Payroll Processing in Bookkeeping Software

First of all, put off having regular employees that need to be paid with payroll where taxes are withheld, as long as you can. It is something that benefits the employees and not the company. It is a headache and an additional expense for the company. You can pay people a flat amount, as independent contractors and send them a 1099 at the end of the year, instead. They are responsible for their own tax payments. If you go that route, you need to do your research on paying contractors and learn the rules of how they must be treated differently than employees. When you reach the point where you think it is time to pay people as employees, you may want to hire a bookkeeper at that time. You will need their knowledge and you will likely not have time to run payrolls every week or two for the rest of your business’s life. It is time consuming and complicated to do it correctly.

Payroll differs widely from one software to another and also depends on whether you are doing it yourself in the software or using a third party payroll system. No matter which way it is done, you must add the amounts into the bookkeeping software. Because of this, I cannot explain how to do payroll to you.

You should rely on the Help section in your bookkeeping software on how to set it up and run it, if you are doing it in your software. There is usually a subscription price to pay even if you do it yourself. It usually will cover using direct deposit for your paychecks. It is important that you use a payroll service, either in the software or third party for the purpose of calculating all taxes correctly. Do not try to wing it, because you will fail miserably. You need to contact your software company regarding payroll.

Payroll is complicated and full of rules and red tape. Every paycheck must be accurate and calculated correctly. You will need the tracking that the payroll service helps to provide so that you can get accurate reports to file tax returns. This includes 941, Suta (state unemployment), 940 (federal unemployment), W-2, W-3 and Workman’s compensation.

If you use a third party to do your payroll, generally they take a lump sum out of your checking account to cover the payroll period each time and then you my dear friend, will need to interpret those numbers in order to book them in your bookkeeping software. There are multiple accounts and it is a real pain in the butt to do. And you will need to do it for each payroll of the year. Sometimes the payroll service will do your tax reports for you and that is a huge bonus.

You may want to get help from your CPA to set up your payroll or to tell you how to transfer the numbers to your books if a third party does the payroll for you. There is no shame in asking for help. I do it all the time, even though I have years of experience. What is important is getting it right and running correct payrolls every time. It can be a nightmare if you don’t.

Over the last 20 years, I have worked for 3 companies, in 2 different software programs. One company used Sage 50 and I did the payroll in house and it was really simple and very few employees. The other 2 companies used Quickbooks and 1 company had in house payroll and the other used ADP Payroll services. The one with in house payroll had about 25 employees and they did job costing which made it more complicated. The other company had about 75 employees and a third party payroll service. It was really freakin’ complicated. Keep in mind, third party payroll does not mean they do payroll for you. I still had to run all the payrolls myself, but do it in their software system that they trained me to use. Then I had to transfer all those numbers into my bookkeeping software every week. Thankfully, they did all the tax reports for me. In my opinion, I would not want to use a third party payroll company ever again. When you transfer the numbers, it just doesn’t provide the detail you need in your own software reports. You have to go into their system to get good reports. And even with the good training they provided, I still had to call their tech support ALL THE TIME just to run a payroll. It was really difficult to manage. I am telling you this so you can benefit from my experience and choose accordingly.