The QuickBooks Advisor

From the Sept. 2006 Issue

For many years, I’ve been wishing for an automated system of tracking, accruing, job costing, paying, and reporting on workers’ compensation in QuickBooks. I developed several workarounds for accruing and job costing workers’ comp, but, to be honest, these workarounds almost always required too much technical understanding from the user, and way too much babysitting of the process. So I only offered the workarounds for those who had no other choice. Alas, with recent updates to QuickBooks and its integrated payroll services, you can now handle pretty much everything you need for workers’ comp.

To Accrue or not to Accrue …
Many businesses need full job costing of payroll including workers’ comp costs. For example, clients such as contractors or other labor-intensive businesses with high workers’ comp premiums want to job cost these expenses so they can manage profitability. Also, they want to factor workers’ comp costs into their estimating systems to make sure they don’t underbid on future jobs.

For these clients, QuickBooks should be set up to accrue workers’ comp expenses with each paycheck using the Enhanced Payroll service. Before I go into how this all works, consider that many businesses don’t need full job costing of workers’ comp costs. In my opinion, for these clients, it’s best not to accrue workers’ comp because it’s not worth the extra setup and complication. Also, there is an extra cost for the Enhanced Payroll service that you may not need unless you plan to job cost and accrue workers’ comp premiums. Another consideration is that, depending on the state in which you pay wages, you’ll have different needs for tracking workers’ comp. Some states require employers to obtain private workers’ comp insurance, and other states have a labor tax. Usually, the employer pays 100 percent of the workers’ compensation insurance premiums, but the labor tax is sometimes shared between the employer and the employee.

So instead of trying to cover all possibilities, I’ll focus on how to handle workers’ comp for 100 percent company-paid premiums by accruing and fully job costing the expenses.

An Overview of Workers’ Compensation Using the Enhanced Payroll Service
QuickBooks provides a Workers’ Compensation Setup wizard that walks you through the setup of the Workers’ Compensation feature. This wizard prompts you to (1) assign default workers’ comp codes for each employee, (2) decide whether you want to exclude overtime premiums from workers’ comp premium calculations, and (3) enter an experience modification factor, if you have one.

Once you’re set up, QuickBooks accrues workers’ comp premiums as paychecks are created, for each earnings item that has a workers’ comp code assigned to it. If you assigned a default code to an employee in the workers’ comp setup, QuickBooks automatically assigns that code to the employee earnings items on paychecks. One note, however, is that there is no way to enter “year-to-date” information for your workers’ comp premiums. Even though you can enter the workers’ comp payroll item on year-to-date adjustments, they will not reflect in your workers’ comp reports. If you start using the feature in the middle of your insurance year, in order to get the full picture of your workers’ comp obligations for your insurance year, you will have to combine the information that QuickBooks tracks with the information you tracked outside of QuickBooks before you started using the feature.

Workers’ Compensation Setup
Here are the steps for setting up and using the workers’ comp tracking features of the Enhanced Payroll service.