As an employer, one of your employees’ duties is making sure that they get their salaries correctly and on time. However, payroll can be a tricky process, especially if you have several employees. You consider all the factors that can affect the payroll’s final amount, such as taxes, overtime differentials, and bonuses.
Since payroll can be difficult to understand for people who don’t have a strong accounting background, many small business owners prefer to use accounting software such as QuickBooks to streamline their payroll process. Using QuickBooks allows employers to create, edit, and print out business checks to pay for their employee salaries with a simple click! What’s more, using business checks for QuickBooks means that you will have a much easier time when it comes to record-keeping.
Entering Payroll into QuickBooks: Understanding the Deductions
While an employee’s salary is usually fixed or, at least, quite easy to calculate based on the hours worked, employers usually make mistakes when it comes to the deductibles. Here is a quick way to break down an employee’s base salary and which taxes you can remove using the QuickBooks system.
Net Pay
An employee’s net pay is calculated as their gross income during a certain time period (a month, for example), minus the withholding amount. Their gross pay is the company’s expense for their services, while the withholding amount is owed to the government. The latter is placed into a liability account, cleared once the company pays taxes to the government.
Taxes
Taxes are split into two parts: the taxes on the employee and the taxes on the employer. The employee taxes are the employee’s taxes to their government, such as Medicare and Social Security taxes. These are the withholding amounts mentioned above. The employer’s share should match the employee’s amount, which comes out of the employer’s expenses and not out of the employee’s paycheck. This is the part that can get a little confusing for many business owners, and if they don’t use accounting software, they can easily miscalculate the final amount owed to the employee. In some cases, they can deduct the employment taxes from their employee salary, or they might pay both taxes. These cases can lead to incorrect salary amounts.
Fees
Most fees are placed as a payroll fee expense. As an employer, it will be at your discretion whether these fees will be part of your employee deductions or part of your company’s expenses.
How to Enter Payroll into QuickBooks: Two Easy Methods
Once you understand how to calculate the final salary owed to each employee, you can now choose how you will input all the information into the QuickBooks system to create the final and accurate payroll slips. You can choose between the summary method and the detailed method.
The summary method allows you to input all the financial information as a lump sum, and you will basically leave QuickBooks to sort out everything for you. All you need to do is make sure that the liabilities between you and your employee are clearly separated when you enter them into the software. This method is more suited for small business owners who only have several employees because it does not give a thorough breakdown of each salary and expense compared to the second method.
On the other hand, if you want a clearer accounting of your payroll expense, you can use the detailed method. When you use this method, you will create a new account in QuickBooks that you can call “Payroll Clearing.” You will then record the gross pay and the withholding amount into this account, which will result in a negative amount. Once you have calculated all the salaries, the final amount should be equal to the negative amount and cause it to become “0”. For larger companies that will have multiple employees that might have different salaries and taxes, this method will be able to give you a better recordkeeping and accounting process.
How Does All of This Benefit Me?
As already stated above, using QuickBooks to manage salaries will save you a lot of time, money, and effort when it comes to bookkeeping and accounting, especially since hiring a third-party accountant can be quite expensive! It also helps you have thorough and transparent records during tax season, which is always a handy thing to have around. Finally, it allows your employees to see how their taxes are being calculated so that you can avoid any problems in that area.
