Many business owners confuse payroll bookkeeping with full-service payroll. They're related but distinct services — and most businesses need both.
Full-service payroll: running the payroll
Full-service payroll providers (Gusto, ADP, Paychex, Rippling) handle:
- Calculating wages, taxes, and deductions for each pay period
- Distributing payments to employees via direct deposit or check
- Filing payroll tax deposits (941 payments, FUTA, SUTA)
- Generating W-2s and 1099s at year-end
- Handling garnishments, PTO accruals, and benefits deductions
Full-service payroll providers typically charge $40–$200/month + $4–$12 per employee.
Payroll bookkeeping: recording payroll in the general ledger
Payroll bookkeeping is what happens after the payroll provider runs payroll. The bookkeeper records the payroll as a journal entry in the accounting software (QBO, Xero, QB Desktop), reconciles the liability accounts, and ensures the GL reflects the actual payroll activity.
Full-service payroll providers don't do this. They run payroll and file taxes — they don't post balanced journal entries to your chart of accounts.
Why businesses need both
Without payroll bookkeeping, the accounting software doesn't reflect the true cost of labor. Balance sheets show incorrect liability balances. P&Ls miss payroll tax expenses. Audits become painful.
The workflow
- Payroll provider processes payroll and distributes pay
- Bookkeeper downloads the payroll report
- Bookkeeper posts the journal entry to the accounting software
- Bookkeeper reconciles payroll liabilities as tax deposits and benefit payments are made
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