Understanding Background Check Expenses

Before diving into the specifics of QuickBooks categorization, it's important to understand what background check expenses typically entail:

• Fees paid to third-party background check services
• Costs for accessing criminal records databases
• Expenses related to employment and education verification
• Credit report fees (if applicable for the position)
• Drug testing costs (if part of your screening process)

The costs can vary widely depending on the depth of the background check and the service provider used. Basic background checks often run between $20 to $40 per candidate, while more comprehensive screenings can cost $50 to $150 or more[1].

Why Proper Categorization Matters

Accurately categorizing background check expenses in QuickBooks is crucial for several reasons:

1. Financial reporting accuracy
2. Tax compliance and deductions
3. Budgeting and cost control
4. Tracking hiring-related expenses

Misclassifying these costs can lead to errors in financial statements and potentially raise red flags during an audit. Now let's explore the step-by-step process for categorizing background check expenses in QuickBooks.

Step-by-Step Guide to Categorizing Background Checks in QuickBooks

Step 1: Create a Dedicated Expense Account

The first step is to create a specific expense account for background checks in your QuickBooks Chart of Accounts. This allows for easy tracking and reporting of these costs.

To create a new expense account:

1. Go to the Lists menu and select Chart of Accounts
2. Click the Account drop-down menu and choose New
3. Select Expense as the account type
4. Name the account "Background Check Expenses" or something similar
5. Save the new account

By creating a dedicated account, you'll be able to quickly see total background check expenditures for any given period.

Step 2: Consider Using Sub-accounts

If your business conducts a high volume of background checks or you want more granular tracking, consider creating sub-accounts under the main Background Check Expenses account. Potential sub-accounts could include:

• Criminal Background Checks
• Employment Verification
• Education Verification
• Drug Testing
• Credit Checks

To create sub-accounts:

1. Right-click on the main Background Check Expenses account
2. Select Add New Account
3. Choose Sub-account and select the appropriate options
4. Name and save each sub-account

This structure allows for more detailed reporting and analysis of your background check costs.

Step 3: Enter Background Check Expenses

When you receive an invoice or bill for background check services, here's how to enter it in QuickBooks:

1. Go to the Expenses or Vendor Center
2. Click Enter Bills (or Create Bill, depending on your QuickBooks version)
3. Select the vendor who provided the background check service
4. Enter the bill date and amount
5. In the Account column, select your Background Check Expenses account (or the appropriate sub-account)
6. Add any additional details in the Memo field (e.g., candidate name, position)
7. Save the bill

If you're paying for the background check immediately:

1. Go to the Banking menu and select Write Checks
2. Fill in the payment details
3. In the Account field, choose Background Check Expenses
4. Enter any relevant details in the Memo field
5. Save the transaction

Step 4: Use Classes for Further Organization (Optional)

If your business has multiple departments or locations, you may want to use QuickBooks' Class feature to track background check expenses by division. This can be helpful for larger organizations or those with decentralized hiring processes.

To enable Classes:

1. Go to Edit > Preferences
2. Select Accounting, then Company Preferences
3. Check the box for "Use class tracking"

Once enabled, you can assign a class (e.g., "Sales Department" or "West Coast Office") when entering background check expenses.

Step 5: Set Up Recurring Transactions (If Applicable)

If you use the same background check service regularly and are billed a consistent amount, you can set up a recurring transaction in QuickBooks to save time:

1. Create a bill or check as usual
2. Before saving, click Make Recurring
3. Set the schedule (e.g., monthly) and other details
4. Save the recurring transaction template

QuickBooks will then automatically create these transactions based on your specified schedule.

Step 6: Run Reports to Track Background Check Expenses

To analyze your background check costs over time:

1. Go to Reports > Company & Financial
2. Select Profit & Loss Detail
3. Customize the report to show only the Background Check Expenses account
4. Adjust the date range as needed

You can also create custom reports to show background check expenses by department, job role, or any other criteria relevant to your business.

Best Practices for Categorizing Background Check Expenses

To ensure accuracy and consistency in your QuickBooks records:

1. Be consistent: Always use the designated Background Check Expenses account for these costs.
2. Include details: Use the Memo field to add relevant information like candidate names or positions.
3. Regularly reconcile: Check your background check expenses against invoices from service providers to ensure all costs are captured.
4. Review periodically: Analyze your background check expenses quarterly or annually to identify trends or opportunities for cost savings.
5. Maintain documentation: Keep copies of background check invoices and results for your records (following all applicable privacy laws).
6. Consider cost allocation: If background checks are a significant expense, you may want to allocate the costs to specific departments or job openings.

Tax Implications of Background Check Expenses

Generally, the costs associated with pre-employment background checks are considered ordinary and necessary business expenses. This means they are typically tax-deductible. However, it's crucial to consult with a tax professional to ensure compliance with current tax laws and regulations.

Proper categorization in QuickBooks will make it easier for you or your accountant to accurately report these expenses come tax time.

Integrating Background Check Services with QuickBooks

Some background check service providers offer integrations with QuickBooks, which can streamline the process of recording expenses. These integrations often allow for automatic syncing of invoices and payments, reducing manual data entry and the potential for errors.

If you frequently conduct background checks, it may be worth exploring service providers that offer QuickBooks integration to save time and improve accuracy.

Conclusion

Accurately categorizing background check expenses in QuickBooks is essential for maintaining clean financial records and making informed hiring decisions. By following the steps outlined in this guide and adhering to best practices, you can ensure that your background check costs are properly tracked, reported, and managed.

Remember that while background checks are an important part of the hiring process, they're just one component of your overall recruiting expenses. Consider creating a broader "Recruiting" or "Hiring" parent account in your Chart of Accounts, with Background Check Expenses as a sub-account. This approach provides a more comprehensive view of your total investment in bringing new talent into your organization.

By taking the time to set up proper categorization for background check expenses in QuickBooks, you'll gain valuable insights into your hiring costs and be better equipped to make data-driven decisions about your recruitment processes.

Sources: [1] https://quickbooks.intuit.com/r/hiring/how-to-do-background-checks-of-employees/ [2] https://quickbooks.intuit.com/learn-support/en-us/payments/how-to-categorize-job-recruiting-expense-indeed-glass-door/00/241326 [3] https://www.biggerpockets.com/forums/70/topics/295842-where-to-expense-background-checks [4] https://www.youtube.com/watch?v=FDp76VX7bO0 [5] https://blog.hubspot.com/marketing/how-to-start-a-blog [6] https://blog.hubspot.com/marketing/how-to-write-blog-post-outline [7] https://quickbooks.intuit.com/learn-support/en-us/help-article/inventory-management/inventory-categories-quickbooks-desktop-enterprise/L9P3ArO3n_US_en_US [8] https://www.siegemedia.com/creation/blog-post-outline