Payroll Item

Correct and manage payroll items and paychecks

Payroll items are the building blocks of employee compensation. They define how much you pay, what taxes are calculated, and how hours are tracked. Because they affect every paycheck and tax form, setting them up correctly is essential.

If you discover an error after payroll is processed, it is important to handle it carefully to maintain accurate records.

Correcting prior paycheck errors

If you have already processed a payroll run, you should never revise or delete historic paychecks. Changing past payroll data can cause discrepancies in tax filings and W-2 forms.

Instead, correct the issue on the next paycheck:

• Overpayments or incorrect additions: If you paid an employee too much (for example, via a Miscellaneous Addition that should have been a raise), leave the original paycheck as is. On the next paycheck, increase the regular wages to the correct amount. Then, enter a negative amount using the same Miscellaneous Addition item (or set up a Deduction item with no tax tracking) to recover the overpayment. This increases the taxable gross wages correctly while reducing the net pay to balance out the previous error.
• W-2 Box 14 errors: If an amount in Box 14 is incorrect but the tax treatment was right, you can edit the payroll item setup to change the Tax Tracking type to “Regular Taxable Compensation.” If the tax treatment was also incorrect, you may need to adjust the payroll items and consult a tax professional to address potential tax liabilities.

Setting up specific deduction and contribution items

When creating deduction items for benefits or contributions, ensure the calculation basis and tax tracking are accurate.

• Voluntary Additional Contributions (e.g., IMRF VAC): Set these up as a Deduction item. Do not classify them as a 401(k) unless they are specifically a 401(k) plan. Configure the item to calculate based on gross pay and ensure no taxes are impacted if that matches the plan requirements.
• Tracking unpaid missed hours: If you need to track hours an employee was scheduled but did not work, you can create an hourly payroll item with a rate of $0.00. Enter these hours in the “Other Items” section of the paycheck details. Note that this item will not appear in the standard “Enter Payroll Hours” workflow. This method prevents errors in tax forms or reports that calculate based on total hours worked.

Managing vacation and sick hours

For vacation and sick time to track correctly on paystubs and payroll reports, you must use the correct item types.

• Item type matters: Ensure your payroll item is specifically set up as a Vacation or Sick item, not a standard Compensation item. Only these specific item types update the “Used/Accrual” balances on the paystub.
• Zero hours on paystubs: If the “Earned” hours show as zero on the paystub but YTD totals are correct, verify that you entered hours for that specific payroll item on the current paycheck. The paystub reflects the hours entered on that specific check. You can confirm if an item is set up correctly by editing it; the window title should indicate it is a Sick or Vacation item.

Timesheets, Service Items, and Payroll Items

When using timesheets for payroll and job costing, the relationship between Service Items and Payroll Items determines how costs are allocated.

• Requirement for accurate reporting: To ensure job cost reporting displays the correct Service Item costs associated with payroll, you must enter both a Payroll Item and a Service Item on the timesheet line.
  • Payroll Item: Determines the rate and pay type.
  • Service Item: Tracks the specific service performed for job costing.
  • Customer: Tracks the job or project.
• Splitting costs: If a timesheet line includes a Payroll Item and one Service Item, while a second line includes only a different Service Item, QuickBooks will allocate the payroll costs across both Service Items. To ensure precise tracking, enter all three elements (Payroll Item, Service Item, and Customer) on every line where applicable.

Limitations on billing rates

Currently, QuickBooks Online does not automatically differentiate billing rates for Straight Time versus Overtime when invoicing for time and expenses. You must manually review and adjust the billing rates on invoices to ensure overtime hours are billed at the correct higher rate.