I always do a journal entry, remembering that the employee paid portion of the taxes only needs to be recorded as a credit to the bank account for the amount being withdrawn by the payroll company. For instance:

1. Debit Salaries for the gross salary amount - you can do separate lines for each employee if you want that detail and if you need to assign to customer/class.

2. Debit the expense account(s) used for employer paid taxes - you can bulk Social Security and Medicare together or do them on separate lines. You can also break out if you need to assign customer/class.

3. Credit the bank account for the amount of the employee net pay - I usually do this as a lump of all the employees because that's how it shows up on the bank statement, which makes reconciliation easier.

4. Credit the bank account for the amount of employee withholdings the payroll company will pay on behalf of the employee.

5. Credit the bank account for the amount or employer tax liabilities - I like to keep this separate from #4.

6. If the payroll company is paying into a 401K plan on your behalf - credit the bank account for the amount. You can do separate lines for employer and employee contributions or bulk them together to equal the amount taken from the bank account.

7. Debit the Employer 401k expense account for ONLY the employer contribution to the 401k.

8. Create payroll liabilities for any withholding that YOUR COMPANY will be responsible to pay. Examples are usually disability insurance, health insurance withholding, Federal and State unemployment.

The thing to remember is that you don't want to overcomplicate all of this by creating liabilities for the employee withholding that the payroll company is paying on behalf of the employee. The employee liability portion of the external payroll has nothing to do with your books unless you are holding that money and will pay on behalf of the employee. The only thing you want on your books are the gross salaries, the payroll taxes that are the employer portion (expenses), 401k employer contribution (expense), and any liabilities that your company will be paying on behalf of the employee (usually health insurance premiums, disability, and unemployment).