Job Costing Payroll When Using a Payroll Service

Using an outside payroll service, such as Paychecx or ADP, is a popular option for many business owners.  While using a payroll service often provides many benefits one of the biggest challenges or drawbacks is for the company that needs job costing.  See this question submitted by a reader.

My company uses a 3rd party to do all of our payroll.  We receive an itemized report back showing what we spent for the week.  I am having trouble trying to get this information charged out to individual jobs.  I track all of the hours separately in Excel, with estimated costs.  How can I job cost this information?  Thank you – Michelle

Hi Michelle

I bet you are having trouble getting payroll information charged to individual jobs, that’s one of the issues that I personally have with using an outside payroll service.  In my opinion,  when you use an outside payroll service important job costing data is totally disconnected from the rest of your accounting and job costing information – so you might find my response and suggestions to be a little radical

Unfortunately, because it’s so late in the year – there isn’t much that you can do right this minute to make things easier; however, on the other hand, now is the perfect time to make some changes that will go into effect for January 1, 2013.

Here are my suggestions:

• Forget Excel – it’s a handy tool for many things, however, in your case it’s only adding to the disconnectedness of your job costing issue and causing duplicate data entry for you.
• If you aren’t totally in love with your payroll service – check into using QuickBooks Assisted Payroll.  It offers the best of both worlds – you get accurate payroll job costing with all the benefits of your current outside payroll service – payroll taxes paid for you, quarterly payroll reports filed for you, W-2’s issued for you, etc. and it “might” even be cheaper than your current payroll service.
• You could bring payroll partially in-house by signing up for QuickBooks Basic Payroll and enlist the aid of your CPA/Tax Preparer to do the quarterly and year-end filings while you make sure that the payroll taxes are deposited on time.
• You could bring payroll totally in-house by signing up for QuickBooks Enhanced Payroll and do everything yourself – tax deposits, quarterly and year end filings.

When you use Assisted, Basic or Enhance Payroll – all of your employees time and payroll data lives inside of your QuickBooks file and when you start by entering your employee’s time directly in the QuickBooks Weekly Timesheet that information transfers directly into their paychecks and gets included in your job costing reports.  You can find out more information about the various payroll options offered by Intuit by clicking here – just stay away from Online Payroll Basic, Online Payroll Plus and Full Service Payroll – because you’ll end up with the same problems that you are currently having.  If you are interested in Basic, Enhanced or Assisted Payroll, contact me and I can get you a discount.

If you aren’t interested in any of the above suggestions, there are a couple of other things that you can continue to use your current payroll service and:

• Turn on the QuickBooks Manual Payroll Option and “act as if” you are doing payroll yourself – entering time in the timesheet and using the individual paycheck information from the payroll service to “create” the paycheck in QuickBooks.
• Use a combination of Journal Entries and 0-dollar checks to record the itemized payroll information from the service into QuickBooks.

In my opinion, manual payroll and the use of Journal Entries and 0-dollar checks is a LOT of extra work – but they are an option if you want to stay with your existing payroll service.  Doug Sleeter (of the Sleeter Group) has written a blog post outlining the use of Zero-Dollar Checks to Record Payroll Costs by Job and Class.

If you would like to discuss this further, please contact me and I’d be happy to arrange some training and/or consulting time to help you make a better decision.