If you’re like most business owners, cash flow is tight and you want to save as much money as possible. One ways you can save money is to do your own payroll. If you use QuickBooks Online and you’ve got employees, then why not do your own payroll? In this step by step guide, we show you how easy setting up payroll in QuickBooks Online can be.
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Payroll Setup Checklist: What Info Do You Need to Have Handy?
The amount of time that it will take you to set up payroll will depend on your number of employees, as well as how organized you are. To save you some time, you should plan to have several pieces of info handy before you get started.
Below is a checklist that you can use to ensure you have all of the info you will need. We will start with the employer info and then discuss the information you will need for each employee:
- Bank Account Info – The full routing number and account number of the checking account that you will write payroll checks from as well as make your payroll tax payments. Tip: You should have a separate payroll account from the checking account that is used for your day to day business operations. This will ensure that the funds to pay your employees and meet your tax obligations is not used for other purposes.
- Employee Compensation – Hourly wages, salaries, bonuses, commissions, tips and any other compensation you provide your employees. To learn more about how to determine the types of compensation you should offer, check out our guide on how to create a compensation plan.
- Employee Benefits – Health and dental insurance, 401(k), retirement plans, vacation/sick leave policy or Flexible Spending Account (FSA). To learn more about how to determine the types of benefits you should offer, check out our employee benefits guide.
- Other Additions/Deductions – Cash advances, mileage/travel reimbursement, union dues, wage garnishments.
- Form W-4 – Upon hiring a new employee, you need to have them complete a W-4 form which will provide you with their withholding info and other pertinent info you need in order to correctly calculate their payroll tax deductions. Check out this new hire checklist to make sure you’ve got everything covered.
- Pay Rate – The hourly rate or salary you pay each employee along with any bonus or commission pay, if applicable.
- Paycheck Deductions – Employee contributions to health insurance, retirement plans, or garnishments.
- Pay Schedule – In general, this will be weekly, bi-weekly,semi-monthly or monthly. You can also set up multiple pay schedules if you need to in QuickBooks. For example, if you pay hourly employees every week and salary employees every other week you can set both of these pay schedules.
- Sick/Vacation hours policy and balance – If you offer sick/vacation pay you will need to enter this info in for each employee. In general, these hours will be earned each pay period. Tip: If you are converting to QuickBooks Payroll in the middle of a calendar year, be sure to enter the total sick/vacation hours an employee had from the old system.
- Hire Date – The hire date for each employee must be entered during the payroll setup.
- Direct Deposit Authorization Form – You can offer your employees direct deposit in lieu of a check. In order to do so, you must have them complete a direct deposit authorization form which not only gives you permission to make deposits to their account but it will also include the bank account and routing information that you will need to make the deposit. Check out our Small Business Payroll Guide for a sample authorization form.
How to Set up Payroll in QuickBooks Online
Now that you’ve got all of the info you need, it’s time to roll up those sleeves and get to work!
Below are the 5 steps to set up payroll in QuickBooks:
Step 1- Navigate to the Employee’s Center
Click on the Employees tab located on the left menu bar as indicated in the screenshot below.
Step 2 – Proceed to the Payroll Setup
If you purchased payroll with your QuickBooks Online subscription, then your screen will resemble the one in the screenshot below. Click the “Get set up” button to proceed to the next screen. Tip: If you have not signed up for payroll yet, then you will see a button that says “Add Payroll”.
Step 3 – Respond to Questions Regarding Prior Payrolls
If you are converting to QuickBooks from a manual/computerized payroll system then you will need to provide some additional information to ensure that your W-2 forms are accurate.
Below is a screenshot of the questions that you will need to respond to along with a brief explanation of each.
- Have you paid any W-2 employees in 20XX? – This question is pretty self-explanatory. If you have paid employees this year, select “yes:” If this is the first time you are paying employees this year, select “no”.
- When will you first run payroll with QuickBooks Online Payroll?– Indicate the date that you plan to run your first payroll in QuickBooks. The options that appear here will be based on the current date. Tip: If you selected “no” to the first question, you will not see this question.
- How did you pay your employees?- Indicate the manner in which you paid your employees in your manual/old system. Your response to this question is very important because if you paid employees and withheld taxes from their paychecks, you will need to provide the year-to-date payroll information for each employee later on in the set up. Tip: This information should be readily available from the last payroll check that you processed for each employee.
Step 4 – Add Employees
Click on “Add an employee” as indicated in the screenshot below.
Step 5 – Complete Employee Info
Complete the fields as indicated in the screenshot below.
- Employee Withholding Info – This information will come from Form W-4, which we discussed earlier. When you click on the edit pencil, the above screen will display.
- Pay Schedule – From the dropdown, select the pay schedule for the employee. (i.e. Weekly, Every other Friday, Monthly etc;)
- Employee Pay – Enter the employee’s wage in this field. Tip: If you need to add more pay types, just click the Add additional pay types link directly below this field.
- Employee Deductions/Contribution – Select the deductions/contributions for the employee as indicated in the screenshot below.
- Payment Method – Select either direct deposit or live check from the dropdown. If you select direct deposit, enter the employee’s banking information directly from the direct deposit authorization form we discussed previously.
- Enter year-to-date payroll info – If you paid this employee this year, enter their YTD payroll info from their last payroll check issued out of the old system as indicated in the screenshot below.
Tip: It is extremely important that you ensure the year-to-date totals are accurate. This information will impact federal and state taxes that have an annual maximum as well as limits on contributions to 401k and retirement accounts. Check out our Small Business Payroll guide to learn more about deduction/contribution limits.
Once you have completed all of the necessary information for each employee, you will see a sample paycheck similar to the one below that you can review to make sure all of the information looks correct:
How to Run Payroll in QuickBooks Online
Now that you’ve got all of your employees set up, the next step is to run your payroll.
Follow these 4 steps to run payroll in Quickbooks Online:
Step 1 – Navigate to the Employee Center
Click on the Employees tab on the left menu bar to return to the Employee Center as indicated in the screenshot below.
Step 2 – Click “Run Payroll”
From the Payroll Dashboard, you will see the list of employees that you set up in the last section. Click on the “Run payroll” button located in the upper right-hand corner as indicated in the screenshot below.
Step 3 – Enter Current Payroll Hours
In the screen below, you will enter the hours worked for all hourly employees and review other info to ensure accuracy.
- Bank account – The bank account that payroll checks and taxes should be deducted from should appear in this field. If the bank account you see here is not correct, select the correct account from the dropdown arrow.
- Pay period – This field will populate with the pay periods you set up in the last section. If it is not correct, you can select the correct pay period by clicking on the dropdown arrow.
- Pay date – This field should be the date you will pay your employees. You can edit this field if it is not correct.
- Hours worked – You will need to enter the hours worked for the current pay period for all hourly employees (like Wilma in our example above).
- Salary employees – The total pay will automatically calculated for you based on the annual salary you entered for the employee during setup. (like Barney in our example above). You should at least eyeball this to make sure it looks correct.
- Total pay – This column represents the gross pay for all employees for this payroll.
Step 4 – Review & Submit Payroll
In the next screen, you will have one final opportunity to review the payroll information before finalizing the payroll.
If you’re satisfied that everything is correct, click the submit button that will be located at the bottom of the screen and follow the on-screen prompts to print payroll checks and/or print direct deposit remittance advices to distribute to employees.
You’ve got your payroll running like a well oiled machine now but you’re not quite done. You’ve still got to get those payroll taxes paid. With each payroll that you run, QuickBooks calculates the amount of payroll taxes that you must remit on behalf of your business and your employees. The key is to make sure you complete & file both the payroll tax forms and payroll taxes by the due date. Head on over to our payroll taxes guide to learn how to manage payroll taxes in QuickBooks Online.