Which QBO feature is the best fit for you: Payroll Types or Payroll Class Tracking?
Perhaps the first question should be, "Do you need a little or a lot of tracking?" And, if there is a first question, there must be a second, so, "What would you like your reports to look like?"
If your needs are simple, you should stick with the simple answer, “Payroll Types.” But if you need more robust, across the board tracking, you'll want to make use of both "Class" tracking and "Payroll Class" tracking in QBO to capture all the details. Just remember, you'll need to code Class on every posted transaction, including Payroll transactions to generate meaningful reports.
Let's face it... "When it comes down to payroll accounting, it's all about the reporting."
The decision to set up and process your payroll is driven by what you need to see in your reports and how much detail you need. The availability of Payroll Types and Payroll Class tracking gives you the flexibility to sort your payroll costs by department, location, property, project or event in your reporting.
Once you determine what you need to track, you can make a better decision as to how to configure these payroll options to fit your company best.
QuickBooks Online Payroll Types essentially are what we know as Payroll Items in QuickBooks Desktop. The principle is the same, but the way you access and edit them is different. It’s very important to note that when setting up Payroll Types there isn't a way to delete or merge them. So once a Payroll Type is created, it cannot be removed.
While working in QuickBooks Online, there is only one way to create or edit Payroll Types – open the Employee’s Tab, select an Employee, and edit the Pay section. (Note: This differs from QuickBooks Desktop, where you can add, edit, merge or delete payroll items from the payroll item list.)
Adding additional payroll types in QBO.
QBO Payroll Types figure 1
Once you have created the Payroll Types you need, you'll be able to use them when processing payroll.
To view and use the Payroll Types during payroll processing:
- Select the "Employees Tab" within QBO
- Select "Run Payroll"
- Listed on the time-sheet are the "Payroll Types" (Note: It's possible to hide a payroll type on a time-sheet, even though you cannot merge or delete them.)
- Enter payroll time for the employee for each applicable "Payroll Type."
Payroll time can be captured for each 'Payroll Type'.
QBO Payroll Types figure 2
Payroll Class Tracking
QuickBooks Online allows you to turn on a preference for Class tracking of your transactions. Many people use this feature to track revenue or cost centers, divisions or departments, even special categories. You also can track employees and payroll costs using Classes, but it requires a separate activation.
Since Classes can be used through QuickBooks Online, this may be a beneficial way to track your particular reporting needs in terms of payroll, so that those expenses conform to your overall Class reporting format.
To use Payroll Class tracking, turn on "Classes" in QuickBooks Online, and then turn on "Payroll Class" tracking.
Setting Up QuickBooks Online Class Tracking
After you turn on Class Tracking:
- In QBO, select the "Company" gear icon
- Select "Account and Settings"
- Select "Advanced"
- Select "Categories"
- Track Classes
- Turn On, the preference.
Turning-on QuickBooks Online Class tracking.
QBO Payroll Classes figure 1
Setting Up QuickBooks Online Payroll Class Tracking
Turn on "Class Tracking" for Employee Payroll:
- In QBO, select the "Company" gear icon
- Select "Payroll Settings"
- Select "Preferences"
- Select "Accounting"
- Select "Classes"
- Select how your company wishes to assign classes
- I don't use classes for payroll transactions
- I use different classes for different employees
- I use the same class for all employees
More than likely, if you have gone this far, you'll be using the second option, "I use different classes for different employees," as in the example below.
Turning-on QuickBooks Online Employee Payrolll Class tracking.
QBO Payroll Classes figure 2
Next, a window will open with all of your employees listed. You can match your employees with the class that best fits your tracking requirements for each one.
When choosing "Payroll Types" or "Payroll Class" tracking, it’s important to keep the end game in mind. Try out a few reports such as a "Profit and Loss by Class," or a "Payroll Expense" report by Pay Type to see which option gets you closest to your reporting goals.
Of course, there is nothing that prevents you from using both options either.