Can we input contractors and conver them to w2 employees?

Let me guide you on how you can change from a contractor to an employee. SilverLining.

Hiring the right type of workers for your business is important. An employee is on a company's payroll and receives wages and benefits in exchange for following the organization's guidelines and remaining loyal. While contractors. is an independent worker who has autonomy and flexibility but does not receive benefits such as health insurance and paid time off.

Sometimes, misclassifying a worker may result in back taxes, fines, penalties, and legal disputes. In QuickBooks Online (QBO), there's no direct way how to convert a contractor o an employee. You'll want to deactivate your contractor before adding them as employees. To do so, follow the steps below:

1. Sign in to your QuickBooks Online (QBO) account.
2. Click Payroll from the left menu, then select Contractors.
3. Find and select the contractor you want to change.
4. Under the name of the contractor, click the drop-down beside Active and choose Mark as inactive.
   
5. Then, add him/her as an employee in QBO.

Beyond that, I've provided this article to take a closer look at your employees and business. This will guide you on how to access some of your payroll data: Run Payroll Reports.

Feel free to leave your comment if you have additional questions about contractors or employees or even payroll. We'll be sure to help.

Thank you for the info. So do I have to input them in maually now, once ive deactivated the contractors?

Thanks for getting back into this thread, SilverLinings. I'll provide further insights about adding new employees to QuickBooks Online (QBO) Payroll.

Yes, you're correct that you'll have to manually add your employees. They can enter their personal information, or you can input it on their behalf.

Also, please note that you're not allowed to enter the same employees' or contractors' names. Thus, you can either modify your contractors' names before making them inactive or add a period at the end of your employees' names to make them unique.

Follow these steps to add them to the program:

1. Go to the Payroll menu, then Employees.
2. Tap Add an employee.
3. Add your employee’s name and email address. If you want them to enter their personal, tax, and banking info, ensure Employee self-setup is on. QuickBooks will automatically email them an invite to QuickBooks Workforce. Your employee can enter their address, Social Security number, W-4, and banking info.
4. Click Add employee.
   
5. Choose any section to add the remaining employee info. 
6. Once finished, tap Save.

For more details about the process, please refer to this article: Add your new employee to QuickBooks Payroll.

Once everything's been set up, you can simply follow the steps from this article to run your first payroll in QBO successfully: Create and run your payroll.

Keep me posted if you still have questions or concerns with managing your employees or payroll transactions in QBO. I'll be here to lend a helping hand. Have a great day ahead!

Thanks for your response... as of July 1st all my contractors are now FTE/ W2, I need to see how to convert so the funds paid after July 1st wont be combined with the pay before July 1. 

Thank you for your prompt response, .

Allow me to elaborate on this further. Currently, we're unable to convert the contractors directly to employees in QuickBooks Online. As long you entered the correct check dates when you paid these employees as contractors before July 1, this won't mix up their transaction data.

If you have created some checks to pay your contractors after July 1, you'll have to delete these entries before deactivating them as your contractors from your record. Ensure to note the check amount and contractor names before deleting these data and deactivating the contractor profile in QuickBooks.

Here's how to delete the checks you created starting July 1.

1. Go to the Get paid & pay menu and then select Vendors.
2. Click the contractor's name to see the checks created after July 1.
3. From the Transaction List, click the Triangle icon from the Action column.
4. Click Delete.

You can do the same steps for other contractor payments. Then follow KevinC's suggestion to edit the contractor's name by adding extra characters before deactivating their contractor/vendor profile. Doing this can help you enter them as employees manually with their correct name and info. You can also invite them to fill their W-2 information, so you won't have to enter them by hand. Please take a tour from this guide: Set up and invite a new employee.

Moreover, we delete those checks because you'll have to track them as paychecks to treat them as federal or state taxable since, as of July 1, you converted them as FTE. After they fill in their details, ensure to review their data, like start date as an employee in your company.

Here's how:

1. Go to the Payroll menu and then select Employees.
2. Click the employee's name from the list.
3. From the Employment details section, click Edit.
4. Change the Hire date to July 1, 2023, pay schedule, and other employment details.
5. Hit Save.

Then follow the same steps for everyone to review or update their employment details.

Before recreating those checks, you can choose the correct payment method for each employee, like paychecks, if you paid them via checks.

1. From the Payment method section, click Edit.
2. Select Paper check.
3. Hit Save.

Please check this article to learn more about setting up employees, federal and state tax, and other payroll guides: Get started with QuickBooks Online Payroll.

Once you set it all, you can recreate the paychecks by running a prior payroll between July 1-16 dates. Then you'll have to adjust their next paycheck if the taxes, contributions and deductions aren't deducted. Same thing if you have paid them via direct deposit/ ACH. In this case, I advise consulting your accountant for tax and accounting consultation. This is to make sure you track them in the system accurately.

I'm adding these articles for more info about generating W-2s at the year-end:

• File your W-2 forms
• Print your W-2 and W-3 forms

Please let us know if you need more information about adding your contractors as FTE in QuickBooks Online Payroll. We're always here to assist and help. Take care always, and stay well.

Hi jovychris_a

The contractors were paid via ACH/ Direct deposit

Hi there, SilverLining. I've got here an additional set of steps to help you handle those contractors that were paid via ACH or Direct Deposit.

I appreciate you providing further details of your concern. In QuickBooks Online (QBO), the option to delete, void, or cancel a direct deposit payment for contractors depends if it is already processed or not. 

If the direct deposit is already processed, the option to delete it is unavailable. You can create a Journal Entry to offset a contractor's transaction amount instead. Here's how:

1. In your QBO account, select the +New button and choose Journal Entry.
2. On the first line, pick the account in the Account field. Depending on if you need to debit or credit the account, enter the amount in the correct column.
3. On the next line, select the other account you're moving money to or from. Depending on if you entered a debit or credit on the first line, enter the same amount in the opposite column.
4. Ensure the amounts are the same in the Credit and Debit column. This means the accounts are in balance.
5. Input the information in the memo section so you know why you made the journal entry.
6. When done, select Save and Close.

Additionally, to ensure you'll assign the amounts to the correct account, I recommend asking for guidance from your accountant. If you're not affiliated with one, you can use the Find an Accountant tool to look for one near you. 

If the direct deposit is not yet processed, you can follow the steps below to remove it:

1. Navigate to the Expenses menu and select Vendors.
2. Next, select your contractor.
3. Then, look for the payment you want to delete or void and click View/Edit.
4. Select Delete or Void.
5. Choose Yes to confirm changes.

For reference, read this article: Void or cancel contractor payments.

Once done, you can now proceed to recreate the contractor as an employee by referring to the recommendation of my colleague, Jovychris_A above.

When everything is fine, you can also invite your employees to QuickBooks Workforce so they can see and print their own pay stubs and W-2s online. 

Please don't hesitate to leave a reply below if you have additional concerns about managing your contractors. Have a great week ahead, and stay safe.