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Setting Up Payroll Items

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There are 4 steps to set up payroll for your employees:

1. Set up payroll items used to compensate your employees, such as salary, hourly wages, vacation pay, bonus, commission, advance, WCB, etc.
2. Set up employees for their compensation.
3. Enter historical or year-to-date data for your employees, including benefits and taxes withheld, such as CPP, EI, and income taxes.
4. Run a payroll – paying your employees.

The first payroll task, setting up payroll items, will be discussed here. This task is to tell QuickBooks how you are going to compensate for your employees. By default, QuickBooks create the Payroll Liabilities and Payroll Expenses into your chart of accounts when you enable Payroll. You can create their sub-accounts to track individual payroll liabilities and expenses, which make tracking them much easier.

From the Main Menu, select Lists > Payroll Item List to open payroll Item List window:

QB Setup Payroll Item 1

 

As you can see, some items are added automatically:
• Salary, Sick Salary, Wages Hourly, Advance, etc. and
• Federal Income Tax, CPP-Company, CPP-Employee, EI-Company, EI Employee, etc. for payroll taxes.
• Tax tracking for payroll items which corresponds to T4/T4A.

If your employees do not require different additions or subtractions in their paycheques, then you are good to go. Otherwise,

1. Click Payroll Item > New or Ctrl + N to open Add new payroll item window:

 

QB Setup Payroll Item 2

 

2. Select the type of payroll item you want to create.
Select Wage to create direct compensations for your employees - commission, bonus, or overtime (Hourly & Salary are created automatically).
Select Addition to create indirect compensations for your employees – educational, family, transportation benefits, etc.
Select Deduction to create deductions for your employees other than taxes – RRSP/RPP, union dues, alimony, etc.
Select Company Contribution to create company-paid contributions to employees – pension plan, additional health care plan, etc. (CPP & EI are created automatically).
Select Other Tax to create miscellaneous tax, whether it is paid by company or employee – WCB, provincial health care, etc.
Click Next.

3. Depending on what you select in Step 2, you will be prompted with respective questions. For example, if you select Wage to create additional payroll item Bonus, then you are asked:

 

QB Setup Payroll Item 3

 

Click Next and enter the name of the payroll item:

QB Setup Payroll Item 4

 

Click Next and enter the account for tracking Bonus expense:
You can create a sub-account called Bonus Expense under Payroll Expenses here.

QB Setup Payroll Item 5

 

Click Next and enter how it should be reported on ROE:

QB Setup Payroll Item 6

 

Click Finish and you are done.
If you select other than Wage in Step 2, you will be prompted with different questions. Follow the instructions until there is a Finish button. You may need to create a new vendor (say, Health agency), answering which payroll liability you attach the item to, or whether the item is paid by company or employees.

4. Repeat Step 2 and Step 3 until you allocate all your employees compensations to payroll items.

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