file in a separate course or section, hopefully we'll be able to get a version of payroll to practice with so we can take a look at at least setting up the payroll. However, the other thing that's difficult with practicing payroll is that QuickBooks is designed to process payroll in real time, meaning as you go, the dates become important to go through a practice problem. So it's more difficult to kind of work a practice problem in the future. And if you're working on just one static date in time, no time has passed to process the payroll. So it becomes a little bit difficult to practice with the payroll, but we'll take a look at it a little bit here, and it is a specialty field, so you can check out other courses and presentations specifically designated to payroll. So once the payroll is set up, though, of course, we have to set up our employees so we can add the employees. When we add the employees, we got to make sure that we have the information necessary to do so. Usually that comes from their W-4 form. And then once the payroll has been set up within here, we can process the payroll and we can go up and we can process the payroll which will record the payroll transactions. Now, this is the test version which isn't fully dynamic with regards to the payroll. So let me just give you an overview of the general concept of it with a flow chart. So I'm going to go to my flow chart over here. This is a QuickBooks desktop flow chart, but the payroll process is basically the same in terms of the functions that need to be handled within the payroll process. So the first thing is if you have hourly employees, you've got to track their time somehow because you're going to pay them by hour. So if that's the case, you could enter the time within QuickBooks, but you might track the time outside of QuickBooks as well and just enter the time sheet when the payroll comes into play. The time entry within QuickBooks is often useful not just to populate the hours to process payroll, but also to then bill clients on, right? You might create an invoice based on the hours that were worked and so on. And then when you process the payroll, which might happen on different periodic schedules depending on your decision as to how you set up the payroll. Are you going to process the payroll, for example, weekly, bi-weekly, semi-monthly or monthly? Those are the normal kind of payroll process times. If you process the payroll, let's say you processed it monthly, for example, then you would pay the employees. This is the form that would actually generate the paychecks and come up with the most complex transaction involved in the payroll. Why is it complex? Because in the United States, you have to then pay the employees, but it's not like you just write them a check as you would when you pay other vendors and whatnot. You have to make withholdings. And in the United States, we have federal withholdings and then you might possibly have state withholdings. So we have to take out of their check before we give it to them the Social Security, Medicare and, well, Social Security, Medicare and the federal income taxes. And when I say federal income taxes, I mean their federal income taxes, their employees, not ours. We're going to have to pay our own federal income taxes, but this is us acting as the tax collector on behalf of the government because they made us taking the money out of their paycheck before they even get it and then paying it directly to the government. So what that means is we've reduced their pay, we put it into a liability account, and then we're going to have to pay it to the government on behalf of the employees. And we also might have voluntary withholdings, such as a 401k plan or some other kind of pension, retirement type of plan, healthcare and that kind of stuff. And you might have state withholdings that you have to deal with which will be different from state to state, which will be a similar process. We would take it out of their check before they even get it and we'd have to record it as a liability and then pay it to the government. Now, we also have to report to the employee that we did that on a paycheck by paycheck basis and year-to-date basis with a pay stub even if we give them an electronic payment, which becomes quite tedious. That becomes a lot of transactions to deal with. And then once we withhold the liabilities, we're going to have to pay the liabilities to the institutions that we owe them to, such as the federal government for Social Security, Medicare and the federal income tax we withheld and the state governments for any state taxes that we withheld and then the other institutions that were voluntary like insurance and that kind of stuff or 401k. And then we're also going to have to process the payroll forms, which typically happen in the United States at least on the federal side. Four times a year, you've got the 941s. Normally four times a year could depend on how big, how much payroll you have. And the 941s are kind of similar to your individual form 1040. In other words, when we process the 941s, we should have already paid the tax. When we process the 941s, they should just be an informational return saying, hey, look, this is the payroll for the quarter and this is how much we paid and it matches and that's what it should basically look like. And unlike the 1040, it should be exact because the 1040, when we look at the individual income taxes is way more complex. So you can't get it to be exact. That's why we shoot for a refund so that we don't get hit with penalties. But with the payroll, it should basically be exact. And then you've got the year end 940, which is the FUTA, Federal Unemployment Tax that you have to file as well. And then of course the W-2s that you have to send out to the employees so they can do their taxes and then you've got the W-3 which is the summary of all the W-2s you have to give to the government. So you can see it's fairly complex of a process and if you have no experience with payroll, you know, QuickBooks could help you to set it up but it's still probably going to take some time to really understand what's going on if you do it internally. If you do it internally though, that means that if you process it properly, as you enter the payroll, it will properly populate into the financial statements, balance sheet income statement and give you the related reports necessary to help you to track and prepare the quarterly returns and year end returns to 941s, the 940, the W-2s and the W-3. What if you say you don't want to do it internally and you say, I'm going to be paying for payroll anyways therefore why don't I just pay a third party to deal with that? They process the payroll. That probably will cost a little bit more than purchasing it through payroll you would think, but if it's complex or if you have no idea what's going on with the payroll that might be a way to go. You would still however need to get the information from the third party provider to do quick books so you can at least do your taxes within quick books and that might be done by having a connection between the two forms if that's possible an app, but you can also basically just take the statements that have been created periodically and then enter the transactions into the system. If you do it that way there's a few different ways for your accounting system. You might even be able to try to keep your system on a cash based system even though you're processing payroll and possibly allow your bookkeeper or your CPA at the end of the year or your tax preparer if they're knowledgeable in the system to make the periodic adjustment to an accrual basis or whatever they need to do periodically at the end of the year which could be a good system that the payroll provider knows what they're doing you're the bookkeeper you know how to enter your system into your system which you might be able to keep on a cash based system for the most part and just process the payroll as it clears the bank account maybe and then you have a good tax preparer or CPA that at the end of the year when they make the financial statements and or prepare the taxes they could make the periodic adjustments according to the reports from the third party provider and that way if you're a bookkeeper that's trying to scale up if you have a good team of people that you're working with then that kind of system could work so that's just a general overview of the payroll we'll talk a little bit more about the payroll when we go into the practice problem of in a future course or section but again the whole thing in and of itself a specialty in and of itself so you could look into a whole other courses on dealing with more of the nuances of processing the payroll