How to Set Up Construction Payroll in QuickBooks Online (Full Transcript)

[00:00:00] Speaker 1: Today, you're gonna learn how to set up payroll for construction in QuickBooks Online. Most payroll tutorials don't go into job costing, different pay rates, and project profitability, but that's exactly what we'll cover today. I'm David, I've partnered with Intuit to share this deep dive, so click the link in the description below to follow along. Let's go. That link takes you to this payroll page, and before you touch anything, you need to know two things for construction payroll. The first is that you need payroll premium. That bundles in mobile time tracking so your team can clock in from the field. Other companies might charge separately for time tracking, and it's nice that QuickBooks bundles it in. Once you choose your payroll plan, you'll find the second thing you need to know, and that is you need QuickBooks Plus. That's what gives you project tracking so you can see profitability per job. The rest of this tutorial assumes you've chosen at least these plans. Sign up with this box on the left, answer the setup questions, and I'll see you on the other side. Now that we're here, we need to set up your jobs, and QuickBooks calls these projects. This is the foundation for everything else in this video, so if you skip this, nothing that we set up later connects. Move your mouse to the left sidebar where it says All Apps, and then click on Projects. These are the main things you'll get with projects, both checking your profitability and keeping track of your labor costs. So, have a project in mind, and then click Start a Project. Today we'll simulate a general contractor business, so my project name is the address plus the project. The customer name is required to track, so either select an existing one or add a new one. Here, I'll fill in the Kevin Cookie Company as well as Kevin's email. Now, you're free to fill in the rest of this information, but it's not required for today, so I'll click Save. Now, this project started earlier this month, but we haven't finished it yet, so I'm gonna leave the end date blank and the project status as In Progress. Now, before you click Save, you might wanna set the address for this project. That way, if you make invoices later related to this project, it'll auto-fill the address on that invoice. I've added one here so you can see that Now, click Save to commit that first project. We're taken to an overview page of the project, but there's nothing interesting to look at, at least not yet. Next, we're going to add some data, but first, let me show you this All Projects pane. Next time you come to the Projects app, this is what you'll see. I've added a couple of other jobs or projects to the list so we can play with them later. Now, project profitability is all about income versus costs, so let's issue an invoice against a project so the income tracks to that right job. You can access invoices by clicking on Sales and Get Paid and then Invoices, then click Create Invoice. If you've invoiced customers before, you might be used to selecting a customer from this dropdown, but now notice that you can actually select the projects themselves. Let's select this 123 Cooking Lane project. We're gonna keep this invoice pretty simple because this isn't an invoicing tutorial. For a deeper dive on invoicing, check out our tutorial that appears in the top right. Normally, you'd fill in some of these fields down below, but we're just gonna click Review and Send. Now, because a project is assigned to a customer, this invoice still goes to that customer. You can text it to them or you can email them. For email, you can change the content on the left and preview what it looks like on the right. Now, to log this income against your project, I'm gonna turn off texting and then click Send Invoice. If you haven't sent an invoice before, you'll get asked to set up deposit receiving and verification. Definitely do this so you get paid, but I'll skip it for the demo. That tracks income for a project. Now, let me show you how to track expenses. Head over to the Accounting app and then click on Bank Transactions. If you're a new QuickBooks user, take this time to connect your bank account so you can track income and expenses automatically. Click the screen button, follow the prompts, and then come back when you have a few transactions in your list. Once you connect your account, you'll see transactions in a table like this. Here's where it's easy to get tripped up. For job costing, you wanna click this gear icon in the top right and then make sure the Customer field is checked. This adds a Customer column where you can add the customer or the project. And that's confusing because you also have this From To column where you can select a vendor or a customer. So let's break this down step by step. If you have an income transaction like this line, select the project in the From To column. If, on the other hand, you see an expense that you paid for a project, select that project in the Customer column. Save the From Slash To column for the vendor that you actually paid. Here's what this might look like for all the transactions listed here. Before we post these, you might have noticed a billable checkbox in each of these expenses. If you're doing fixed price work, you can ignore this. But if you're doing time and materials, you can check this box to automatically queue this item for a future invoice for this customer. We won't do that today, so to wrap up here, I'll select all the transactions and click Post. Now let's add your team to payroll. And construction employees need a different setup than what most tutorials show you. Head over to the Payroll app and then click on Overview. If you haven't set up payroll yet, you'll need to answer a few questions before you start. First up, have you paid employees so far this year? Most of you will select Yes, but I'll choose No for this demo. If you select Yes, you'll need to put in all of your payroll information this year from before using QuickBooks. Next, select your actual first payday. We'll leave it as the 24th and click Next. When you get to primary work location, leave it as your office address, not any of your job sites. Then fill in your payroll contact. This person will get email reminders when payroll needs to be run. With that out of the way, you can now add your employees by clicking the Start button next to Tell us about your team. If for some reason you don't see this view, you can still add your team by going to the Payroll app and then clicking Employees. For this tutorial, we only have a small team, so I'll show you how to add them manually. Obviously, we want to add an employee, so let's start here. Up top, fill in their basic information. Then on the second question, I recommend you let them self-onboard. They'll need to use the QuickBooks Workforce app anyway to log their hours, so let it gather all their payroll details for you. And before clicking Add Employee, make sure time tracking is checked. That's important for job costing. Now we see all of Alex's info. We're going to focus on the construction-specific fields. For everything else, check out our full payroll tutorial in the top right. Let's start with the Employment Details card. Click Edit in the top right. First up, make sure the pay schedule is correct. You can select the dropdown and then click Add Pay Schedule. Weekly pay is typical in construction, and QuickBooks lets you set this. You can also edit the pay periods here, but QuickBooks does a good job of selecting a default. Now, back on the Employment Details screen, some states require you to fill in an occupational code. If this applies to you, you can look them up from the link provided. That's it for Employment Details. Now let's look at Base Pay. It'll likely have an orange exclamation mark next to its name, so it's easy to find. Once you find it, click Start. You need to choose among Hourly, Salary, and Commission only. A simple setup might just be a single hourly rate. If this works for you, just put in the employee's hourly rate and then click Save. But if your payment is more complex, say your team does different types of work at different rates, you'll need to use additional pay types. Where people get confused is that they add these pay types here, but don't know how to configure it across the rest of the system. I'll walk you through that in the later sections. For now, just click Add. From the list, select New Pay Type. Let's make one payment type Demolition Work and select Hourly from the Type field. We'll make this $20 an hour. If you ever need to phase in or phase out pay types, you can edit these fields down below. Click Save not only to commit the pay type, but to assign it to Alex. You'll see those when you scroll down to Additional Pay Types. And heads up, I added Carpentry off-camera. We'll come back to how Alex can log each of those later in the video. Finally, let's tackle Workers' Comp. Now, let me be clear about something. QuickBooks does not pay Workers' Comp premiums for you. It just tracks what you need to pay. There's also a limitation in that you can only track one code per employee. For a small firm, that's probably fine, but it can be a challenge as you get larger. If you have someone who genuinely splits time between trades, you can either assign the highest rate code in QuickBooks or manually track the time outside of the app. Assuming you still wanna track in QuickBooks, click on I have the tax rate and then click Add Workers' Comp Tax Rate. You should get all of this information from your policy. Definitely don't make any of it up because you will pay the price. Click Save when you're done. Just a side note here, you still see this Add button down below, but it's misleading. You still can only add one code per person. Let's now head back to Alex's profile because that wraps up all the construction-specific settings. Now, click Done. Now, you might get a warning about missing information, but that's because Alex needs to fill it in himself using the Workforce app. That covers your W-2 employees, but if you're paying subs, those dollars need to land on the right projects too, and you need to track them for 1099s. QuickBooks handles both. Tell him to check his email to get the invite. Let's first get out of this view by clicking Done. Then head over to the Contractors link under Payroll, and then click Add Your First Contractor. Fill in their name and email address, and then check this box so your contractor can submit the rest of their information electronically, including their W-9. Then click Add Contractor. Your contractor will get an email from QuickBooks which looks like this. They'll click Get Started, and after creating their account, they'll fill in their W-9 electronically. Then back in your QuickBooks under that contractor's profile, you can download their W-9 by clicking on the Documents tab. Now let's cover job costing for contractor bills. Head over to the Expenses app, and then click on Bills. Now chances are you'll get bills from contractors in your email. A simple way to import those is just to forward those emails to the address at the top of the screen. But if needed, you can add them the old-fashioned way by clicking Add Bill, and then Create Bill. You can choose your contractor from this vendor list, and then fill in the line items like we did on the invoice. You'll notice the last column should be familiar now. It's called Customer and Project. Selecting this is how sub-costs show up in your job costing reports. Now you might notice that we can add payment info for your contractor and schedule payment through QuickBooks, but if you just want this for job costing purposes, click Save to record it. And just a side note, QuickBooks does track all your payments to all your contractors. So at the end of the year, you can generate your 1099s. Now we need a way to track your team's hours from the job site and tie that time to the right project and the right pay rate. Here's how you close that gap. This part is not obvious, so stay with me through this section. The first step is to set up something called Service Items. You can find that under Sales, and then Products and Services. This is so your employees can select the type of work they're clocking in for. These are supposed to match the pay rates that we set up earlier. So I'm gonna start with Demolition as one, and then we'll set up Carpentry as our second. These other fields are useful if you put them on invoices, but we're not gonna worry about that here. Click Save and Close when you're done. Our next step is to map these services to the pay rates that we set up earlier. This time we'll go to the Time app and then click on Overview. Then click Go to Classic QuickBooks Time in the top right. Then click on the QuickBooks Payroll menu and click on Preferences. And then in this little part of the app, you'll see this button called Payroll Item Mapping Tool. Now click on the Map Overrides tab and click Set Up Overrides. Check this box that says Allow Overrides By, and then select Service Item from the dropdown. Then click the Save button. Click Add Override, and you can now select a service item. So let's select Carpentry, and let's map that to a new pay type. This Carpentry item now shows up, and now we can select the Carpentry pay type that we created earlier. Notice how you can also create a pay type for overtime carpentry. I added the demolition mapping too. Now, close this window to save your changes, and let's see this from the employee's side in the mobile app. Remember you invited your employees to an app called QuickBooks Workforce? Well, it's also a mobile app, and it's most valuable to clock in and clock out on the go. Now they can use that big green button down below to clock in and out, but they can also add timesheets for past work. To add a timesheet, they just tap the plus button in the bottom right. Regardless of which way they choose to log their time, they can always select a customer, which means they can select a project. Additionally, they can select one of those service items that we just configured. To show this in action, let's log Carpentry in the morning and Demo in the afternoon. While I'm doing this, you can find a full tutorial for this app in the top right. Anytime an employee saves a timesheet, it's submitted for approval. So now let's look at how you approve that time and pay for it. I'll show you timesheet approval and payroll in the same process. So head over to All Apps, Payroll, and then Overview. Here you should see a big green button to pay your team. Click it. On this screen, you'll see a table of all of your employees and all of their hours. If you don't see hours yet, which we don't, then it means you need to approve that time. To do that, click the Approve Time button in the top right. You'll only see the total time here, and that's the seven hours we just logged in the mobile app. If you want to see the breakdown, make sure to click this arrow and then click View Details. Now you'll see the breakdown between demolition and carpentry work. Now to make this time eligible for payroll, click on Approve Time, then Approve Time again. Then click Approve and Lock Time. Back in the Payroll view, you can now see that time is allocated to the right payment types. You might also see this note to review your projects. If you click on the Edit Projects button, you can double-check pay allocation to the correct jobs. This is the construction difference. You're not just paying Alex $176, you're splitting that across multiple work types and potentially different jobs. To continue the process, get out of this screen and then click on Preview Payroll for One Employee. Here you can double-check that everything looks right, and then when you're ready, click Submit Payroll. Now you'll have to configure your bank account and answer a few tax questions to fully submit payroll. So to learn more about that, check out our full payroll tutorial in the top right. Now let's pull the reports that tell you whether each job is making money or losing it. Now we go back to where we started. Under All Apps, go to Projects and then click on Projects. And with all that hard work, we see income, expenses, and time tracking flow into our jobs. Let's check out 123 Cookie Lane. Right away, you see the project dashboard with income and costs. Every line item under each of these columns is clickable, so you can drill into what it tracks back to. For example, this was the bill from our contractor. Now back on this overview dashboard, you can also see your profit margin for this job as well as open and overdue invoices. Take note that you can drill into those invoices too. The Transactions tab is a great way to see every line item related to this job. And the Time Activity tab shows you how much time every employee worked on this job. Project Reports takes you to the full reporting suite, and these are the reports that matter for construction. First is Project Profitability. This is your P&L for the project. It'll show you revenue minus labor, materials, and subcosts. This is the report that tells you whether you're over budget or not. Next up is Time Cost by Employee or Vendor. This shows you how much time each person on site has spent plus their total cost. Since we didn't actually run payroll here, we don't see a cost, but it will show up in that cost column. Finally, Unbilled Time and Expenses helps you find new cashflow opportunities. If you've done work, but you have an invoice for it, it shows up here. These reports only work if your data entry is disciplined. Every hour needs a project, every bill needs a project, and every invoice needs a project. If you clock in without selecting a job, the labor cost has nowhere to go and won't show up. So it's imperative to train your employees well. Here's the honest truth, guys. QuickBooks handles private, residential, and commercial work pretty well, but it's not built for contracts that require certified payroll, union shops, or multi-state operations. So know your ceiling before you hit it. Check out QuickBooks Payroll using the link in the description below. I'm David, and I'll see you in the next video.