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Payroll integrations- are you sure they’re connected correctly

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Payroll integrations- are you sure they’re connected correctly

Payroll software like Gusto, ADP, or even Quickbooks Online can require complex integrations to set up when connecting to Quickbooks Online, Xero, or even Quickbooks Desktop. We see many clients who struggle with all types of third-party integrations, but payroll can be the most time-consuming to set up alone.

This blog will examine in-depth integrations between accounting and payroll software, hoping to assist you in setting up your payroll or help you decide what software best suits your needs. We will go over the setup of each one and how to map the common categories you may run into. We will focus on integrating multiple payroll software and QuickBooks online today, then discuss the dangers of mismapping and miscategorizing payroll-related items.

Integrations: Built-in

QuickBooks Online Payroll

QuickBooks Online has a built-in payroll solution. Because it is a built-in product, the mapping is straightforward to set up, and many different breakdowns are available. Once you have your payroll set up, you can go to the gear icon to set up payroll settings. The bottom option of payroll settings is “Accounting—Choose how payroll transactions are mapped.”

QuickBooks will allow minimal mistakes, but you can map taxes and wages to your Chart of Accounts in various ways, such as by department, where the complexity occurs.

Integrations: Third Party

Gusto Payroll

Gusto is a simplified payroll system that handles most payroll backend work, such as tax paying. It has a two-way integration with QuickBooks Online, which pulls your customized chart of accounts from QuickBooks into their system.

Gusto is great because it allows you to map to your specific accounts for the automatically created journal. You can have benefits, 401k, garnishments, etc., mapped to your desired location. The interface is clear when it lists “expense” versus a “liability” in the mapping drop downs, negating the biggest issue we see with mapping. The labeling does not always keep clients from setting them up backward, but it’s a good start.

ADP Payroll

ADP Payroll integration is not the simplest way to set up. Select Setup General Ledger, and like Gusto, use the drop-downs to select the chart of accounts to which you want to map the line item. However, garnishments are not as straightforward as you must add them on another page to the wages.

This can cause mapping issues if Child Support is not mapped to the Child Support garnishment. The journal entries can also be automatically pushed, or you can choose a manual approach. There is also an extra journal that is created when using direct deposit that zeroes itself out in the bank register in QuickBooks online.

Setting up third-party integrations like the two listed above instead of built-in integrations can lead to many mistakes because the integration does not understand the accounting side.

Payroll Tax Mapping

One of the most significant issues we see in the integrations is that all the payroll taxes are based on profit and loss as an expense. That is incorrect because while certain taxes are expenses, the portion the employer holds on behalf of the employee for taxes is a liability.

If you only take one thing from this blog, it should be this: Employee withholdings, or the employee portion of taxes, are payroll liabilities, while the employer portion is an expense.

Here are some examples from the IRS about taxes that are withheld: Federal Income Tax, Social Security and Medicare Taxes, Federal unemployment tax, also known as FUTA, and some states have State unemployment tax or SUTA.

There are many different taxes to map, but as long as you remember that the employee portion is a liability and the employer portion is an expense, you should be fine.

Payroll Mapping for Benefits

Benefits are not as straightforward as taxes. Using an example of Health Insurance, let me show you:

Say your company policy for health insurance states that you will cover 50% of the monthly bill per employee. To clarify this example with small numbers, the company’s monthly insurance bill is $300. The $300 monthly bill will break into a $150 liability held from the employee’s paycheck and a $150 expense paid by the company.

The accounting will need to reflect that you pay the employee $150, but you’re not physically going to give the employee $150 to cover their portion. They will get their net paycheck, which has already deducted their portion of the health insurance bill. You then will pay the health insurance company that $300, part of which the company paid and part held from the net paycheck.

The terms above will be true for any insurance, whether life, vision, or AFLAC policies, as well as 401k with contributions; you will want to ensure that the employee portion is reflected accurately in the liabilities so you are not paying extra on their behalf if the withholding is incorrect.

These are pre-tax deductions deducted from the paycheck before tax calculations.

How to Pay These Off

This liability is growing from the payroll journals, but how are you reducing it? Whenever your payment comes through for the vendor, AFLAC, United Healthcare, or Delta Dental, to name a few, you will break out the employer portion to the expense and the employee portion to negate the liability. Different types of payments will have different schedules for when they are paid. It is super important that you split the payment and make sure that these integrations are set up correctly.

Suppose you have not set up the integrations correctly. In that case, you could be expensing too much money, leading to incorrect labor metrics and incorrectly lowering your tax liability. An audit could uncover this duplication of payroll tax expenses and lead to more money owed to the government.

The Consequences of Mistakes

Your labor metrics, expenses, and tax liability will be miscalculated, as will your balance sheet. The balance sheet would show a large amount of money still owed by the company because expenses were duplicated instead of closing out the liabilities.

I mentioned an audit above, but this is likely because of the cross-referencing between the W3 and a company’s wages. The W3 needs to match the books; otherwise, there was probably a mapping issue. It does not guarantee an audit but is a large red flag.

You Are Not Alone in Payroll Set Up

The significant part about using this payroll software is that, most of the time, a payroll support team is available to help you with setup or any incorrect filings, so do not feel overwhelmed when you look at this payroll software. Your accountant should also be willing to discuss the options with you and understand the benefits of using a payroll integration while also understanding the dangers of the mistakes.

When choosing payroll software, we recommend looking into its features beyond just pricing. Questions from how they look for the employee portal, what type of options they have, what kind of benefits, what the company is willing to do for you on the backend, how integration records everything in accounting software, and whether they can give you the breakdown or pay information you need.

This blog focuses on Gusto, QuickBooks Payroll, and ADP because we understand and appreciate the integrations that these companies have created. There are many other payroll software, but these have been the most seamless integrations with the best support we have experienced.

Check out our youtube video  Why Payroll Integration Matters For Your Business Accounting – Top Benefits! with James to give you a first hand recap.If you are still determining which plan works best for you or need additional help or have any questions, Waterford Business Solutions is happy to help.

As always, if you need help with your payroll system integration or even how to work with your payroll system, please feel free to reach out to us at Waterford Business Solutions. We would be happy to talk to you and walk you through options that may be a better fit for your business or explain how your payroll software can benefit you more. Give us a call at 864-351-8052 or e-mail us at info@waterfordbusiness.com

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Payroll integrations- are you sure they’re connected correctly