If you work in a state that requires the employee and the business to pay into workers compensation, such as Washington, you will need to do the following to set it up ( Assuming you want/need to track in Payroll – This is not necessary in all states ) :
Setting up the Businesss (Employer) portion
- Go to Settings > Payroll >General >Other Tax Setup (Step 4 of 6). Create the Employer type. Mark the tax type as an Other Tax – Company, set the Liability and the Expense account and enter your percentage. DO NOT check the “Use Percentage” checkbox. Check mark the option to calculate based on hours worked.
- Go to Settings > Payroll > General > Employee Compensation Setup (Step 5 of 6). All of your default compensations are listed here and you can add/remove or split them to departmentalize them as needed, however, you will need to set the compensation items that are NOT included in the calculation to be set to a payment type of Commission or Addition. Anything set to a Wage or Salary item will be included in the Employer contribution.
Setting up the Employee
- Go to Settings > Payroll >General > Deductions (Step 6 of 6). Create a deduction for the portion the the employee is responsible for. Set the deduction type to Deduction and select a Liability account. Set the “Tax Type to Other Deduction from Net Pay.”
- Go to Settings > Payroll > Employee and add the deduction item to Step 3 – Deductions of the Employee setup. Select the option to always deduct from paycheck, and fill in the percentage. DO NOT check mark “Use Percent”. Don’t fill in an amount/limit.
- On the Employee, you will also add a “Local Tax.” – this is the Employer tax we created earlier that we will attach to the employee so Lizzy knows she must calculate an amount for the Employer for that Employee. For Local Taxes (Step 6 of 9) add the Workers Compensation tax we created for the Employer and check mark always deduct from paycheck.
When generating paychecks, you will need to fill in the amount of hours on the deduction that you created and attached to the employees to calculate the amount coming out of the employees paycheck.