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How To Do Payroll On QuickBooks Online

How To Do Payroll On QuickBooks Online



Managing payroll is a critical aspect of running any business, and QuickBooks Online (QBO) has emerged as a popular and user-friendly tool for simplifying this complex task.

Whether you’re a small business owner or an accountant, knowing how to do payroll on QuickBooks Online can streamline your payroll processes and ensure that your employees are compensated accurately and on time.

In this guide, we will delve into the step-by-step process of using QuickBooks Online to handle payroll efficiently.

From setting up your payroll system to processing paychecks and submitting tax filings, this article will provide you with the knowledge you need to leverage QBO for seamless and hassle-free payroll management.

What Is a Payroll?

Payroll refers to the process of calculating and distributing compensation (wages or salaries) to employees for their work within an organization. 

It includes various aspects of managing employee compensation, including calculating gross pay, deducting taxes and other withholdings, and distributing net pay to employees. 

Payroll also involves complying with relevant laws and regulations, such as tax laws, labour laws, and government reporting requirements.

Key components of payroll processing typically include:

  • Gross Pay Calculation: This is the total amount an employee earns before any deductions. It includes regular wages or salaries, overtime pay, bonuses, commissions, and other forms of compensation.
  • Deductions: Various deductions are made from an employee’s gross pay, including federal and state income taxes, Social Security and Medicare (FICA) contributions, health insurance premiums, retirement contributions, and other withholdings as required by law or as per the employee’s individual choices.
  • Net Pay Calculation: Net pay is the amount that an employee receives after all deductions have been subtracted from their gross pay. It is the actual amount that an employee takes home.
  • Payroll Taxes: Employers are responsible for withholding and remitting payroll taxes on behalf of their employees. This includes federal and state income taxes, Social Security, and Medicare taxes. Employers must also pay their share of Social Security and Medicare taxes.
  • Recordkeeping: Accurate records must be maintained for each employee, including details of hours worked, wages earned, deductions made, and tax-related information. These records are essential for compliance and auditing purposes.
  • Payroll Reporting: Employers are required to report payroll information to various government agencies. This includes filing payroll tax returns, providing W-2 forms to employees for income tax reporting, and complying with other reporting requirements at the federal, state, and local levels.
  • Direct Deposits and Payroll Checks: Employers must distribute employee pay either through direct deposit to bank accounts or by issuing physical payroll checks.
  • Compliance: Staying compliant with federal, state, and local labour laws, tax regulations, and other legal requirements is crucial in the payroll process. Non-compliance can result in penalties and legal consequences.
  • Payroll Software: Many organizations use specialized payroll software to automate and streamline the payroll process, making it more efficient and accurate.

Managing payroll can be complex, especially for larger organizations with numerous employees. 

Therefore, many businesses choose to outsource their payroll processing to specialized payroll service providers to ensure accuracy, compliance, and efficiency.

Why Do I Need a Payroll System In Place?

Payroll, often seen as a routine administrative task, holds a pivotal role in any organization. 

Beyond the simple act of distributing salaries to employees, a well-managed payroll system offers numerous benefits that contribute to the smooth operation and growth of a business. 

In this article, we explore the advantages of having a payroll system in place.

1. Accuracy and Compliance.

One of the primary benefits of a payroll system is its ability to ensure accuracy and compliance with complex tax laws and labour regulations. 

Payroll software calculates wages, taxes, and deductions with precision, minimizing the risk of errors that can lead to costly fines or disgruntled employees. 

This accuracy also extends to tax reporting, helping organizations stay on the right side of the law.

2. Time Efficiency.

Processing payroll manually can be incredibly time-consuming, especially for businesses with numerous employees. A payroll system automates the process, saving hours or even days of work each pay period. This time can then be redirected toward more strategic tasks that contribute to business growth.

3. Cost Savings.

Inefficiencies and errors in payroll processing can result in unnecessary expenses. By avoiding errors and streamlining the payroll process, organizations can save money in the long run. Additionally, the cost of outsourcing payroll to experts can be outweighed by the benefits of accuracy and time savings.

4. Employee Satisfaction.

Employees depend on timely and accurate paychecks to meet their financial obligations. A reliable payroll system ensures that employees are paid on time, which can boost morale and job satisfaction. It also reduces the likelihood of disputes over pay discrepancies, fostering a more positive work environment.

5. Data Security.

Payroll information contains sensitive personal and financial data. A payroll system typically includes robust security measures to protect this information from unauthorized access or data breaches. This ensures the confidentiality and privacy of employee data.

6. Reporting and Analytics.

Modern payroll systems often come equipped with reporting and analytics features. These tools provide valuable insights into labour costs, overtime trends, tax liabilities, and more. Such data can inform strategic decision-making and help organizations optimize their workforce management.

7. Easy Accessibility.

Cloud-based payroll systems offer the advantage of accessibility from anywhere with an internet connection. This feature is particularly valuable in today’s remote work environment, allowing payroll processing and management from anywhere in the world.

8. Recordkeeping and Auditing.

Accurate recordkeeping is vital for compliance and auditing purposes. Payroll systems maintain comprehensive records of payroll transactions, making it easier to track and report on financial activities when needed.

9. Scalability.

As businesses grow and change, so do their payroll needs. A robust payroll system can easily scale to accommodate changes in the workforce, whether through hiring new employees, adjusting compensation structures, or expanding to new locations.

10. Sustainability.

Reducing the use of paper and manual recordkeeping is not only eco-friendly but also more efficient. A payroll system contributes to sustainability efforts by minimizing paper usage and automating processes that traditionally generate a substantial amount of paperwork.

11. Tax Efficiency.

Payroll systems can help businesses optimize their tax strategies. They calculate and withhold the correct amount of taxes based on employee earnings, reducing the likelihood of underpayment or overpayment.

This ensures that businesses are not caught off guard by unexpected tax liabilities or refunds at the end of the year.

12. Improved Employee Benefits Management.

Beyond salary, many organizations offer various employee benefits such as health insurance, retirement plans, and stock options.

Payroll systems can integrate these benefits seamlessly, automating contributions, deductions, and reporting. This simplifies benefits management and ensures that employees receive the full range of perks they are entitled to.

13. Enhanced Employee Self-Service.

Modern payroll systems often provide self-service portals for employees to access their pay stubs, tax forms, and other relevant documents online.

This empowers employees to manage their payroll-related matters independently, reducing the burden on HR or administrative staff and enhancing overall efficiency.

14. Trust and Reputation.

A reliable and accurate payroll system contributes to an organization’s reputation and trustworthiness.

Employees, investors, and stakeholders are more likely to have confidence in a company that consistently and transparently handles its payroll responsibilities.

15. Long-Term Strategic Planning.

Accurate payroll data is invaluable for long-term planning. Organizations can analyze historical payroll information to identify trends and make informed decisions about staffing, compensation structures, and financial forecasting.

16. Crisis Management.

During unexpected events or crises, such as the COVID-19 pandemic, a robust payroll system can adapt quickly to changing circumstances.

It can facilitate the implementation of furloughs, wage reductions, or government support programs while ensuring that employees are informed and compensated correctly.

17. Global Expansion.

For businesses with international operations, managing payroll across different countries and currencies can be complex.

Specialized payroll systems can handle multi-country payroll compliance, currency conversions, and international tax requirements, facilitating global expansion.

18. Vendor and Contractor Management.

In addition to regular employees, many organizations work with vendors, freelancers, or contract workers.

Payroll systems can help manage payments to these non-traditional workers efficiently, ensuring accurate records and compliance with tax laws.

How Can I Do Payroll on QuickBooks Online?

Payroll management is a critical function for businesses of all sizes, and QuickBooks Online (QBO) has become a trusted tool for simplifying the payroll process. 

Whether you’re a small business owner, an HR professional, or an accountant, using QuickBooks Online to manage payroll can save you time, reduce errors, and ensure that your employees are compensated accurately and on time.

In this comprehensive guide, we will walk you through the step-by-step process of doing payroll on QuickBooks Online. 

By the end of this article, you’ll have the knowledge and confidence to effectively manage your payroll, from setting up your payroll system to processing paychecks and handling tax filings.

Step 1: Set Up Your Payroll System.

Before you can start processing payroll on QuickBooks Online, you need to set up your payroll system. Here’s how:

  • Log in to your QuickBooks Online account.
  • Navigate to the “Workers” or “Employees” tab.
  • Select “Employees” and then click “Set Up Payroll.”

QuickBooks will guide you through the process of setting up your payroll preferences, including pay schedules, pay types, and tax settings. Make sure to enter accurate information to ensure smooth payroll processing.

Step 2: Add Employee Information.

The next step is to add your employees’ information to QuickBooks Online.  For each employee, you’ll need to enter details such as their name, contact information, tax withholding details, and salary or hourly wage.

  • Go to “Workers” or “Employees” and select “Add an employee.”
  • Follow the prompts to enter the necessary information.
  • If employees have direct deposit, you can set up bank information for each employee.

Step 3: Enter Employee Hours and Earnings.

Now that your employees are in the system, you can enter their hours worked and earnings. QBO makes it easy to do this manually or by importing time-tracking data.

  • Navigate to the “Workers” or “Employees” tab.
  • Select “Run payroll.”
  • Choose the employees you want to pay.
  • Enter the hours worked and any other earnings, like overtime or bonuses.

QuickBooks Online will automatically calculate gross pay based on the information you provide.

Step 4: Review and Approve Payroll.

Before finalizing payroll, review the details for accuracy. Ensure that all hours, earnings, and deductions are correct. Once you are satisfied, approve the payroll run.

Step 5: Process Paychecks.

After approving payroll, you can process paychecks. QBO allows you to print physical checks or set up direct deposit for your employees.  You can also provide employees with access to their pay stubs online.

Step 6: Handle Tax Filings.

One of the advantages of using QuickBooks Online for payroll is its ability to manage tax filings and payments. QBO can automatically calculate and withhold payroll taxes, including federal, state, and local taxes.

  • Go to the “Taxes” tab.
  • Select “Payroll Tax.”
  • Follow the prompts to review and submit your payroll tax filings.

QuickBooks Online can also generate tax forms, such as W-2s and 1099s, at the end of the year, simplifying your tax reporting obligations.

Step 7: Keep Records.

Maintain accurate records of all payroll transactions. QuickBooks Online automatically stores payroll data, making it easy to access historical payroll records for compliance and reporting purposes.


Using QuickBooks Online to do payroll streamlines the process, reduces errors, and helps you maintain compliance with tax laws and regulations. 

By following the steps outlined in this guide, you can confidently manage your payroll, ensuring that your employees are compensated accurately and on time while saving valuable time and resources for your business.

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Written by Udemezue John

Hello, I'm Udemezue John, a web developer and digital marketer with a passion for financial literacy.

I have always been drawn to the intersection of technology and business, and I believe that the internet offers endless opportunities for entrepreneurs and individuals alike to improve their financial well-being.

You can connect with me on Twitter


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