Using QuickBooks to Record Outsourced Payroll

If you’re a small business owner who uses an outsourced payroll company, you may be wondering how to properly record your payroll when reconciling your financial information. Many people will simply record payroll transactions as payroll expenses and move on without any further specification. This can create problems later, as it may lead to inaccurate financial statements. So what’s a better way to record your outsourced payroll in QuickBooks? Follow these steps and you’ll have a better idea.




Payroll Checks

Some payroll companies will take out a lump sum from your checking account and use it to cover actual payroll checks, payroll taxes, direct deposits, and the payroll fee. If your payroll company doesn’t operate this way, you’ll have to record each actual payroll check individually, because that’s how they’ll clear your checking account.

Record these wages as a payroll expense and provide details according to your chart of accounts detail (i.e. office wages, management wages, etc.). Wages should be entered as a positive number in the check details. Your employee payroll taxes should hit a liability account called “Payroll Taxes Employee,” and then you should enter them as a negative number in the check detail. You should also use a payroll liability account to make any deductions for 401K, cash advance, etc., entering these as negative numbers. When you’re finished entering these details, the amount of the payroll check should equal the amount that the check was written for.

Direct Deposits

What you do here will depend on whether you want to record your employee’s direct deposit check individually or make one journal entry that details all direct deposit payroll checks. This is up to you – the former option will allow you to look up each individual employee’s checks in QuickBooks, while the latter will let you rely on your payroll reports for this information. You’ll want to enter wages as an expense and a positive number, employee taxes as a liability and a negative number, and any other deductions as a payroll liability and a negative number.

Payroll Service Fee

To enter this fee, enter a check to a vendor that matches the name of your outsourced payroll company. Enter a check for the total amount of the payroll fee, and then enter this as an expense.

Check Your Work

Once you’re all done, the next step is to check your work to ensure that you’ve entered everything correctly. One way is to look at your chart of accounts and make sure all payroll liability accounts have a balance of zero, as they should. Another way is to check that the amount your payroll company deducted from your checking account matches the total number of direct deposit checks, the amount paid out for payroll taxes (both employee and employer portions) and the amount of the payroll fee. If your payroll company takes on the liability of payroll checks, then this amount should also reflect that.

This isn’t the only way to record your payroll, but this method may provide you with a good place to start. For more information, or if you’d like to hire a full-charge bookkeeper to consult your financial information for your CPA or implement a system for recording payroll, contact us at Mark’s Bookkeeping Services.