1. Payroll Status Check - The Payroll Status Check Utility should be run as the very first step after setting up a new company or converting an existing company to the new payroll program.
Go to Payroll, Utilities, Payroll Status Check and push Run button at upper right.
Drill down on any areas flagged in yellow or red and address any settings relevant to your locations required taxes:
2. Tax Profiles - Ensure that Tax Profile in use is setup correctly.
Go to Payroll, Setup, Tax Profile Maintenance and select the Tax Profile to review.
Each tax profile *must* have a resident and work location, and Tax Location can be set to 'Both' if location is shared.
(NR) stands for 'non-resident' and these taxes should only be enabled in place of the 'regular withholding' tax of same kind, otherwise withholding for that location will be duplicated.
Local tax reporting can be enabled in Payroll, Setup, Payroll Options - Additional tab - if required.
3. Company Tax Group Setup - Go to Company Tax Group setup and select the Federal tax group. Ensure that all G/L accounts fields are filled out for taxes in use. Go to Tax Rates tab and enter rates and effective date for Federal Unemployment Tax Employer Liability (found in the drop-down menu in Tax column - this should already have been reviewed in step 1). Repeat this for any states in which payroll will be processed. *Company Tax Group Setup is used to define rates that are organization-specific (federal unemployment, for example) - almost all other payroll tax rates will be held in the Sage payroll cloud and are updated automatically.*
4. Tax Rules - All earnings codes and qualified deductions must be assigned a Tax Rule in the new payroll 2.0 version - the Tax Rule is what instructs the program on tax treatment of the wages and deduction amounts.
Go to Payroll, Setup, Earnings Code Maintenance and ensure that each earning code in use is assigned an appropriate Tax Rule in the field at the bottom left.
Go to Payroll, Setup, Deduction Code Maintenance and repeat this step for all qualified deductions in use (EG a 401k deduction code).
In order to determine which Tax Rule to apply, please use the Tax Rule Inquiry found in the Payroll, Utilities section. (This utility requires payroll update 2.19.0 or later, and the enablement of required role setting in Library Master, Main, Role Maintenance - Tasks tab - Payroll, Inquiry section.) Start by selecting the Tax Profile to review so that the system can display relevant locations and taxes in use on the Tax Profile, then push the Tax Rule Filter button on the right:
Select the earning and/or deduction Tax Rule to review.
The utility will default to display all Tax Rules available - push the 'reset all' buttons then select just the specific Tax Rules you would like to review, and push OK.
Push the button with the binoculars symbol at the upper right which will query the online tax engine, then review the Search Results. Detail will display according to the locations and taxes enabled in the Tax Profile you selected, starting with each category of Federal taxable wages, then State Taxable wages, and finally Local tax wages if enabled. If the tax rules you've selected do not apply the tax treatment required, then repeat these steps with alternate tax rules selected until an appropriate tax rule is found (the correct treatment of the taxes/taxable wages is more important than the name of the tax rule). *Sage support cannot instruct which specific tax rules to use*
Black dot - indicates that earnings paid out with the Tax Rule shown will add to the taxable wages in that wage "bucket"
Red dot - indicates that deductions taken with the Tax Rule shown will reduce the taxable wages in that wage "bucket"
5. Employee Maintenance - Go to Payroll, Main, Employee Maintenance and select employee then ensure that their hire date is accurately set (program will check hire date when running tax calculation - lack of hire date will cause error).
Go to Taxes tab and ensure that Filing Status, dependents and Default Tax Profile are selected correctly. Also make note of the Tax Calc Override setting and be aware that the option to override either Federal or State withholding with a flat/fixed amount has been removed as it did not adhere to IRS guidelines or the form W4. Proceed to the Pay Defaults tab and confirm that Pay Cycle window is set correctly (this is a critical setting for determining taxable wages).
6. Test Payroll Entries - Finally, test payroll entries must be run through tax calculation to check the validity of settings reviewed in steps 1-5.
- Like any testing, only one factor at a time can be effectively tested and hence the first step is to test a payroll check with only a single line of regular wages, which should then be compared against an online payroll calculator as discussed in the description section above. If the taxes are not calculating correctly then the settings in steps 1-4 require review, starting with the Tax Rule selected on the Earning Code in Earnings Code Maintenance. If the taxes are calculated correctly and match, then testing can move on to review the remaining earnings codes and then the deduction codes.
- Only 'qualified' deductions affect tax calculation (Pension Plan type like 401k or Cafeteria Plan type like health insurance), so special attention should be paid to these. All deductions of deduction type 'Standard Deduction' will be taken after tax is calculated. As with earnings codes, only one deduction code should be tested at a time, and applied to a test check with an amount of an Earnings Code already confirmed to be set correctly.
- Review the Payroll Data Entry Audit report as well as the Employers Expense Summary in payroll to ensure that both employee and employer taxes are correct