How to Setup Payroll for Job Costing in QuickBooks for Contractors

by | Aug 25, 2016 | Employee Setup & Management, Payroll Setup & Management, Preferences & Customization

How to Setup Payroll for Job Costing in QuickBooks Contractor Edition

There are several steps needed in order for payroll to flow properly to the job costing reports – especially if you want to include payroll taxes and benefits. The step-by-step instructions below will help guide you through the setup.

You must have a QuickBooks payroll subscription to use these instructions. If you are trying to use job costing with a non-QuickBooks payroll provider, you will not only make your bookkeeping much more time-consuming but also introduce opportunities for errors to be made. QuickBooks offers a complete payroll solution, just like ADP and Paychex, and at a great price too.

Since labor is usually the biggest expense for most companies who are doing job costing, it is vitally important that it be included in your job cost reports. If you don’t include labor, your jobs will seem more profitable than they really are. Even worse, some of them might even be losing money without you even knowing it. This not only affects your present situation, but can lead you to create inaccurate estimates for future jobs.

Here are the steps for setting up payroll for job costing in QuickBooks:

Step 1. Set up Preferences:

  • Go to Edit, Preferences, Company Preferences and select Payroll & Employees
  • Select “Full Payroll” or “Complete Payroll Customers”
  • Check “Job Costing, Class and Item tracking for paycheck expenses”
  • Go to Time & Expenses
  • Select Yes under “Do you track time?”
  • You may also want to check “Create invoices from a list of time & expenses”

Step 2. Set up Payroll Items:

  • Go to Lists, Payroll Items
  • Next, edit every Addition and Company Contribution item to ensure that “Track expenses by job” is checked
  • Payroll items can only be mapped to one expense account, so you may want to setup separate ones for Cost of Goods Sold (COGS) and overhead payroll expense

Step 3. Set up Employee Records:

  • Go to the Employee Center and double-click on your employee’s name
  • Change Tab to Payroll & Compensation Info
  • Check “Use time data to create paychecks”

    • (Repeat for each employee)

Step 4. Set up Default for New Employees:

  • Go to the Employee Center and select Manage Employee Information, then Change Employee Default Settings
  • Check “Use time data to create paychecks”

Step 5. Set up Workers Comp:

  • Go to Employees, Workers Compensation, then Setup Workers Comp
  • Setup your workers comp codes at Employees, Workers Compensation, then Workers Comp List
  • Next, go to Lists, Payroll Items to double-check that the Workers Comp payroll item has “Track expenses by job” checked

Step 6. Using TimeSheets

  • Go to Employees, Enter Time, then Use Weekly Timesheet
  • Complete all information including both a payroll item & a service item. Mark as billable if you do time & material billing
  • You may want to add a customer:job called Overhead, so you will have a place to place other entries in order not to forget to make allocation
  • Consider using “Time Tracker” or “WorkTrack Time Card” so employees can enter their own time

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How to Accurately Enter Third Party Payroll into QuickBooks

by | Mar 2, 2016 | Bookkeeping 101, Employee Setup & Management, Payroll Setup & Management, QuickBooks for Mac, QuickBooks for Windows, QuickBooks Online

The best and most accurate way to enter third party payroll into QuickBooks is to enter them via Journal Entries. First, you want to setup the expense as well as the liability items of the payroll in the Chart of Accounts. Then you want to enter one journal entry for each pay period, using the payroll items you created in the Chart of Accounts on their correct debit and credit sides, making sure you enter the actual check dates of the paychecks. You will include the employees names in the Name field, and a memo with the pay period as well as net, gross or taxes on each transaction line.

Entering Third Party Payroll into QuickBooks:

Create the Payroll Expense Items in the Chart of Accounts as sub of Payroll Expenses to record company expenses

Payroll Expenses
     Gross Payroll
     Soc Sec Company
     Medicare Company
     FUTA
     NYSUI

Create the Liability Items in the Chart of Accounts as sub of Payroll Liabilities to record employees withholdings

Payroll Liabilities
     Federal Withholding
     Soc Sec Employee
     Medicare Employee
     State Employee NYS
     City Employee NYC
     NY Disability

The Result: (click image to enlarge)
Third Party Payroll Entry

In Bank Register: (click image to enlarge)
Third Party Payroll in Bank

Entering third party payroll this way will allow every aspect of the payroll to be accurately accounted for; each paycheck will be listed separately with the gross, employee paid taxes, employer paid taxes, and the net payroll. The paychecks as well as the tax payments made will be easily tracked in the bank account register, and the amounts in QuickBooks will be on par with the third party company figures. Entering third party payroll this way will also make it easily identifiable in the reconcile window when you go to reconcile your bank account, and will show a balance on the balance sheet for any withholding that was not paid over to the relevant tax authority.

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