Beverly Lang continues her series on Payroll with this article on things employers need to know and obtain to set-up payroll properly in QuickBooks.
Now that you have chosen your Intuit Payroll Option, let’s discuss some of the basic things you need to know before processing the first paycheck.
How does the employer and employee relationship affect the payroll process?
The first step in the payroll process is to determine whether a worker is an independent contractor or an employee. This is one of the most common payroll mistakes people make – classifying the individual wrong. The most important thing to look at while making this determination is if an employment relationship exists between the employer and the worker. This process is not arbitrary, but rather governed by specific legal definitions and the relevant facts within the work arrangement. The general rule is that an individual is an independent contractor if the payer has a right to control or direct only the result of the work and not what will be done and how it will be done. More info can be found on the IRS website that will help you identify the correct classification. Just be aware that the IRS and a number of states are taking additional measures to uncover worker misclassification and / or impose stiffer fines on employers for such errors.
Accurate wage and employment tax reporting – is it really that important?
The principal means for the U.S. Treasury to collect income taxes is through the income tax withholding requirements of the Internal Revenue Code (I.R.C.). Many states and localities also use this means to collect taxes as well. Additionally, an employee’s eligibility for Social Security, Medicare, disability, unemployment, and other similar benefits are tied to the correct collection and accurate reporting of FICA and unemployment insurance taxes. Interest and Penalties can be levied on employers or “responsible parties” when such payments are not accurately and timely paid. Errors made in the withholding and reporting process can have a direct impact on the employee and employer.
Which federal employment forms are required for a new employee?
Form W-4 (Employee’s Withholding Allowance Certificate)
An employer must ask each new employee (including non-U.S. citizens and residents) to complete and sign a Form W-4 that includes the employee’s name and social security number.
If the form W-4 is not completed, the employer must withhold based upon a single martial status with zero allowances.
Form I-9 (Employment Eligibility Verification)
An employer must ask each new employee to complete and sign a Form I-9. The employer is required to retain certain information on each workers identity and eligibility for U.S. Employment. Employers are required to
- Verify the identity of a worker and the eligibility of each employee to work in the US.
- Attest that it has seen the required employment verification documents presented by the employee.
- Maintain records of each workers’ employment verification.
What information do I need in order to set up an employee in QuickBooks?
When setting up an employee you can enter payroll information in any of 5 areas: Personal Information, Payroll and Compensation information, Employment information, Additional information and Workers Compensation.
Once you have gathered this information you can start entering your employees. From the menus at the top, click Employees > Employee Center. At the upper left of the Employee Center, select New Employee. Click the Change tabs drop-down button, and select Personal Info or Personal tab. Complete the fields in the tab. Click the Address & Contact tab and complete the fields in the tab. Click the Additional Info tab, and enter any information you want to store for the employee.
1) Personal Information
- Personal: You must enter name, Social Security Number, and address. The other fields are optional.
- Address and Contact: Enter the employee's address and phone numbers.
- Additional Info: Enter the employee number and billing rate level (if applicable). You can also define your own fields here, if necessary.
2) Payroll and Compensation Information
- Enter all earning items, taxes, sick and vacation time, pay frequency, payroll schedule and direct deposit info as applicable.
Types of employee compensations:
- Regular earnings for an hourly employee is defined as the employee s hourly rate multiplied by the number of hours worked during the payroll period.
- Salaried employees receive a fixed amount for each payroll period, whether weekly, bi-weekly, semi- monthly, or monthly.
- The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold. This is a way for firms to solve the principal agent problem, by attempting to realign employees' interests with those of the firm.
- Bonus/tip refers to extra pay due to good performance or money or an equivalent given in addition to an employee's usual compensation.
3) Employment Information
- Enter the employee’s hire date, release date (when applicable), and employment type. (If a release date is entered, you will have to remove it before you can pay the employee.)
4) Additional Information
- Enter any additional information you would like to track for this employee.
5) Workers Compensation (Enhanced and Assisted Payroll options only)
- Assign workers compensations codes associated with the employee