Setup Payroll in ESC Accounting

ESC's Payroll module requires a small bit of setup before you can begin generating employee paychecks.

Introduction to Payroll

Simple vs. Multi-State Payroll

There are two basic forms of Payroll - 'Simple' versus 'Multi-state' Payroll

With 'Simple' payroll, individual employees only pay tax to one set of authorities at a time. This can be State + County + City + Local or any combination of those, but only ONE combination per employee, per pay period.

With 'Multi-state' payroll, individual employees pay taxes to multiple sets of authorities at a time. For example, an employee works in Delaware and Maryland. For the hours worked in Delaware, the employee needs to pay Delaware taxes, for the hours worked in Maryland, the employee needs to pay Maryland taxes. 

If you are doing 'Multi-state', you will need at least two separate wage items. You will need a “Regular Pay ST1” and a “Regular Pay ST2”, tying ONLY the tax items associated to that particular wage item, so the wages and taxes can be allocated appropriately.

Chart of Accounts/Departments Overview

Some accounting packages require a separate income and set of cost accounts for each department in order to get departmental income statements. ESC is different. In ESC the department an item goes into is determined solely on the department number entered on the sales invoice, journal entry, time sheet item, vendor bill, etc. Because of this you can have all of your sales go into one income account while still getting departmental income statements. This is also true for cost of sales accounts. In the other scenario, if you had five departments with each department broken into labor, material, equipment, sub-contractors, other and total you would need 30 COGS accounts. In ESC you only need 6.

While the longer chart of accounts will work fine in ESC, there is one major advantage to consolidating it…payroll. In ESC, each wage item is tied to a General Ledger account. With the “consolidated” chart of accounts you can have one pay item for any wage going to a cost account, regardless of the department. If you use the longer chart of accounts you will need a different wage item for each department (GL labor cost account). This is not only more time consuming in the initial set up of the wage items, but also makes time entry more cumbersome. 

The decision on how you will set up your chart of accounts should be made before starting this procedure to avoid as much work and confusion as possible.

 

Step 1: Setup Wage Items

If you have multiple Cost of Goods Sold - Labor accounts, you will need a separate wage item for each labor account. Each wage item can only post to one expense or COGS account.

To create your employee Wage Items, go to Employees → Wage Items and click the Add New button.  

  • Name: Enter the name of the wage item you will see in employee setup screen and on the pay stub.
  • Type:                    
    • Hourly – rate paid per hour.
    • Annual Salary – this amount is divided by the number of pay periods per year. This requires at least 1 hour be entered on time sheet for a check to be processed. If you want Vacation, Sick, Holiday, etc to go to different GL account numbers set each up as a separate salary wage item.
    • Flat – This is used for a set amount per pay period. No time or time sheet is required but every time checks are processed for an employee with a Flat pay type the amount will show up on the preliminary report and a check will be generated. Because of this, vacation, holiday, sick, etc cannot be handled like the salary wage items. This is not really recommended for use as a pay type, more for special union requirements, consistent additions to gross or other special scenarios.
      Time cannot be entered on a time sheet with a flat pay type. If time is entered for a person with a Flat pay type using another pay type that amount will be added to the flat amount.
    • Commission – Used to pay commissions.
    • Bonus – Used to pay bonuses.
  • Category: Is only active for Hourly or Annual types.  Choose from Regular, Overtime (hourly only), Sick or Vacation.
  • Expense Account: Enter the account that the gross pay will post to.
  • Active: Default is active. To make the wage item inactive remove the check.

 The “Taxes That Apply To This Item” tab will be set when Tax items are entered.

Step 2: Employee Additions and Deductions

Payroll Additions and Deductions can be added by going to Employees → Additions and Deductions and clicking the Add New button.  Add any additions and deductions you will need.

Note: Employer Paid Health Insurance is needed in order to report Employer Sponsored Health Insurance on your W2s.

Note: For 401K, if you have some employees who have a percentage of gross withheld and some who have a flat amount withheld you will need to set up an employee portion – flat, an employee portion - percentage of gross, a company portion – flat and a company portion – percentage of gross.

  • Type:
    • Addition – Any items to be added to pay. Whether they are added to gross and taxed or added to net after tax is determined by the tax items applied to it below.  Note additions to pay marked Compensation will appear under Gross Pay  additions marked None under reporting type will not be included under Gross Pay in Payroll Reports.
    • Deduction - Any items to be deducted from pay. Whether they are deducted from gross before tax or deducted from net after tax is determined by the tax items applied to it below.
    • Company contribution – An amount to be calculated on payroll but paid by the company, for example 401K – Company portion.
  • Method:
    • Based on timesheet hours - Used to add/deduct an amount based on number of hours, for example union dues.
    • Based on specified quantity - Used to add/deduct an amount per item, for example piece rate.
    • Flat amount - Used to add/deduct a flat amount. For example tool purchases, loans, most garnishments and most child support. A limit can be set on this in the employee screen so the deduction will stop when the limit has been reached. For example, if a limit of $100 is entered and $20 is withheld per check the deduction will stop after 5 checks. If no limit is entered the deduction will continue until it is removed manually.
    • Percent of net - Used to add/deduct a percentage of net. For example some garnishments and some child support. A limit can be set on this in the employee screen so the deduction will stop when the limit has been reached.
    • If no limit is entered the deduction will continue until it is removed manually.
    • Percent of gross - Used to add/deduct a percentage of gross. Most widely used for 401K.
  • Vendor: Select the vendor you pay this item to from the drop down list. Note: If you enter a vendor in this field each time there is a deduction from a check there will be a bill created for this Vendor. This is very useful for items such as child support, garnishments and possibly 401K to make sure no payments are missed. However, since each person’s deduction creates a separate bill you may not want to enter a vendor for deductions such as uniforms and health insurance. If you do not want each item to go to AP as an invoice or for employee receivables leave this field blank.
  • Liability account: Choose the Liability Account that this item should post to from the drop down list. For employee receivables this should be a liability account called AR Wash.
  • Limit type: Choose from Annual, Per Check or Declining Balance. For 401K this is Annual. Declining Balance would be used for loans. The deduction will stop when the limit is reached. If there is no limit this field is left blank.
  • Reporting type: Choose the appropriate type from the drop down list. This is used to determine how the items are shown on various reports and W2s. Unless the item should report on the W2 the reporting type should be “None.”
  • Company Paid: If this item is paid by the company, for example 401K – Company portion, check this box. The amount will be calculated but will not affect the check or print on the check stub.
    • Expense Account: If the Company Paid box is checked this field will be enabled. Choose the expense account for this addition or deduction to post to from the drop down list.
  • Active: Default is active. To make the addition or deduction inactive, remove the check.

The “Taxes That Apply To This Item” tab's settings are given here for future reference. They will be set when Tax items are entered.

For instructions on a specific item, see the examples below:

 

401K - Employee Portion            
Name 401K (Or whatever you want printed on the check stubs)
Type Deduction
Method Flat Amount or Percentage
Vendor Vendor you pay your 401K to if desired
Liability Account Enter the liability account for 401K
Limit Type Annual
Reporting Type 401K
Company Paid Blank
Active Checked
Taxes That Apply To This Item Should apply to Federal Withholding and possibly state taxes

 

401K - Company Portion             
Name 401K Company Portion - Will not print on the check stubs
Type Deduction
Method Flat Amount or Percentage
Vendor

Enter the vendor you pay your 401K to if desired

Liability Account Enter the liability account for 401K
Limit Type Annual
Reporting Type 401K
Company Paid Checked
Active Checked
Taxes That Apply To This Item None 

 

Cafeteria Deductions  
Name Insurance (or whatever you want printed on check stubs
Type Deduction
Method Flat Amount
Vendor Enter the vendor you pay your insurance to if desired
Liability Account Enter the liability account for insurance
Limit Type Blank
Reporting Type Cafeteria Plan
Company Paid Blank
Active Checked
Taxes That Apply To This Item        

FWH, FICA - Employee portion, FICA Company portion,
Medicare - Employee portion, Medicare - Company portion,
FUTA, and possibly state taxes

 

Employer Paid Health Insurance         
*This item is needed in order to report Employer Sponsored Health Ins. on W2s.               
Name Co Pd Health - Will not print on check stubs
Type Company Contribution
Method Flat Amount
Vendor Leave Blank
Liability Account Enter the EXPENSE account for insurance
Limit Type Blank
Reporting Type Cafeteria Plan
Company Paid Checked
Expense Account Enter the EXPENSE account for insurance.
Make sure it is the same account used as the Liability account.
Taxes That Apply To This Item None

 

Other Deductions  
Name What you want to see printed on the check stubs
Type Deduction
Method Depends on deduction, make the appropriate choice
Vendor Enter the vendor associated with the deduction, if desired
Liability Account Enter the liability or expense account associated with this deduction
Limit Type Usually blank
Reporting Type Usually none
Company Paid Blank
Active Checked
Taxes That Apply To This Item Should not apply to any taxes

 

Step 3: Enter Payroll Tax Items

Payroll Tax Items can be added by going to Employees → Payroll Tax Items and clicking the Add New button.  

A drop-down list will appear, allowing you to select from the following options:

FICA (Employee portion)  
Name FICA
Tax Formula FICA EMP
Vendor Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for for FICA
Active Checked
Items That Apply To This Tax Should apply to all wage items and any cafeteria deductions

FICA (Company portion)  
Name FICA - Company portion (will not print on checks)
Tax Formula FICA CO
Vendor Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for FICA
Expense Account Enter the expense account for FICA
Active  Checked
Items That Apply To This Tax Should apply to all wage items and any cafeteria deductions

FUTA  
Name FUTA (will not print on check stubs)
Vendor Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for FUTA
Tax Percentage 0.600 (May vary by state) Note – In 2012 20 states have FUTA rates other than 0.60 please check with your accountant or see Form 940 Schedule A.
Annual Gross Limit 7,000.00
Calculated Contribution Limit 42.00 (this field cannot be edited)
Expense Account Enter the expense account for FUTA
Active Checked
Items That Apply To This Tax Should apply to all wage items and cafeteria

Federal Withholding  
Name FWT (or whatever you want to print on the check stubs)
Formula Federal Withholding
Vendor Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for FWT
Active Checked
Items That Apply To This Tax Should apply to all wage items, any cafeteria deductions and employee portions of 401K

Medicare (Employee portion)  
Name MC (or whatever you want to print on the check stubs) 
Tax Formula  MC EE
Vendor  Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for MC
Active Checked
Items That Apply To This Tax Should apply to all wage items and any cafeteria deductions

Medicare Additional In 2013 the government added a new Medicare tax that takes effect once an employee makes over $200,000.00. This is a required tax.
Name MCX (or whatever you want to print on the check stubs)
Tax Formula MCX
Vendor Enter the vendor you pay your Federal taxes to
Liability Account Enter the liability account for MC
Active Checked
Items That Apply To This Tax Should apply to all wage items and any cafeteria deductions

Medicare - Company Portion  
Name MC – Company portion (this will not print on the check stubs) 
Tax Formula  MC ER 
Vendor   Enter the vendor you pay your Federal taxes to 
Liability Account  Enter the liability account for Medicare 
Expense Account  Enter the expense account for Medicare 
Active   Checked 
Items That Apply To This Tax Should apply to all wage items and any cafeteria deductions

SUTA - Company Paid SUI  
Name SUTA (this will not print on the check stubs)
Vendor Enter the vendor you pay your State Unemployment to
Liability Account Enter the liability account for SUTA
Tax Percentage Enter the percentage per your unemployment statement. PLEASE NOTE!!!! This number should be entered as a percentage NOT the multiplier. For example, if your form says to multiply your wages by .015 you should enter 1.5 in this field. If your form says your rate is 1.5% you would enter 1.5 in this field.
Annual Gross Limit This is the amount of wages you are required to pay unemployment taxes on. Enter the annual limit per your unemployment statement.
Calculated Contribution Limit This field will automatically calculate the amount of tax due based on the tax percentage and the annual gross limit. (Annual Gross Limit x Tax Percentage) This field cannot be edited. 
Tax ID Number Enter your tax ID for this tax authority. This number will print on your SUTA reports.
Expense account Enter the expense account for SUTA
Active Checked
Apply To Should apply to all wage items and possibly cafeteria and/or 401K depending on your state regulations.

State Tax  
Name SWT (or whatever you want to print on the check stubs for the state tax)
Tax Formula Choose the tax table for your state. If there is more than one table listed for your state a separate tax item needs to be set up for each one you will use. If you do not see your state listed please call dESCO at 1-800-226-7529
Vendor Enter the vendor you pay your State taxes to
Liability Account Enter the liability account for SWT
Tax ID Number Enter your tax ID for this tax authority. This number will print on the W2s under “Employer’s state ID number.”
Tax Form Name Enter the two letter abbreviation for your state. This will print on the W2s under “State.”
Active Checked
Apply To Should apply to all wage items, and possibly cafeteria and employee portions of 401K depending on your state regulations. If your state allows cafeteria and 401K to be pre tax; (following the federal guidelines) then apply the same items as FWT. If those items are taxed in your state leave those boxes empty. The example below follows the federal guidelines.

Local Tax  
Name Enter whatever you want to print on the check stubs for this local tax
Tax Type This field defaults to Other Tax and should only be changed in very special circumstances
Base Tax On This field defaults to Gross Pay and should only be changed if you are using a tax formula (below).
Tax Method This field defaults to Percentage but can be changed to Formula or Hours.
If you chose Percentage as your Tax Method a Tax Percentage field appears. Enter the percentage for this tax. PLEASE NOTE!!!! This number should be entered as a percentage NOT the multiplier. For example, if your form says to multiply your wages by .015 you should enter 1.5 in this field. If your form says your rate is 1.5% you would enter 1.5 in this field.
If you chose Formula as your Tax Method a Tax Formula field appears. Choose the local tax from the drop-down list.
Vendor Enter the vendor you pay your Local tax to
Liability Account Enter the liability account for this tax
Limit Type This field defaults to None but can be changed to Annual or Per Check. Normally there is not a limit on Local taxes
Reporting Type This field defaults to LocalIncomeTax and should only be changed on the advice of your accountant.
Tax ID Number Enter your tax ID for this tax authority.
Tax Form Name Enter the standard abbreviation for this locality. This prints on the W2 under Locality name.
Active Checked
Apply To Should apply to all wage items and possibly cafeteria and/or 401K depending on the local regulations.

 

Other Tax  
Name Enter whatever you want to print on the check stubs for this tax
Tax Type This field defaults to Other Tax and should only be changed in very special circumstances
Base Tax On This field defaults to Gross Pay and should only be changed if you are using a tax formula (below).
Tax Method This field defaults to Percentage but can be changed to Formula or Hours.
If you chose Percentage as your Tax Method a Tax Percentage field appears. Enter the percentage for this tax. PLEASE NOTE!!!! This number should be entered as a percentage NOT the multiplier. For example, if your form says to multiply your wages by .015 you should enter 1.5 in this field. If your form says your rate is 1.5% you would enter 1.5 in this field.
If you chose Formula as your Tax Method a Tax Formula field appears. Choose the local tax from the drop-down list.
Vendor Enter the vendor you pay this tax to
Liability Account Enter the liability account for this tax
Limit Type This field defaults to None but can be changed to Annual or Per Check. Normally there is not a limit on Other taxes
Reporting Type This field defaults to OtherTax and should only be changed on the advice of your accountant.
Tax ID Number Enter your tax ID for this tax authority.
Tax Form Name Enter the standard abbreviation for this locality. This prints on the W2 under Locality name.
Active Checked
Apply To Should apply to all wage items and possibly cafeteria and/or 401K depending on the tax regulations.

 

Step 4: Enter Workmans Comp Codes

To create new Workmans Compensation Codes, you'll head to Employees → Workmans Comp Codes and click on Add New.

Add the workman’s comp codes you will need by assigning them a Code, Description and a Rate.  The code will remain active by default, but if you decide you no longer wish to use this code, you may remove the Active check.

Note: Workman’s Comp in ESC is calculated as a percentage. For example, if you wanted to set up a workman’s comp class 5537 to calculate $6.81 per $100.00 of wages you would enter the code as shown below. 

Step 5: Setup Individual Employees

With the preliminary setup out of the way, it's time to setup each individual employee's payroll settings.  This can be done by going to Employees → Enter Employees.  Double-click on an employees name to edit their settings, or click Add New to create a new employee.

Personnel tab

The name and address from this screen is what appears on the pay checks. The social security number is required for the W2s and other payroll reports.

Payroll tab

Marital status - Choose from Married or Single according to the employee’s W4.

Pay period - Choose from Weekly, Bi-weekly, Semi-monthly, Monthly or Yearly. When running payroll you can select which checks to generate according to this setting.

Workman’s Comp Code - Enter the default Workmans Comp Code for this employee from the drop-down list of codes entered previously. If an employee is subject to more than one workmans comp code the default can be overridden when time is entered on the time sheet.

Wage item - Enter all wage items currently pertaining to this employee. All wage items previously set up will appear in the drop-down list. Additional wage items can be added later if needed.  

Rate - Enter this employee’s pay rate for this wage item. If a person is salary enter the yearly salary and all rates for any salary item need to be the same. When entering time in Time Entry or on a time sheet to break out vacation or job costing, the software will do the necessary calculations to make the gross pay correct while allocating the correct amount to the GL account associated to the pay item.

Default - Check the pay item that will be the most often used for this employee. This wage item will automatically populate the Wage Item field on the time sheet, but can be changed while entering time if needed.

Addition/Deduction - Enter all additions/deductions pertaining to this employee. All additions/deductions previously set up will appear in the drop down list. Include any company paid items as well such as 401K - Employer Portion. This will calculate the company portion, move the amount into the expense account and the liability account as well as accounts payable if a vendor was entered in the addition/deduction setup screen. It will not print on the check stub. Additional additions/deductions can be added later if needed. .  Any employee the company pays insurance for should have the Employer Paid Health Insurance contribution described in the Additions and Deductions section above.

Type - Automatically carries over from the additions/deductions setup. It will be either add, deduct or contr. (company contribution)

Rate - Enter the rate for this employee. The field immediately to the right will tell you whether it is expecting a fixed amount or a % depending on how the addition/deduction was set up. If the field says fixed and a -2.00 is entered in the rate field, $2.00 will be deducted from the check. If the field says %, 2% will be deducted from the check. Fixed deductions are entered as negative numbers. All percentages are entered as positive numbers and the percentage NOT the multiplier.

Limit - Enter the limit, if applicable, in this field. This is needed for 401K and can also be used for loans, tools or garnishments. The deductions will stop when the limit is reached.

Note on 401K – Unless the company is matching the employee penny for penny the limits on the employee and company portions for the 401K will be different. The limit for employees under age 50 for 2009 is 16,500 for the employee part. If the company is matching ¼ % for every 1% employee contribution the company match limit would be 4125.00. (16,500.00 \ 4.)

Tax item - Enter ALL tax items pertaining to this employee including company paid taxes such as company paid FICA and Medicare as well as FUTA and SUTA.  As long as the tax item was tied to the wage item when it was set up, taxes will be calculated correctly. Only items listed here will be calculated for this employee regardless of how many other tax items are tied to the wage item. For example; if your “regular pay” has both MD and DE taxes tied to it and you only put MD on the employee screen only MD taxes will be withheld.

Allowances - Enter allowances for each tax item, as applicable, from employee’s Fed and/or State W4.

Sec Allowances - This field is for the states that have 2 different types of allowances. You know who you are.

Additional W/H - Enter amount of additional withholding, if any, for each tax item from employee’s W4

HINT – To save some time and effort use the Copy Payroll Settings From Another Employee button after the first employee is set up. This will copy all settings on this page on the “from” employee to the current employee saving a lot of entry time.

 

Checking your Payroll Setup

After payroll is set up go to Employees → Write Manual Paycheck and duplicate a pay from your previous accounting package for each employee.  Do not save the items, just check the numbers.  Make any needed corrections until the check calculates correctly and move on to next employee.  All taxes and additions/deductions should calculate to within a penny. The only exception to this may be FUTA and SUTA if they have gone over the limit in your previous software. IF ANY ITEM DOES NOT MATCH YOUR OLD PAYROLL, FIND OUT WHY BEFORE PROCEEDING!

 

!!!!! IF PAYROLL IS NOT CHECKED AS DESCRIBED ABOVE IT IS POSSIBLE THAT ALL PAYROLL WILL NEED TO BE VOIDED AND RE-ENTERED TO GET ACCURATE REPORTS AND W2S!!!!!

Once you have completed the payroll setup, please backup your database by going to File → Backup your data.

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