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Chapter 12
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Chapter 14
Chapter 15
Chapter 16
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Chapter 18
Chapter 19
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Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
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Chapter 12

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Introduction

The payroll system included in QuickBooks accomplishes several important tasks for the employer: 

Calculates the pay due to employees

Calculates deductions, additions, and company contributions

Employee paychecks are written

Management reports are prepared

W-2 and other government reports are prepared

With correct information entered, assures that payroll operations will give the government no reason to be on your back.

QuickBooks payroll needs to be well informed, armed with a mountain of information about your local and unique situation.  Your legal obligations require that pay checks be based on accurate data.  If payroll is to be run safely and accurately, all the necessary information should be rounded up first.

Employees XE "Employees"  are people who are paid for doing work, but who do not qualify as independent contractors. Employers must take withholding and social security taxes from wages of employees, and pay additional taxes. The exceptions are few and rare. Employers are often tempted to declare that some employees are independent contractors XE "independant contractor" , but the IRS, armed with heavy penalties, is looking for them.  IRS Publication 937 (Employment Taxes) and IRS Publication 934 (Tax Guide for Small Businesses) contain many pages on the distinction between employees and independent contractors.

QuickBooks is a small business accounting system.  With too many employees, the data base will fill rapidly, and the program will run slowly.  There is no hard limit, probably 30 to 100 employees, depending on processor and hard drive speed.  Magnetic media XE "Magnetic media"  reporting is not available, which excludes employers with more than 250 employees in one year. 

Proceed with caution:   Handling your own payroll is nothing to be taken lightly.  Taking on this function is in effect a certification to your employees and to various levels of government, that you will handle payroll correctly.  If you definitely know what you are doing, the QuickBooks payroll system will help you do it efficiently. As an employer, you have primary responsibility.  If you do not understand payroll operations, you are headed for trouble.  This book includes limitedreminders to assist those who have decided to handle their own payroll. 

Outside payroll services are specialists who take responsibility for handling the legalities correctly, and may well be a better idea.  An excellent book on keeping the books in small businesses strongly advocates using a service.

If you use an outside payroll service, the QuickBooks integrated payroll is not likely to be useful.  The law allows small options in some mandatory deductions. The service might handle these differently from QuickBooks.  Every pay check would need a few small adjustments.

Rates for Federal and state income tax, social security  and Medicare, and some local taxes, are carried in the tax tables.  These tax rates XE "rates:withholding tax"  can be updated only by installing new tax tables XE "tax tables" , which are the result of extensive research by Intuit, and are sold on an annual subscription basis.  When our elected public servants make mid-year changes in local tax rates, Intuit sends update disks to all affected subscribers.  About one-sixth of all people in the US live in states with no state or local income tax, but the same subscription rates apply to all areas.  The new years disks are sent out just in time.  If they arrive late, the consequences of running for a week or two on old tax tables are minor.

When should you start running your payroll under QuickBooks?  November.  (You did not expect such a direct answer?)  It may be run for two months as an adjunct to your existing payroll system, if any. You will have two months to get to know the program.  Should you want to call Tech Support, you may well find that you can get right through on the phone.  But you can expect that to change in January, when most businesses are getting out year-end reports, and employers are getting out W-2s.

Mid-year transition is more typical.  It is also much more cumbersome.  Year to Date (YTD) adjustments are necessary.  QuickBooks prepares forms, such as W-2, W-3, 940, and 941, so it needs prior payroll information.  Some users will want to include all YTD fiscal activity in QuickBooks, and the YTD adjustment handles that.  Others will leave previous information in another system, and pick up the remainder in QuickBooks.  In a mid-year transition, previous earnings and deductions always have to be entered for each employee.  QuickBooks does this well, in either of the transition modes.

A new company is the simplest, because there is no YTD information to enter.  It is only necessary to enter all the names, addresses, numbers rates of pay, local taxes, special deductions, and so on.

Start here:   two basic options are available in starting a payroll system. One alternative is to jump into the program and start typing.  You will continue until you have to interrupt yourself to get some needed information.  The other way is to go down the checklist and gather all the information.  Then you can jump in, keep typing, and work longer before you have to get up for more information. 

A word to the wise:  try the payroll reports at an early date.  You may find that you should make some changes in your data entry.

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Last modified: May 21, 2004