Using QuickBooks®
Payroll tips & tricks

A solution would be to set up every employee as hourly and pay the salaried employee for 40 hours per week every week.  This solutions will track vacation, sick and other time taken on the payroll summary report.  The downside is that hourly employees are entitled to overtime pay.  And if a disgruntled salaried employee were to report you to the Department of Labor for failure to pay overtime, it may be difficult to argue the employee was salaried when the paystubs show hourly rates.

A workaround - Setup 4 more payroll items as follows:

1. An item to reduce the salary in the paycheck
   Lists >Payroll Items > Control + N (new item) > Select Custom setup
   Type = Deduction > Name = Reclassify salary > Leave blank the name and number of agency  which liability is paid to > Liability account =  use the Salary account of  the employee's regular salary  > Tracking type = Compensation > This item is deducted from wages = check all items > Skip the next window - this item is based on quantity .>  do not enter amounts for default rate and limit and click on finish.
2. Set up items to increase the salary based on type of wage paid
   Lists >Payroll Items > Control + N (new item) > Select Custom setup
   Type = Addition > Name = Vacation Salary >  Expense Account =  select the Salary account of  the employee's regular salary or set up a sub account named "Vacation Salary"  > Tracking type = Compensation > This item is deducted from wages = check all items > Skip the next window - this item is based on quantity .>  do not enter amounts for default rate and limit and click on finish.
3. Repeat step 2 for payroll items Sick Salary, Personal time salary, etc.
4. On payday:
   In the preview paycheck window,  in the middle of the screen is a section for  'other payroll items'. Here, you will enter the Reclassify salary item and reduce the regular salary by any amount.  If the employee is taking time without pay you are done.  If you are reclassifying salary, select another payroll item from the items you have just setup.
5. After processing your first payroll, confirm your setup is correct. 
   1. Print a payroll summary report
   2. Employee menu > Process payroll forms - click form W-2 > check the salary employee with the adjustment > Review W-2's.  Compare the W-2's to the payroll summary report.  Box 1 of the W-2 should agree to the total gross pay  plus/minus the additions and deductions we set up in this exercise. 

Facts:
1. Your payroll company provides you with a complete set of reports. If you need year to date gross wages per employee you can refer to these reports
2. Your labor costs include the gross wage you pay to your employees and the employers share of payroll taxes paid.

Then why not:
Set up
an expense account within your chart of accounts called "Wages plus Payroll taxes paid".  Set up 2 vendor names. ("Net Pay" and "Payroll tax payments").
Data entry 
On a write check transaction, uncheck "to be printed" box and for each net pay, enter the check number, the vendor "net pay", and the amount of the check and code to "Wages plus Payroll taxes paid".  It is not necessary to use the employee's name, if you need detail on employee's wages, your reference will be the payroll reports produced by the payroll service company.
On a write check transactions, uncheck "to be printed" box and for the taxes withheld from your checking account leave the check number field blank, enter the vendor "Payroll tax payments" and the amount of the tax to be withdrawn, code to "Wages plus Payroll taxes paid".

For amounts withheld from the paychecks for loan repayments or for amounts  that will be remitted by your company to a vendor (for example 401K, health ins or other benefits), a journal entry will need to be made.
Banking menu > create journal entry
Debit "wages plus payroll taxes paid" for the amount withheld
Credit the appropriate category for 401K, health insurance, or employee loans.

At the end of the year you or your accountant will allocate with a journal entry the "wages plus payroll taxes paid" into the two totals - one for wages, and one for payroll taxes paid.  Easy to do, subtract the Medicare Wages on the W-3 issued by the payroll service company from the amount in the account "wages plus payroll taxes paid" and create a journal entry to reclassify it to its own expense account "Payroll Tax Expense"
Debit "Payroll Tax Expense"  (for the calculated amount)
Credit "wages plus payroll taxes paid"

To demonstrate we will look at social security taxes:
Please print a W-2 for the employee which requires an adjustment
Employee menu>Process forms> W2>Select one employee that requires the adjustment >Print W-2

Please run a Payroll summary report (year to date); find the employee whose W-2 you just printed, drill down on the social security employee year to date amount.  Print the resulting transactions by payroll item report. 

Review the W-2 for Wage amounts, do the correct amounts appear in the Social Security and Medicare wages? Do the correct deductions appear in box 12 for any benefit  plan that needs reporting?  If you have a problem with under or over-withholding in taxes you may see that it will be necessary to make an adjustment the wage base as well.

If you have over-withheld employee-paid taxes, one way to make a correction is  creating an adjustment that will adjusts each employee-paid tax by the amount of the discrepancy.

1. From the Employees menu, choose Process Payroll Liabilities then choose Adjust Payroll Liabilities.
2. In the Effective Date field, enter the last day of the quarter in which the tax discrepancy occurred.
3. Select the Employee option button and choose the employee whose tax liabilities you want to adjust.
4. In the Item Name field, choose the payroll item you want to adjust.
5. Click the button, show wage base
6. Click the button accounts affected

   Do not affect your account balances if you have done either of the following:
   Previously used a general journal entry to adjust your liability for one or more payroll items
   Paid your payroll liabilities with the Write Checks window
   
   Affect your account balances if you are doing either of the following:
   Adjusting your liability because of rounding differences
   Entering a credit or expense for your payroll liabilities
   In the Affect Accounts window, make sure "Affect liability and expense accounts" is selected, and then click OK.

7.  In the item name field, choose the payroll item you would like to adjust.

   QuickBooks calculates your payroll taxes on the year-to-date amount instead of per transaction. QuickBooks automatically adjusts many flat-rate taxes, including: Social security  and Medicare.
   
   Therefore, if we can adjust the Year to date wage base in QuickBooks.
   QuickBooks will then withhold less in the adjusted taxes over the next  payroll periods for those employees that are still employed, and , it will not be necessary to cut a refund check separately.
    
   So you have a choice to
   a.  make an adjustment to just the wage base and let QuickBooks do the rest by adjusting subsequent payroll checks or
   b.  make an adjustment to wage base and amount and issue a refund check to your employees.
   
   (If you are affecting the accounts and making changes to FICA & Medicare employee you may also want to adjust Company paid Medicare and Fica)
   
   To calculate the adjustment amount:
   Subtract the actual amount withheld from the amount you should have withheld. Enter the difference in the Amount field. The amount should be negative, because you want to decrease the employee's liability for the tax.  Likewise if the difference in tax is negative the difference  in wage base should also be negative.
   
    Click ok and ignore warnings about creating a paycheck.

You can see the affect of your change by reviewing the W-2 and payroll summary report and drilling down on the tax items.

Cafeteria plans (Code section 125) makes it possible for employers to offer their employees a choice between cash salary and a variety of nontaxable benefits (qualified benefits). A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages.  Contributions are not considered wages for federal income tax purposes, and those sums generally are not subject to FICA and FUTA taxes that save the employer up to 8% in payroll taxes on the value of the elected benefits.

Qualified benefits include: 

• Premiums deducted from the employee's paycheck for accident and health benefits including health care, vision and dental care (but not medical savings accounts or long-term care insurance). Exempt from FICA/Medicare/FUTA/Federal Withholding.
• Health flexible spending accounts for expenses not reimbursed under any other health plan. Exempt from FICA/Medicare/FUTA/Fed Withholding
• Adoption assistance . Subject to FICA/Med/FUTA- but exempt from Fed withholding
• Dependent care assistance. Exempt from Fica/Medicare/Fed withholding up to certain limits, $5,000 ($2,500 for married employee filing separate return). The exclusion cannot be more than the earned income of either the employee or the employee's spouse
• Group-term life insurance coverage Premiums for $50,000 are exempt from Fica/Medicar/FUTA/Federal withholding.  Over $50,000 exempt from Fed withholding & Futa only).  Special rules apply to qualify for this benefit. Find out more in IRS publication 15B available in PDF format at http://www.irs.gov

S Corp owners with more than 2% ownership do not qualify to participate in this plan. Plans that favor highly compensated or key employees require special attention -see your tax advisor.  Dependent care benefits include amounts placed into a flexible spending account under a salary reduction arrangement if the benefit provided was day care. 

Until recently implementing such a pre-tax benefit plan was costly. You had to hire out the administration to an outside service company. But we found a company that has put together a "do-it-yourself cafeteria plan kit".  Click here to read more about these services.  

What is the break even of implementing a Section 125 plan?  Employers pay social security taxes on wages, but convert those wages to benefits and save 7.65%. To set up such a plan is $97 (for the templates for the plan document) and $197 per year for the software to track what needs tracking and produce a year end information return 5500 for the government.   The annual break even is calculated by taking the annual cost of  $197 and dividing by 7.65% or  $2,600.  Bottom line, if your employees contribute as little as $2600 in after tax deductions of health insurance premiums, setting up this plan costs you nothing and saves the employee social security taxes and federal income taxes of an average of $575.00.  Now introduce a dependent care plan to the mix with flex medical spending and the employer begins to save thousands in payroll taxes and the employee's saves even more!  A win/win scenario for all.