USA How do I set up Paychex in my chart of accounts?

[T.C.]

I recently bought out my business partner and began to manage the accounts. We use Paychex to manage our Payroll. Paychex issues checks to our employees and pays our taxes, then sends us a bill once a month. My partner had not bothered to detail payroll in the books – he just recorded the total amount we paid Paychex as an expense, then he sent the Paychex reports to our CPA every year at tax time and our CPA figured out our payroll as necessary to prepare taxes.

I want to clean this up, so I hired a bookkeeper. I asked her to show me how she would record payroll, and she created a journal entry to demonstrate. On the credit side, everything looks great – she separately credits accounts for each employee's salary, in addition to the accounts for various taxes. On the debit side, however, she posted everything against our bank account. I thought that was inappropriate, since we don't pay salaries and taxes directly out of our bank account. (We pay Paychex, and Paychex pays those things.) So, I asked her instead to create a liability account representing Paychex and to debit that account rather than our bank account when she enters the payroll detail. Then, once a month when we pay Paychex, she could create a transaction debiting our bank account and crediting our Paychex liability account.

To my surprise, my bookkeeper said that creating such a Paychex liability account would be inappropriate. She couldn't explain why it is inappropriate – she wants time to prepare an explanation, and she will tell me next week.

In the meantime, I figured I would reach out to the wider community for an explanation. Those of you who use a payroll service like Paychex, do you post your payroll expenses directly against your bank account, or do you post them against a payroll service liability account? And what might be inappropriate about the latter approach?

 

[kirby]

First of all, the part about "she separately credits accounts for each employee's salary, " concerns me about her skill level.
Do you think Walmart with 1.5 million employees does this?
Nope.
The salary postings should be made as a group. That keeps detail payroll info out of the general ledger to keep each person's pay confidential. You use Paychex reports to get the detail and you limit access to those Paychex reports. As is - anyone (A/P clerk or A/R clerk) with access to the G/L gets an eyeful. Cannot be unseen.

Since you said you pay Paychex and Paychex pays those things (meaning I take it salaries and taxes) - then you are correct with saying : Then, once a month when we pay Paychex, she could create a transaction debiting our bank account and crediting our Paychex liability account.

Also the part that bookkeeper needed a week to explain something basic - doesn't help her case.

Bottom line - these are signs that bookkeeper appears very inexperienced...........

 

[T.C.]

Kirby,

Thank you for the reply. Your explanation that salary postings should be made as a group in order to preserve confidentiality was particularly enlightening. It never occurred to me that privacy might be a concern, and I'm grateful that you alerted me to that issue. As it happens, mine is a small company and everyone knows what everyone else is paid, but after your suggestion I think I might like to keep the salary data out of the ledger on principle, and also to standardize on the way everyone else does things.

-TC