I need a little help. I noticed that in the past the company that I am currently working for has never broke down payroll that is being processed through a third-party company. My question is: I went through the Chart of Accounts and the closest account that I see that would relate to Fed/State Unemployment tax, Workman's Compensation, FICA & Medicare Taxes is an account called Payroll Liabilities. Would I place all of the above expenses in that one account? Doesn't make sense. What should I do?
For the taxes that are withheld from the employee's paycheck (the ones you listed) are always booked to a Liability account. Payroll Liabilities would be okay. They are liabilities and not expenses. The company matched taxes get booked to a Payroll Tax expense line with the offset in the Liability account.
Some companies will separate them bwt 2 accounts. One for the state taxes and one for the Federal taxes. This makes it easier to see the amounts that go on the respective forms. I have even seen a third account for just the FUTA to isolate it from the rest of the Federal taxes.
The technical term we folks in the accounting biz call your task at hand is to "Gross UP" the payroll. The first decision that has to be made is how often this should be done, every check, every total payroll, once per month, once per quarter, or once a year?
The second is devising the actual mechanics of performing the Gross Up". My best advice is to call in your accountant and have him/her help you set up the procedure. Accountants perform this task often and over time developed fast and efficient methods of doing this. They are also familiar with your company's tax and reporting needs and can guide you in just how much detail must be accounted for. Over time if set up properly you can save yourself hundreds of hours of work by getting professional advice at the begining.
The third-party is already "grossing up" the payroll. The OP is just trying to determine how to record the taxes and liabilities in QB. She's not trying to do the payroll herself.
It integrates with QB nicely. They do all the calculations for you and you just download the info into QB. You pay the taxes but they tell you the information that you need. This is how most 3rd party payroll services work.
They charge a fee for their services. It's not free. Fees range from $20 to $75 per month depending on which service you use (paycycle, ADP, paychex are a few examples) and how many employees you have. The hardest part of payroll is setting it up initially. Once that is done they just receive the number of hours from the company and push the buttons. Some even offer direct deposit so they don't even have to deal with mailing checks back to the company. I know of several bookkeepers that do payroll for their clients but have actually outsourced it to paycycle. No scam.
Have you ever done payroll to know how much time/energy is involved? Many people don't want to do payroll because of fears that they will mess it up. Others don't have more than a part time bookkeeper and can not afford the downtime while the payroll is being completed. They would rather let the experts do it. It can be time consuming so for some they feel the extra expense is worth it. YMMV.
That is all true. As well, smaller employers may want that level of privacy, in that, no employee knows what's going on with payroll (for better or worse), who makes what, who has garnishments, who gets what benefits, who has this and that withholding, who got a bonus, who did not.
Keeps the water cooler chit-chat focused on sports, religion or politics.
Would y'all please take this to a single group (preferably one that is interested) and set your follow-ups accordingly? I think it is rude to broadcast such trivia all over multiple groups that are not interested in this chit-chat.
!-! rignt now it really does not matter to me. I just helped get almost two hundred extensions out the door. I'm about to open up a tasty 16 ounce can of Bud (The king of beers) and endeavor to hunt the agents of naughty.
Okay, here is how I interpret how payroll needs to be booked when outsourcing. It really depends on what kind of oursourcing company with which you are dealing. There are employee leasing and payroll processing companies and they are different... requiring different handling.
An employee leasing company (i.e. Gevity -
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processes payroll, but the contract is set up in such a way that they are a co-employer and the employer of record. W-2s carry their tax ID and the company which contracts with them is said toi be "leasing" employees from them. They are much more involved in the HR aspect of employment in addition to processing the payroll. However, since they are the employer of record for all employer taxes, what is paid to them can simply be booked as a payroll expense rather than in several different accounts. It is, after all, a simple leasing expense. Record keeping for audit purposes is their responsibility.
Now, if you use a payroll processing company (i.e. ADP -
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or Paychex -
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you retainthe liability for employer taxes; however, they will process them foryou. In this case, you really should use all the separate accountsand reconcile to their reports. Record keeping remains yourresponsibility and an audit would require that you have keptappropriate records. W-2s bear your tax ID. It's as if you did it inhouse, only you didn't. In both cases, you will still need to consult Publication 15B -
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in order to relay informationconcerning taxable fringe benefits throughout the year in time forthem to be processed on the W-2s. Given that your company's chart of accounts has no employer tax accounts, it is probable that your company using an employee leasing company to process payroll. You really should find out because if it is simply a payroll processing company, you really should fix the situation and create those accounts.
If you are now in control of the books, don't be afraid to fix past mistakes if needed. It is never too late to start doing things correctly. When I began working at my current company, there were a lot of mistakes that I had to correct. Some of which caught up with us long after the previous accountant had left and it frustrated me to have to pay penalties on "my watch;" however, I know that I have reduced the penalties from doing as I knew was correct during my employment rather than doing things the way they had always been done. Just because a predecessor did things incorrectly does not mean you have to.
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