The Basics of Payroll Accounting and How It Works

Payroll accounting is something that nearly all business owners will have to perform. Unless you operate a sole proprietorship, you’ll probably have employees whom you must pay. Some businesses have hundreds of employees, whereas others have thousands of employees. Even if your business only has a few employees, though, you’ll have to pay them. What is payroll accounting, and how does it work exactly?

What Is Payroll Accounting

Payroll accounting is the process of tracking and processing employee-related expenses. Employees don’t work for free. When you hire an employee, you’ll have to agree to compensate him or her.

Employee compensation can consist of hourly wages, annual salaries, sale commissions, bonuses and more. The term “payroll accounting” refers to paying employees their agreed-upon compensation and tracking these payments for recordkeeping purposes.

Payroll accounting also encompasses tax withholdings, including Social Security and Medicare taxes. As a business owner, you may be required to withhold taxes from your employees’ compensations. Payroll accounting includes tracking and processing ta withholdings such as this.

How Payroll Accounting Works

You can perform payroll accounting in different ways. There’s in-house payroll accounting, for instance, and there’s outsourced payroll accounting. If you perform it yourself — or if another employee who works for your business performs it — it’s considered in-house payroll accounting. Outsourced payroll accounting involves partnering with a third party. There are accountants, for instance, who offer payroll accounting services. You can partner with an accountant so that he or she handles your business’s payroll accounting.

QuickBooks Payroll

QuickBooks offers a payroll accounting solution. If you currently use QuickBooks Desktop, for example, you can sign up for Enhanced Payroll. Enhanced Payroll is an optional add-on service for QuickBooks Desktop. As the name suggests, it provides enhanced payroll accounting features that aren’t otherwise included in the standard version of QuickBooks Desktop.

With Enhanced Payroll, you can create W-2s for your business’s employees and 1099s for your business’s contractors. This optional add-on service also offers automatic tax calculations. You won’t have to manually calculate payroll-related taxes. Instead, QuickBooks will calculate it automatically if you have Enhanced Payroll.

Another feature of Enhanced Payroll is electronic tax filings. You can file tax forms online with Enhanced Payroll. You won’t have to manually print and file tax forms at the end of the year. Rather, you can take advantage of electronic tax filings with Enhanced Payroll.

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