How to Do Payroll in QuickBooks

Being efficient with your payroll as a small business owner is essential. This is because it can save you valuable time that you can then allocate to other areas of your business. 

In this guide, we break down everything you need to know about managing your QuickBooks payroll, including how you can get set up and what benefits you can reap along the way. 

Setting Up Payroll in QuickBooks

Setting up payroll in QuickBooks can be done easily and quickly, but you should expect to dedicate enough time at the start to ensure you import all of your payroll items and employee information correctly.

Note that QuickBooks offers different packages — all including different features — and so you will need to pick the one that is best tailored towards your business. 

All of the QuickBooks payroll packages offer the essentials when it comes to simple payroll features, including: 

  • Next-day deposit payments
  • Employee importing and paycheck production
  • Automatic deduction handling

However, the more premium packages can offer the following features:

  • Same-day direct deposit payments
  • HR support
  • Mobile tracking
  • Tax penalty protection

Creating New Payroll Items

On the home page, select the “Preferences” tab, and then select “Payroll and Employees.” Here, you will be able to choose the type of payroll system that you will use.

For example, you can choose:

  • Turning payroll on or off
  • Manual payroll handling: This is not recommended
  • Options that relate to workers’ compensation
  • Options that relate to sick and vacation pay

You will also be able to select several custom options that relate to your preferences. These include how your workers’ names will be displayed (e.g., first name or last name, whether their Social Security numbers are shown, etc.). 

After you have turned on QuickBooks payroll, you will need to begin setting up your payroll items through the QuickBooks main page. It is crucial that you do this before you import any employee information, as your payroll items will be used when setting up your employees. 

You need to follow the following steps:

Click on the ‘Employees’ Tab

From here, you will need to click on the “manage payroll items” option and then select the “new payroll item.”

This will allow you to view all of the existing payroll items that QuickBooks payroll will have included for you. 

These will likely include several of the “standard” payroll features that are displayed on employee paychecks. You should know that most users will need to add additional ones independently. 

Select ‘New Payroll Item’

When you click on the “New Payroll Item” option, you will need to choose between an “easy” and a “custom” setup. 

This is preferential, but we do generally recommend that readers choose the custom option as it allows them to obtain increased customizable. This can make QuickBooks more applicable in the long term. 

Select the Type of Payroll Item

You will then need to select the type of payroll item that you wish to create. QuickBooks will provide you with several options, including:

  • Wages (Hourly wages, annual salary, etc.)
  • Addition (Employee loan, mileage reimbursement, etc.)
  • Deductions (Union dues, 401(k) deferral, etc.)
  • Company contribution (Employer 401(k), HSA contribution, etc.)
  • Federal taxes (FUTA, FICA, etc.)
  • State taxes (state withholding, SDL, etc.)
  • Other taxes (local taxes, miscellaneous taxes, etc.)

Choose the Name of Your Payroll Item

After you have chosen the general category that your new payroll item will fall under, you need to name it. 

For example, if your category is deductions, you will want to specify the specific type of deduction that you will be withholding from your employees’ salaries (e.g., private healthcare benefits, 401(k) contributions, etc.). 

You will then need to input the name of the agency to which you will pay the amount withheld. Think of this as the “vendor” that you will be using when withholding an employee’s income. 

Finally, you will need to pick the “liability account” that you will use to track the expense or deduction in question. 

Choose Tax Tracking Type

This will determine how your payroll item will appear on your tax forms. If the category that you have chosen means that this is not applicable (i.e., if your payroll item would not appear on tax forms), you can select the “none” option and select next. 

You will also be able to select the specific types of taxes that will be affected by your new payroll item. An easy example of this would be any payroll item that would affect your employees’ taxable incomes (e.g., any pre-tax deductions). 

Calculate Payroll Items

When it comes to how your payroll items will be calculated, QuickBooks allows its users to choose between two options. You can choose for your payroll item to be calculated based on the quantity that you will manually enter or by the total number of hours worked. 

For example, if you want your payroll item to be calculated based on your employees’ regular pay and overtime hours — instead of a salary — you may choose the second option. 

Gross vs. Net Pay

Next, you will be able to choose whether you want your new payroll item to be calculated on your employees’ gross or net pay. 

This will be highly dependent on the type of payroll item in question. 

You will also be able to select a “default rate” for your item if you wish to, although this is not compulsory. If you are running a relatively small business with a few employees — all of which have different hourly rates and benefits — this will likely not be applicable to you. 

Nevertheless, it can be a very convenient option for businesses with a high amount of standardized costs (e.g., those offering the same benefits to all employees). 

Tip: Right-click on a payroll item and select the “edit” option to make any amendments if you need to after you have finished creating a new payroll item.

After you have finished creating all of your payroll items, you will need to organize your employees’ information within QuickBooks payroll.

Setting Up Employees

To set up your employees’ information, you will need to select the “Employees” option in your QuickBooks dashboard. 

This will take you to your “Employee Center,” which will allow you to see any previous employees that have been added, as well as make new additions and/or edits. 

Organize Your Employee Center

QuickBooks payroll will require you to provide the following information for each employ profile that you wish to create:

  • Legal name
  • Name on check (if applicable)
  • Marital status
  • Gender
  • Date of birth
  • Citizenship 
  • Ethnicity
  • Military status

You will additionally need to add your employees’ contact information (e.g., emergency contacts, ZIP code, city code, etc.)

Additional Information

The additional information tab can be used as a supplementary feature. For example, you may have employee IDs or numbers that you may want to include. You will also be able to include:

  • Employees’ spouse’s names
  • Date of last raise
  • Custom options

Payroll Information

In the payroll info tab, QuickBooks will ask you to detail whether the employee in question is on a certain “payroll schedule.” Payroll schedules can be very handy if your business has “groups” or classes of employees, which are paid differently from another.

For example, you may retain a few long-term salaried employees who are paid biweekly while also working with several temporary workers on zero-hour contracts who receive pay weekly. 

If every individual between these two distinct classes is paid the same, setting up a payroll schedule which can be assigned to each employee can be a very time-efficient option.

You will also be required to choose the most applicable type of pay that your employee will receive. The following options are provided:

  • Salary
  • Vacation salary
  • Overtime rate
  • Sickly pay
  • Regular pay

Additions, Deductions, and Company Contributions

You can use this tab to input any data that QuickBooks payroll can use to calculate your employees’ net pay. 

This is separated into the following tabs:

  • Direct deposits: You will need to set this up with your bank. Keep in mind that you should preferably use a business bank account.
  • Federal taxes: Here, you will be able to detail:
    • What Form W-4 your employees will use
    • Your employees’ allowances
    • Your employees’ filing statuses (e.g., single, married, etc.)
    • Your employees’ extra withholdings (if applicable)
    • The FICA taxes that your employees are subject to (these can have different income thresholds)
  • State and other taxes: This includes state unemployment taxes, miscellaneous taxes, and the option to detail which state is subject to withholding
  • Sick and vacation pay: The information required here is the same for sick and vacation pay:
    • Hours available
    • Hours claimed
    • Accrual period
    • Maximum amount that can be carried over into the following year

Employment Information

You will then need to include general employment information. This can be very general and includes:

  • Role
  • Date of commencement
  • Name of supervisor
  • Department of work
  • Type of employment contract

You will need to repeat this process for every single person that you employ if you want to handle all of your payroll through QuickBooks. 

Note: You will be able to access past emails that have been sent through QuickBooks payroll through the employee tab. You will also be able to see any previous transactions that are linked to your employees’ accounts

Paying Employees

After organizing both your payroll items and your employees’ information, you will be ready to start running your payroll and paying your employees. 

Click on the “Pay Employees” tab, and then select whether you want to create a “scheduled” or “unscheduled” payroll option. 

You will then need to input the following information:

  • The pay period ending date
  • The date that you are creating the payroll in question
  • The number of employees that this payroll will apply to
  • The bank account that you want the payment to be made from
  • How your paychecks will be printed (if applicable)

When you click the “Continue” button, you will be able to see your selected employees with the following information next to their names:

  • Gross pay
  • Deductions
  • Taxes
  • Net pay
  • Employee taxes
  • Company contributions
  • Total hours worked

Check that the information is accurate, and then click on the “create paycheck” option at the bottom of your screen. 

As a final note, keep in mind that:

  • You can see all recent payrolls in the bottom of your screen
  • Your employees’ names are anchored links: Clicking on them shows their payroll items, earnings, and a company summary
  • You can choose to print both paychecks and pay stubs.

Staying Payroll Compliant With QuickBooks

As an employer, you will need to follow certain guidelines to ensure that you stay compliant with the IRS. These usually relate to the manner and timeline in which you deposit and report your payroll taxes. 

QuickBooks payroll provides numerous resources and guides that relate to how business owners can stay compliant when handling their payroll. Our guide to payroll for small businesses also offers an in-depth review of the steps that you should take. 

You will want to ensure that you follow these steps:

  • Obtain the correct forms from your employees (e.g., Form W-4, Form I-9, direct deposit authorization form, etc.).
  • Determine your payment schedule for depositing payroll taxes: For further instructions, see Publication 15 (forms 941, 944) and Publication 51 (Form 943).
  • Report your payroll taxes using the correct form:
    • FICA taxes: Form 941
    • Federal unemployment tax (FUTA): Form 940
    • Backup withholding: Form 945
    • Workers working in agriculture: Form 943
    • Employers who have been notified about the Form 944 program: Form 944
  • File your Form W-2s and W-3s correctly: This is a legal requirement if your business pays $600 or more in payroll taxes per annum. You will want to:
    • Order scannable copies from the SSA (unless you choose to file electronically)
    • Leave all non-applicable boxes empty
    • Omit any dollar signs or commas 
    • Use blank ink only
    • File electronically if you employ 250 or more workers

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Frequently Asked Questions

What is a pay stub?

A pay stub is a part of an employee’s paycheck or a general document that includes information that relates to employee pay. 

Generally, pay stubs include:

  • Payroll taxes
  • Pre- and post-tax deductions
  • Employer contributions
  • Gross pay
  • Net pay

Does QuickBooks handle my annual filings automatically?

This will depend on your subscription, as it is only available for users with QuickBooks accounting. 

This means that QuickBooks accounting can serve as a great supplementary addition to QuickBooks payroll, as it can ensure that employers automate a huge portion of their administrative responsibilities when it comes to annual filings and payroll taxes.

What are the benefits of using QuickBooks payroll?

Using QuickBooks payroll can provide many benefits for business owners. These include:

  • Same-day direct deposits: This can be great for monitoring and controlling cash flow when starting out
  • Straightforward bookkeeping: This is arguably one of QuickBooks’ strongest selling points. Simple and thorough accounting can avert any complications or errors down the line and save both your accountants and your own time. 
  • Holistic management of finances: QuickBooks can integrate HR, taxes, payroll, and finances into the mix depending on the subscription package in question. This makes it a great option for businesses looking for high scalability.
  • Adjustment entries: These can be updated automatically.
  • High applicability: QuickBooks operates in all 50 states regardless of different state law

What are FICA taxes?

Federal Insurance Contributions Act (FICA) taxes aim to fund the cost of Social Security and Medicare. The breakdown is:

  • Social Security tax (6.2%)
  • Medicare tax (1.45%)
  • Additional Medicare tax (0.9%)

Employers need to contribute an equivalent amount independently.

What is the minimum income threshold for Additional Medicare Tax?

The minimum income threshold for the Additional Medicare Tax depends on an employee’s filing status.

Generally, employees are required to begin withholding Additional Medicare Tax after an employee has received more than $200,000 in a year.

Employees with varying income thresholds are then able to claim back any amount that they have overpaid. For example, married couples who file jointly do not owe Additional Medicare Tax until they have received over $250,000 per annum.