QuickBooks Payroll is a powerful tool to manage not just taxes but employer/employee pay health insurance, qualified retirement plans, garnsihments, employee loan repayments, sick time, vacation time, and more. It is this great flexibility, however, that causes so many users to need my help. Here’s an easy fix for a common error in paying for employee benefits.
Here is the scenario. You have a group health insurance plan set up in payroll to deduct an employee contribution and keep track of an employer contribution. QuickBooks is designed to deduct the employee share of premiums from each paycheck and create a payroll liability to the insurer. QuickBooks also calculates the employer share of the premiums and records the insurance expense and a payroll liability for the employer share.
With this payroll setup, you pay your health insurance company’s monthly premium as a scheduled payroll liability. Below is the accounting entry made by payroll processing for a health insurance premium for which the employer is paying $1,696 and the employees are paying $1,167 through payroll deduction.
| Payroll Item | Account | Debit | Credit |
| Health Insurance (company paid) | Health & Life Insurance | 1,696.00 | |
| Deduction from employee checks | Checking | 1,167.00 | |
| Health Insurance (company paid) | Payroll Liabilities | 1,696.00 | |
| Health Insurance (employee paid) | Payroll Liabilities | 1,167.00 |
As you can see we have recorded and insurance expense of $1,696 which only included the employer contribution. The employee paid the balance of the $2,863 premium, which we are set to pay as a payroll liability. Unfortunately, the folks in accounts payable received the insurance bill, recorded the entire $2,863 bill to Health Insurance expense and paid it creating the following entry.
| Vendor | Account | Debit | Credit |
| Anthem Blue Cross | Checking | 2,863.00 | |
| Anthem Blue Cross | Health & Life Insurance | 2,863.00 |
We have a payroll liability remaining for $2,863 and have overstated our health insurance expense by $2,863. Here's our easy fix. We select the $2,863 to pay from payroll liabilities window. However, we select the "Expense" and enter a negative $2,863 to the "Health & Life Insurance" account, creating a zero amount check.
We now have cleared the payroll liability and reduced the health insurance expense back to the original employer share of premiums of $1,696.
Robert Guild is certified QuickBooks ProAdvisor in Austin, TX who conducts CPE courses for CPAs and individual training and group classes to QuickBooks users. His company at www.QBCoach.biz, maintains a sixteen-station QuickBooks lab, providing hands-on training. You can contact him directly at rguild@QBCoach.biz or follow him on twitter at QBPro
