Set Up a Labor Tax (Example)

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Set up other payroll deductions

Set up an employee

Pay employees

Perform other payroll tasks

Read the labor tax and union dues overview

This example demonstrates how to set up a labor tax that requires computing the total hours worked before computing the tax rate. It will work for both hourly and salaried employees. The Washington Industrial Insurance Tax is used as an example. Adjust these instructions accordingly to match your own business needs.

Click the headings below to expand and display their respective procedure.

Note: You must subscribe to a plan that includes payroll to have access to payroll formulas and to have payroll taxes calculated within Sage 50. If you have not subscribed, you can set up the employee labor payroll field, but you will have to manually calculate and enter the amounts on payroll checks.

Step 1: Set up the labor payroll formulas

  1. From the File menu, select Payroll Formulas, then choose User-Maintained. Sage 50 displays the User-Maintained Payroll Formulas window.

    The salary formula will be set up first.

  2. Enter a Formula ID (WALIS, for example).
  3. Enter a formula name according to the rule of NAME[space]YEAR. For example, enter WALIS 11, where 11 is the current payroll tax year (2011).
  4. Normally, a labor tax subtracts from gross. Leave Filing Status at All.
  5. This would be classified as a Tax. In this example, select State as the government type and WA (Washington) as the state.
  6. Clear the check box for Use this formula as a filter on the Payroll Tax Report.
  7. In the Formula box, enter the following:

    "The following formula represents the Washington Industrial Insurance Tax for SALARIED employees. It multiplies 80 hours (salary for a bi-weekly payroll) by the employee's total contribution rate to compute the tax for the current payroll period. Each employee's contribution rate is entered (in cents per hour) in the Additional Withholding column for the Special 1 field of the Maintain Employee/Sales Reps window."

    ANSWER=-80*EMP_SPECIAL1_NUMBER/100

    This formula is designed for a bi-weekly payroll. If you have a weekly payroll, the formula needs to read:

    ANSWER=-40*EMP_SPECIAL1_NUMBER/100

    If you have a semi-monthly payroll, the formula needs to read:

    ANSWER=-88*EMP_SPECIAL1_NUMBER/100

    The above formulas reference the EMP_SPECIAL1_NUMBER payroll identifier; this is the amount entered in the Additional Withholding column for the Special 1 payroll field, which is located in the Withholding Information table of the employee's setup.

    The sentence within quotes above the actual format is meant as a comment or reminder of how the calculation is set up. Adding the comment is optional.

  8. Save the salary formula.

    The hourly formula needs to be set up.

  9. Enter a Formula ID (WALIH, for example).
  10. Enter a formula name using the NAME[space]YEAR rule. For example, enter WALIH 11.
  11. Leave Filing Status at All. Again, our example would be classified as a tax for the state of Washington.Select State as the government type.
  12. In the Formula box, enter the following:

    "The following formula represents the Washington Industrial Insurance Tax for HOURLY employees. It adds up the total number of hours worked for the current payroll period and multiplies it by the employee's total contribution rate to compute the tax for the current payroll period. Each employee's contribution rate is entered (in cents per hour) in the Additional Withholding column for the Special 1 field of the Maintain Employee/Sales Reps window."

    ANSWER=-(REGULAR+OVERTIME)*EMP_SPECIAL1_NUMBER/100

    This formula assumes that the pay levels set up in Employee Defaults are the same as those created during the initial payroll field setup. If you let Sage 50 set up your Payroll, by not copying Payroll information from another company, you will have the hourly pay levels of Regular and Overtime. If you modified the name of these pay levels, or copied payroll setup from another company, then you'd need to modify the formula with your pay level names.

    Note: Some names cannot be used in User-Maintained Formulas because they are already used in standard identifiers or related tax formulas. For example, "Hourly" and "Salary" cannot be used as Pay Level field names in User-Maintained Formulas. Tell me more about Tax Formula Identifiers.

    The sentence within quotes above the actual format is meant as a comment or reminder of how the calculation is set up. Adding the comment is optional.

  13. Save the formula. In the bottom right corner of the window, click on Next Step: Add this formula to Employee Defaults.

Step 2: Set up the employee labor payroll field

  1. On the Employee Defaults window, select the Employee Fields tab.
  2. On a blank line, enter WALIEE as the name of the new payroll field.
  3. Enter or select the G/L account (liability). To display a list of existing accounts, type ? in this field or select the Lookup button. To add a new account, type + or double-click the field, which displays the Maintain Chart of Accounts window.
  4. If your company has only salaried employees or just hourly employees, select the Calculation (Calc) check box. Then, select either the WALIS or WALIH formula. If this is the case, skip the next section (Step 3 below). The example deduction is set up.

    If your company has both salary and hourly employees, do not select the Calculation (Calc) check box. The formula needs to be applied in the individual employee setup. This will be done in the following section.

  5. Click OK to save the new payroll field.

Step 3: Apply the appropriate labor formula to each employee's setup (optional)

This procedure is required only if you have both hourly and salaried employees and you are required to use the Washington Industrial Insurance Tax.

  1. From the Maintain menu, select Employees/Sales Reps. Sage 50 displays the Maintain Employees/Sales Reps window.
  2. Enter or select each employee who qualifies for this labor tax. To display a list of existing employees, type ? in the Employee ID field, or select the Lookup button.
  3. On the Withholding Info tab, locate the Special 1 field. (You may have to scroll down to find it.)
  4. Enter the percentage claimed by this employee for labor contributions in the Additional Withholding column. Enter the amount as a number. If the contribution rate is 0.04720, enter 4.72--not 0.04720 or 472.

    This field represents the EMP_SPECIAL1_NUMBER identifier in the formula we set up in Step 1.

  5. Select the Employee Fields tab.
  6. For the WALI Field, clear the Use Defaults check box, and select the Calculated check box. Select a liability account.

    Next, enter the tax name that was set up in the previous step.

  7. If the employee is an hourly employee, enter or select WALIH as the formula. If the employee is a salaried employee, then enter or select WALIS as the formula.

    This is neither a Memo nor Run field, so skip to the Adjust button.

  8. Select the Adjust button to set the adjusted gross for this payroll field. Sage 50 displays the Calculate Adjusted Gross window.

    In most cases, Gross is the only payroll field necessary for calculating this tax. Check with your accountant if you are not sure about your situation.

  9. Make sure the Gross check box is selected, then click OK.
  10. Save the employee record, and close the window.