Payroll Accounting Setup

Overview

Objectives

Describe the payroll accounting setup steps.
Set up payroll accounting for a company.
Map a pay component to an existing accounting posting rule.
Run payroll accounting.
Describe costing allocations.
Modify the available costing worktags.
Change the costing allocation for a worker and for a deduction.

Payroll Accounting Setup Steps

Step 1 – Define Ledger Account Types

You use the

Maintain Ledger Account Types

task to set up all available account types in the Balance Sheet and Income Statement sections.

Workday Payroll uses only Asset, Liability, and Expense account types. However, best practice is to set up all available account types in the Balance Sheet and Income Statement sections.

Step 2 – Define Parent and Child Account Sets

To allow for flexibility in general ledger integrations and changes to the Workday Financial Management Chart of Accounts, the best practice is to create a parent-child account set. To create the parent account set, use the

Create Account Set

task.

Select Chart of Accounts to make the payroll account set available in the Account Set selection list on the Create Account Posting Rule Set page (steps 3, 4).
In the Include Account Set field, use the
Create Account Set
task to create a child account set.

When creating the child account set, do not select the Chart of Accounts checkbox. For each row in the Ledger Accounts table, specify an Identifier and an Account Name for each Ledger Account Type used by payroll.

The following table outlines the relationship between the parent and child account sets.

Account Set	Chart of Accounts	Details	Summaries	Include Account Set
PARENT	CHECKED	NONE	YES	CHILD
CHILD	UNCHECKED	ACCOUNTS	NO	EMPTY

Suspense Accounts

A suspense account is an account temporarily used to carry doubtful receipts and disbursements or discrepancies pending their analysis and permanent classification. It can be a repository for monetary transactions (cash receipts, cash disbursements, and journal entries) entered with invalid account numbers.

It is best practice to use a suspense account when using Workday Payroll. If you do not define suspense accounts and there are unassigned transactions, you will need to stop your payroll cycle and resolve the issue before continuing. Discuss and review the use of suspense accounts with financial accounting resources within your company to ensure awareness of the configuration.

Set up suspense accounts when you create the parent/child account sets (Step 3 above). The table below lists common suspense account naming conventions. The identifier values must be unique for each account name. Common practice is to use the value 99999 and append a unique numerical value for each account name.

Account Name	Identified	Account Type
Earning Suspense	99999.1	Expense
Deduction Expense	99999.2	Liability
Net Pay Suspense	99999.3	Liability

Step 3 – Define Default Accounts for Posting

To create a new account posting rule set, use the

Create Account Posting Rule Set

task. To view an existing account posting rule set, use the

View Account Posting Rule Set

task.

You can define ledger accounts for each account posting type used by payroll:

Cash
Payroll deduction
Payroll earnings
Payroll expense (employer deduction, such as matching retirement contributions and employer taxes, that do not affect an employee's net pay)
Payroll forward accrual
Payroll net pay
Retained earnings

Select the Edit Default Ledger Accounts button to select the default ledger account to which to post accounting entries for each payroll account posting type.

Note

: If using suspense accounts, you can designate the suspense accounts as default ledger accounts.

Step 4 – Define Posting Rule Conditions

From the View Account Posting Rule Set report, select the Account Posting Rule Set and select OK. This page contains all the account posting rules associated with the account posting rule set.

Select the Account Posting Rule you want to modify. Then select the Edit Posting Rule button to define the posting rule conditions.

To determine where to post a pay component, Workday:

Compares the characteristics of the component against criteria specified in each row of the posting rule (from top to bottom).
Stops at the first row that returns a match.
Uses the ledger account associated with the first matching row as the posting account.

If Workday cannot find a matching row, it posts results to the default ledger account specified in the Default Ledger Account field.

For payroll earnings and expenses, you can direct a forward accrual to accounts other than payroll actuals by using Forward Accrual for both the Dimension and Value. For example, the Fringe Benefit Expense posting rule in the image below directs benefits expenses to forward accruals.

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Step 5 – Define a Fiscal Schedule

A fiscal schedule is the general calendar that the company can use and share for financial accounting and reporting purposes. Fiscal schedules are a required component of the payroll accounting process.

To define a fiscal schedule, you must specify the Fiscal Year Start Date and the Fiscal Year End Dates using the

Create Fiscal Schedule

task. To view an existing fiscal schedule, access the

View Fiscal Schedule

report.

Step 6 – Define Posting Intervals

A fiscal schedule includes posting intervals, which are the defined calendar chronological periods. Use the

Maintain Fiscal Schedule

Posting Intervals

task to set up these posting intervals.

Step 7 – Define Initial Fiscal Year

Use the

Create Initial Fiscal Year

task to define the initial fiscal year.

Step 8 – Define Subsequent Fiscal Years

Use the

Create Next Fiscal Year

task to define as many subsequent years as needed.

Step 9 – Associate Accounting Components with a Company

Use the

Edit Company Accounting Details

task to specify the fiscal schedule, account set, and the account posting rule set. You cannot change these settings after you post payroll accounting results.

Step 10 – Define Ledger Types

Use the

Maintain Ledger Types

task to define at least one ledger type. Best practice for payroll accounting is to define the ledger type Actuals.

Step 11 – Assign a Ledger Type to Each Company

Use the

Create Ledger

task to assign a ledger type to each company. Available ledger types in the Ledger Type field are the ones defined in step 10.

Step 12 – Define Ledger Years and Periods for a Company

Use the

Create Ledger Year and Ledger Periods

task to define ledger years and periods for a company. Define ledger years and periods for each company ledger defined in step 11.

Step 13 – Open Ledger Periods

Use the

Mass Update Ledger Period Status

task to set the ledger period Status to Open.

Important

: You must open the ledger period to generate payroll accounting results. You can open the ledger periods anytime in advance.

Workday uses ledger periods to generate payroll accounting transactions. You close ledger periods to control journal entry and posting, as well as calculate period and year-end actual and budget account balances for reporting.

It is a good practice to close old ledger periods at least annually. Close old ledger periods to reduce:

Risk of inadvertently processing transactions against old ledger periods.
Clutter in the tenant for any accounting reports.

Note

: If your company does not use Workday Financial Management, it is not critical that you close ledger periods used for payroll. However, best practice is to close and open the periods regularly and fix any operational journals that are in error. If your company does decide to deploy Workday Financial Management, you minimize the risk of having journals in error.

Maintain Journal Source Mapping to Operational Transactions

Operational journals are the journals that Workday creates automatically for operational transactions (i.e., Payroll) that you enter through the various Workday transaction tasks. Mapping transactions to journal sources tells Workday which journal source to assign to operational journals that it automatically creates for transactions.

Use the

Maintain Journal Source Mapping to Operational Transactions

task to:

Initially define the journal source by transaction type.
Remap the journal source that Workday applies to journal entries for all new transactions that you process.

Existing journal entries retain their original mapping.

Maintain Payroll Journal Options

For better performance and more efficient financial reporting, check the Summarize Payroll Journal Options checkbox. This option will consolidate the payroll journals before sending results to the General Ledger. Summarize payroll journals to prevent exposing payroll employee data to users with access to journal lines.

Use the

Maintain Payroll Journal Options

task to:

Select the checkbox
Summarize Payroll Journals
.
Select Cost Center in the Optional Summary Dimensions field.

Accounting Results

Review Accounting Results

Once the payroll process is complete, you can no longer correct accounting errors. Therefore, you should review accounting results and correct errors after you review and reconcile payroll calculations, but before completing the payroll.

In some cases, you may need to recalculate payroll after making corrections. In other cases, you can regenerate accounting entries.

When to Recalculate Payroll

For example, the following errors require that you recalculate payroll to regenerate both payroll and accounting entries:

Updating the definition of an earning
Assigning an optional balancing worktag to a transaction
Redefining an account posting rule
Changing a worker's default organization to a different cost center or location
Correcting a worker's cost center or other costing dimension

When to Recalculate Accounting

Examples of errors that require you to only rerun accounting include:

Posting a special allowance to the wrong account
Posting to a ledger period that was not opened

You can rerun the pay calculation and payroll accounting processes as many times as necessary after correcting accounting errors.

Limit Accounting Population Based on Calculation Criteria

When recalculating payroll, select the Limit Accounting Population Based on Calculation Criteria checkbox to optimize calculation times by only processing accounting results that meet your calculation criteria.

Example

:

As a payroll administrator, you use Run Pay Calculation to calculate regular pay for 100 workers. The results are 95 In Progress and 5 In Error. After fixing the errors, you want to recalculate only the five results that were in error. You select Error from the Based on Results Status prompt. You also select the Limit Accounting Population Based on Calculation Criteria checkbox.

When all five results are In Progress, you want to run the pay calculation for all workers. You use Run Pay Calculation and clear the Limit Accounting Population Based on Calculation Criteria checkbox to refresh accounting for all 100 workers.

When you are ready to complete payroll, clear the checkbox to include recent costing allocation changes and refresh accounting for the entire population.

Costing Allocations

Configuring Costing Allocations

Use the

Change Organization Assignments

task to define cost centers and regions and assign them to supervisory organizations.

Change Organization Assignments

Payroll Costing Worktags

Worktags are keywords that you can assign to transactions and supporting data to make their business purposes clear and establish common relationships through classification. Use the

Maintain Worktag Usage

report to set up worktag types that are allowed, required, or primary.

Follow these steps to select the worktags that you can use for payroll costing allocation:

Note

: In the GMS tenant, you must hold the role of Accounting Manager to set up worktag types.

Access the
Maintain Worktag Usage
report.
Select Payroll Costing Allocation from the panel on the left.
Select the Edit Worktag Usage button to add or update the worktags you want to enable as primary or additional worktags.

Maintain Worktag Usage

4. Add worktag types to the grid to make them available as worktags in financial transactions.

Additional actions you can take within the

Maintain Worktag Usage

report include:

Add the Primary Worktag Types to provide a separate field for the worktag on the transaction (up to 10 are available).
Add the Additional Worktag Types to list all the worktags in alphabetical order and allow you to choose them from the list.

Note

: The Available for Payroll Costing Allocation category on the

Maintain Organization Types

report makes worktags available for payroll costing allocation.

Select the Required checkbox to make the worktag required for payroll costing allocation.
Select the Disallow Inactive Values checkbox to exclude inactive worktags for payroll costing allocation.

Edit Worktag Usage

Costing Allocation Options

Use costing allocations to:

Allocate earnings for a worker or position.
Allocate earnings, deductions, and employer-paid expenses for all workers.

Allocate Earnings for a Worker or Position

Use the

Assign Costing Allocation

task to specify how to allocate earnings for a worker or position (position restriction). You can specify allocations across:

Cost centers
Regions
Programs
Funds
Gifts
Business units
Grants
Projects
Locations
Custom organizations

Note

: If you enable Multiple Jobs functionality on your Workday tenant using the

Edit Tenant Setup - HCM

task, workers can have cost allocations that differ by position.

Access the
Assign Costing Allocation
task.
The Include Existing Allocations section allows you to filter for a specific date range.
Note
: To disable the date fields on the Edit Tenant Setup - Payroll task, select the Disable Date Selection for Existing Allocations checkbox. Workday recommends enabling this feature for improved performance.
Select the worker in the Worker Costing section.

Assign Costing Allocations
Select OK.

Assign Costing Allocation - Kelly Brown
If you enable worktags for costing, Workday automatically assigns employee earnings to an organization associated with the supervisory organization.

Allocate Earnings, Deductions, and Employer-paid Expenses for All Workers

Use the following tasks to specify how to allocate earnings, deductions, and employer-paid expenses for all workers:

The
Edit Earning and Employee Deduction Costing Allocation
task.
The
Edit Employer Paid Expense Costing Allocation
task.

Edit Earning and Employee Deduction Costing Allocations

Edit Employer Paid Expense Costing Allocation

You can specify allocations across:

Business units
Cost centers
Custom organizations
Funds
Grants
Object classes
Programs
Projects
Regions

Reminder

: You can audit your costing setup with the following standard reports:

The
All Earnings and Employee Deductions Costing Allocations
report
The
All Employer Paid Expense Costing Allocations
report
The
All Workers Costing Allocations
report

Processing Priority of Costing Instructions

Workday Payroll applies costing overrides to a worker's earnings in the order shown below.

The highest priority items flow from top to bottom as follows:

If there are no overrides, Workday uses the default cost center and region defined for the worker's supervisory organization.
If there is a single override at any level, the override takes priority over the worker's default cost center and region.
If there are multiple overrides, Workday applies the override with the highest priority based on the following logic:
Add Payroll Input for Worker supersedes overrides at any other level.
Worker-earning overrides have the next highest priority. Workday applies worker or earning overrides if there are no overrides at the payroll input for worker level.
Earning-level overrides have the next highest priority. Workday applies earning-level overrides if there are no overrides at the payroll input for worker or worker-earning overrides.
Worker-level overrides have the lowest priority. Workday applies worker-level overrides only if there are no overrides at any higher level.

Earning Example

The following example illustrates how the accounting process allocates earnings for a worker.

The default cost center for a worker's supervisory organization is CC 100. In addition to their base pay, they receive a housing allowance and car allowance. Multiple allocation instructions exist for base pay and the housing allowance. You also entered a cost center override through payroll input.

Type of Allocation	Base Pay	Housing Allowance	Car Allowance
Payroll Input	CC600	None	None
Worker Earning	CC400	None	None
Earning	CC300	CC300	None
Worker	CC200	CC200	None
Default	CC100	CC100	CC100

The accounting process allocates:

Their base pay to CC 600, because override instructions entered as payroll input have priority over all other allocation instructions.
The housing allowance to CC 300, because allocations entered for an earning have priority over allocations specified for a worker.
The car allowance to CC 100, the cost center for his organization assignment, because no other allocation instructions exist.

Processing Priority for Workers with and without Multiple Jobs

If more than one set of cost allocation instructions applies to a worker's earnings, Workday applies costing instructions in the sequence shown in the following table.

Processing Sequence without Multiple Jobs	Processing Sequence with Multiple Jobs Enabled
Worktag overrides entered through payroll input, on-demand payments, and manual payments Worker earning (specific earning for a worker) Earning (for all workers) Worker (all earnings for a specific worker) Worker's supervisory organization	Worktag overrides Earning for a worker's position Worker earning (specific earning for a worker) Earning (for all workers) Worker's position (all earnings for a worker's position) Position restriction Worker (all earnings for a specific worker) Position's supervisory organization Primary position's supervisory organization

Cost Allocation Validation

You can create custom cost allocation validation rules to ensure you have set up cost allocations correctly.

Create Custom Cost Allocation Validation Rules

Using the

Maintain Payroll Costing Validations

report, you can create rules with two different severities:

Warning: Displays a warning message; however, you can still enter the item.
Critical: You must correct the item causing the error to save the entry.

This validation occurs on both the standalone

Assign Costing Allocation

business process and when you use the business process as a subprocess.

Maintain Payroll Costing Validations

Select the Maintain Validations button and select the condition rules for each of the severity rules (critical and warning).

Inter-Company Accounting

Taxation lies with the company location of the worker's position.
Workday creates the appropriate intercompany receivables and payables.
Intercompany settlement becomes optionally available.
Payroll commitments respect the costing company, if specified.

Enable the option in
Edit Tenant Setup - Payroll
task.
Specify companies eligible for intercompany accounting in the
Edit Company Intercompany Profile
task.

Enable Intercompany Accounting

In the

Edit Tenant Setup - Payroll

task, under the Payroll Accounting > General section, select the Intercompany Accounting - Enable checkbox.

Important

: Once you select and save the option to Enable Intercompany Accounting and run payroll or commitment processes, you will not be able to disable this option.

Configure Intercompany Profiles

You can use intercompany accounting with any company that shares an account set. Access the Edit Company Intercompany Profile task to initiate a company for intercompany accounting and define the payment methods for intercompany settlement.

If you enable intercompany accounting, the Costing Company column displays in several reports and tasks, so that you can assign and audit company costing allocation.

Resource

: See Workday Community for details on intercompany accounting and intercompany settlement.

Currency Conversion

Calculates payroll in the pay group currency.
Passes the results to accounting in both currencies.

Forward Accruals for Fringe Benefits

Payroll Commitment Accounting Overview

Manage payroll expenditures.
Avoid budget overspend.
Predict cash flow.
Perform financial and resource planning.
Administer appropriations and obligations.
Manage reserved funding and grants management (applicable to the higher education industry).