Employer part of benfit liability

Carolexx · ‎January 22, 2025

We have QB Payroll service to do our payroll and pay our taxes, liabilities on the employee side. However, the employer pays his side of the payroll labilities with a check from the payroll bank account each pay check run. In the past I have always entered the transactions in the qb account by using a "check" with the payee to "Kaiser" or whoever got the payment and on the bottom part of the check charged the payments to "employee benefits". Is this correct? My boss is now saying that the payment should have been charged to the liability account because we are "matching" the liability payment. The liability report in the Payroll section shows a zero balance since it's being paid automatically as a deduction from the employee check. Am I doing this correctly or ???

Rainflurry · ‎January 22, 2025

@Carolexx

The response from @Tori B is of little help, obviously.

The check payments you make to Kaiser, for instance, can be recorded as an Employee Benefits expense at the time you issue the check as you're doing and it won't appear anything is off. However, the issue with doing it that way is that it creates a mismatch of dates for the Employee Benefit expense because the date that the employee portion is recorded as a payroll expense is the pay date (or accrual date if you accrue payroll expenses) and the date the employer portion is being recorded as an expense is the check date.

So, for example, let's say Employee A has $100 withheld from each of their paychecks on Feb. 1 and Feb. 15 and you pay the employer-side (let's say it's a 100% match so $200) at the end of the month (Feb. 28). What happens is that you're recording the $100 wage expense on Feb. 1 and Feb. 15, but you aren't recording the $200 employer-match until Feb. 28, thereby understating the company's employee benefit expense until you make the payment on Feb. 28. Does that make sense?

Ideally, you would want to create a bill (a journal entry works but a bill is better) for the employer side on Feb. 1 and then update that same bill on Feb. 15 for the employer-side amounts. Then, pay the bill when it's due. IMO, the bill payment (reduction in accounts payable liability created by the bill) is what your boss is referring to when they say to match the payment to the liability.

View solution in original post

Rainflurry · ‎January 23, 2025

@Carolexx

"Ideally, you would want to create a bill (a journal entry works but a bill is better) for the employer side on Feb. 1 and then update that same bill on Feb. 15 for the employer-side amounts. Then, pay the bill when it's due."

My apologies, I made a mistake when I advised you to update the same bill. That will also cause a mismatch. Instead of updating the same bill on each of the pay dates, create a journal entry each pay date that debits Employee Benefits Expense and credits an other current liability account called "Accrued Employee Benefits" (set one up if you don't have one) for the amount of the employer-portion of the benefits to be paid. Then, when you write the check to the vendor, assign Accrued Employee Benefits to the check.

View solution in original post

Tori B · ‎January 22, 2025

Hi there, @Carolexx.

Thanks for taking the time to reach out to the QuickBooks Community. How are you today? I hope all is well.

When handling your payroll liabilities in QuickBooks Desktop, we often see users use the following instruction:

Collect employee data on Form W-4 (for employees).
Calculate gross wages using salary or hourly data.
Compute amounts to be withheld.
Withhold amounts and pay each worker’s net pay.
Record payroll liabilities for amounts that will be a business expense, such as FICA taxes.
Submit amounts to each third party using the proper reporting form.
Reclassify payroll liability balances into payroll expense accounts.

For more information about payroll liabilities, check out our What are payroll liabilities employer guide.

I also recommend consulting with your accounting professional. Your accountant can take a look at your books and advise what accounts need to be used to record the data based on your business needs. If you don't have an accountant, don't sweat it. You can always use our Resource Center to help find one.

Please don't hesitate to let me know if there is anything else I can assist you with. I hope you have a great rest of your day. Take care!

Rainflurry · ‎January 22, 2025

@Carolexx

The response from @Tori B is of little help, obviously.

The check payments you make to Kaiser, for instance, can be recorded as an Employee Benefits expense at the time you issue the check as you're doing and it won't appear anything is off. However, the issue with doing it that way is that it creates a mismatch of dates for the Employee Benefit expense because the date that the employee portion is recorded as a payroll expense is the pay date (or accrual date if you accrue payroll expenses) and the date the employer portion is being recorded as an expense is the check date.

So, for example, let's say Employee A has $100 withheld from each of their paychecks on Feb. 1 and Feb. 15 and you pay the employer-side (let's say it's a 100% match so $200) at the end of the month (Feb. 28). What happens is that you're recording the $100 wage expense on Feb. 1 and Feb. 15, but you aren't recording the $200 employer-match until Feb. 28, thereby understating the company's employee benefit expense until you make the payment on Feb. 28. Does that make sense?

Ideally, you would want to create a bill (a journal entry works but a bill is better) for the employer side on Feb. 1 and then update that same bill on Feb. 15 for the employer-side amounts. Then, pay the bill when it's due. IMO, the bill payment (reduction in accounts payable liability created by the bill) is what your boss is referring to when they say to match the payment to the liability.

Rainflurry · ‎January 23, 2025

@Carolexx

"Ideally, you would want to create a bill (a journal entry works but a bill is better) for the employer side on Feb. 1 and then update that same bill on Feb. 15 for the employer-side amounts. Then, pay the bill when it's due."

My apologies, I made a mistake when I advised you to update the same bill. That will also cause a mismatch. Instead of updating the same bill on each of the pay dates, create a journal entry each pay date that debits Employee Benefits Expense and credits an other current liability account called "Accrued Employee Benefits" (set one up if you don't have one) for the amount of the employer-portion of the benefits to be paid. Then, when you write the check to the vendor, assign Accrued Employee Benefits to the check.

Carolexx · ‎January 23, 2025

Thank you, I'll set this up for our next payroll run (we are paid every other week). I appreciate your help.

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Employer part of benfit liability