A QuickBooks payroll tip for calculating Workers Compensation when it is based on hours worked.
Workers Compensation Insurance is usually calculated as a rate which is applied to gross wages; and that’s how the built-in QuickBooks Worker’s Compensation feature calculates it. Last week, on the Intuit Community Forum, someone asked how you would set QuickBooks up to track Workers Compensation when it was a rate based on hours worked.
I gave a brief overview on the forum, but thought that it deserved a more detailed “how to” here on our blog.
Before you begin, you’ll need at least three accounts in your Chart of Accounts to track your Liability and Expenses:
- one to track the accruing Worker’s Compensation Liability {an Other Current Liability Account}
- one to track job or field related Worker’s Comp Expenses {a Cost of Good Sold or Direct Labor Costs}
- one to track administrative or overhead Worker’s Comp Expenses {an Expense account}
Next you’ll want to get your Worker’s Compensation rate sheet and using the rate sheet we’ll being adding QuickBooks Company Contribution Payroll items for each different classification code/experience rate.
- From the Lists menu -> choose Payroll Item List
- click the Payroll Item button at the bottom left
- choose New
- select the Custom Setup option
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- click the Next button
- select the Company Contribution option
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- click the Next button
- type in the classification code/experience rate name
- check the option to Track expenses by job {this selection is crucial for job costing}
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- click the Next button
- select your Worker’s Compensation Carrier
- select the Other Current Liability Account for tracking your accrued liability
- select your Cost of Goods Sold or Expense account
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- click the Next button
- in the Tax tracking type window, select None, click the Next button
- on the Taxes window, none of the tax items should be checked, click the Next button
- on the Calculate based on Quantity window you can choose two different methods of calculation:
- Calculate this item based on quantity – use this option if your employees perform work under more than one classification/experience rate during the week. You will have full control of the number of hours that count toward each experience rate.
- Calculate this item based on hours – use this option if each of your employees perform work under only a single classification or experience rate during the week. QuickBooks will automatically calculate the rate based on the total number of Straight and Overtime hours worked.
Using the Calculate this item based on quantity option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck you will manually enter the number of hours that the employee worked under each experience rate in the Quantity column, once you enter the Quantity {number of hours} for each experience rate QuickBooks will perform the calculation and display the applicable amount in the Company Contribution section of the paycheck.
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Using the Calculate this item based on hours option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck QuickBooks will automatically make the calculations for you by displaying the total number of hours the employee worked against the experience rate in the Quantity column and display the applicable amount in the Company Contribution section of the paycheck.
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When you pay your Worker’s comp do so through the Pay Liabilities option.
We hope that you’ve found this article to be helpful, including Worker’s Compensation costs – regardless of how they are based – is an important part of your job costing.
A prevailing wage job is typically a government funded project. The Davis-Bacon and Service Contract Acts govern federal projects. Most states have a prevailing wage law, but there are some that do not so it is a good idea to know the rules before you bid a project.
Governments, in their idea of fairness, mandate union rules and compensation packages on the jobs. So, one of the simple ways to prepare yourself to do prevailing wage jobs is to have an action plan at the ready that will allow you to cope with the requirements. We will briefly discuss the compensation package.
All prevailing wage projects will come with wage determination schedules that detail the base rate and fringe rates for all craft and trades. The base rate most likely will be the union W-2 payroll rate for the local collectively bargained craft and trades. The wage determinations (WD) will vary because of this. So, it is very possible to see a WD in one part of a state or county different from another. Make sure you are working with the WD that applies to where the job is located, and that they are dated for the time you are on the project. If you are apt to work through the date on you WD, ask the contract office for the new one. You will be held liable for the rates.
The fringe rate is the most confusing for many contractors. The fringe rate is the hourly cost of the collectively bargained benefit package for the craft and trade where the job is located. Fringe rates can vary just as base rates can vary and a contractor must make sure they are working with current fringe rates. The government expects each contractor to pay into bona fide benefit plans at the same rate while on a prevailing wage job. It is easy for the union contractor, but often difficult for the non union contractor because the hourly cost of his employer paid benefits is likely to be less than the fringe rate. If this is the case, the government will compel the non union contractor to pay the difference to payroll.
Non union contractors must understand that they can’t really put fringe dollars into payroll. They must actually pay a bonus equal to the fringe rate liability. Fringe dollars are business expenses, payrolls are wage expenses. Big difference. Fringe dollars as payroll will be subject to FICA and Medicare, SUTA and FUTA taxes. In addition, the bonus will inflate the basis for general liability insurance and workers compensation. Worse yet, fringe dollars to bona fide plans don’t have to be paid weekly. Many contractors don’t get paid frequently enough for weekly payrolls and are forced to use lines of credit until being paid. So, many non union contractors wind up paying fringe dollars as bonuses with borrowed money. Little wonder so many non union contractors do prevailing wage jobs unprofitably.
There is hope however. The action plan must have at the ready bona fide benefit plans that can be legally adopted for the project and expensed as business expenses and not payroll. We can help you develop a prevailing wage action plan. Contact Nancy for more details.
A reader wrote to ask the following QuickBooks payroll question.
How can I change the hourly wage for employees (and their OT rates) in the middle of a pay week when using QuickBooks?
I have 54 union employees that I have to do this for due to an hourly wage pay scale increase.
Oh, and I will also need to change some of the company paid union fringe benefit amounts as well.
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Answer:
There are a couple of ways that you can accomplish this when using QuickBooks, however, because you are dealing with union hourly wage rates, it really depends on:
- Are you still working on contracts that will use the existing hourly rates of pay and fringe benefit amounts?
- Are the new hourly wage rates for contracts that you start between now and the next pay scale increase?
- Are the new hourly wage rates effective for all current projects as well as any new contracts between now and the next pay scale increase?
Some people would simply suggest that you use the existing Payroll Wage Item and manually split out the number of hours using two different hourly wage rates when you create the paycheck.
Other people would suggest that you Edit each QuickBooks Employee Record, going to the Payroll & Compensation Info tab and in the Earnings box select the existing Payroll Item Wage name and assign the new hourly wage rate – this gives you two instances of the same Payroll Wage Item with two different rates of pay assigned to it – QuickBooks will allow this (personally I think it is a flaw in the program) even though QuickBooks will not be able to determine which rate is should use when you select the payroll item in Timesheets and/or paychecks.
I do not recommend using either of the above methods as they are too error prone and do not leave you a reliable means of tracking what an employee was earning during a specific period of time.
The method that I recommend is to create new Payroll Wage Items and Company Contribution Items with the applicable rates of pay and hourly benefit amounts. Once you have created these items, edit each employee and add the new items to their Payroll & Compensation Info tab. When you enter time in the Weekly Timesheets, choose the old payroll item/pay rate for the applicable days and then choose the new payroll item/pay rate when they become effective.
Setting up QuickBooks in this manner makes the program work for you, instead of you having to always remember to manually make the pay rate changes.
Benefits include:
- A clearly visible audit trail for your Union Fringe Benefit Reports.
- Accurate pay checks.
- Less stress.
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Author’s Note:
Having to manually create new payroll items AND then update 54 employee records with new payroll wage items and rates of pay is a time-consuming process as you have to do each payroll item and employee one at a time.
Check out Wage Manager Solution, a QuickBooks integrated application designed specifically to automate this process.
Watch a 10 minute video which provides an overview of how Wage Manager Solution works.
A customer called with the following question:
We have 25 employees on the payroll at all times – more in the summer when things are busier. My employees can earn multiple rates of pay in one week (sometimes even in the same day) on the same or multiple jobs. How do I handle this in QuickBooks without always having to manually change the pay rate when I create their paychecks? To be more specific, let’s talk about “Joe”. Joe can work as:
- a laborer making $12.00 per hour
- a dozer trax operator making $17.00 per hour
- a skid steer operator making $18.00 per hour
- a supervisor making $25.00 per hour
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Answer:
This is indeed a complex situation, as well as a very common one, and having to manually change the rate of pay accordingly when creating the paycheck is highly error prone.
To successfully handle this task:
- Create new hourly payroll wage items in QuickBooks called Laborer, Dozer, Skid, and Supervisor – which represent each of the different Work Classifications that your employees are paid under.
- Edit Joe’s employee record, go to the Payroll & Compensation tab, add these new payroll wage items to his Earnings section by clicking into the Item column and selecting the newly created payroll items and assign the correct rate of pay.
- While you are in the Payroll & Compensation tab, make sure that the option to “Use time data to create paychecks” is checked.
- Enter Joe’s hours using the Weekly Timsheet function, splitting out and assigning how many hours he work on each job during the week and selecting the appropriate Payroll Item for the task.
- When you create Joe’s paycheck, QuickBooks will automatically pull in the correct rate that you assigned to each Payroll Item in Joe’s employee record.
Setting up QuickBooks in this manner makes the program work for you, instead of you having to always remember to manually make the pay rate changes.
Benefits include:
- A clearly visible audit trail for Worker’s Compensation Audits, as these Payroll Items now correspond to employee work classifications.
- Accurate pay checks.
- Less stress.
_____________________________________________________________________
Author’s Note:
Having to manually create new payroll items AND then update 25 employee records with new payroll wage items and rates of pay is a time-consuming process as you have to do each payroll item and employee one at a time.
Check out Wage Manager Solution, a QuickBooks integrated application designed specifically to automate this process.
Watch a 10 minute video which provides an overview of how Wage Manager Solution works.
