Setting Up Washington Payroll In Xero

Posted on Posted in Bookkeeping

One great thing about Xero is that its payroll services are included in most plans at no additional cost.  And using Xero’s wizard, setting up payroll is fairly simple and straightforward.  But Washington, like many other states, has some payroll nuances that you’ll need to be prepared for as you run through payroll setup in Xero.

Step 1: Set Up Your Chart of Accounts For WA Payroll.

First, make sure you have at least the following accounts already set up in your chart of accounts:

Liability Accounts

  • Payroll: Wages Payable
  • Payroll: Federal Employment Tax Payable
  • Payroll: FUTA Payable
  • Payroll: WA UI Payable
  • Payroll: WA Workers Comp Payable

Expense Accounts

  • Payroll: Wages Expense
  • Payroll: Federal Employment Tax Expense
  • Payroll: FUTA Expense
  • Payroll: WA UI Expense
  • Payroll: WA Workers Comp Expense

Step 2: Set Up WA Unemployment Tax.

There are two places you’ll need to set up Washington-specific aspects of your payroll.  The first is in Settings > Payroll, and then on the “Taxes” tab.  Scroll down below the heading for “Federal (FED)” and click the down arrow next to “Washington (WA)”.  (If you don’t see Washington, that means you have not yet added a work location in Washington.  Do this on the “Work Locations” tab.)

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After you click the arrow, the Washington panel will open.  Scroll down to view the entire panel:

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Enter your “WA ES Reference Number.”  This is the ESD number shown in the upper right corner of your letter from the Employment Security Department setting up your ESD account:

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Next, enter your WA UI Rate.  This is something the Employment Security Department will send you annually.  Here’s an example notice, with the WA UI Rate circled:

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The next field is the WA EAF rate.  That’s found on your same tax notice, here:

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Finally, choose your liability and expense accounts.  If you used the list we set up at the top of this post, your WA UI & Surtax Liability account will be Payroll: WA UI Payable; and your WA UI & Surtax Expense account will be Payroll: WA UI Expense.

Click save, and the UI component of your payroll is all set up!

Step 3: Set Up WA Workers Comp Deductions.

Next you’ll have to set up the second Washington-specific component of your payroll, which is the WA Workers Comp deduction.  In Washington, there are two components to the state-provided workers compensation program: (1) an employer-paid portion; and (2) an employee-paid portion.  The employer portion is not natively supported in Xero payroll, so it will require an extra calculation each time you run payroll.  The employee portion will be set up as a deduction.

To create that deduction, select the “Pay Items” tab in your Payroll Settings screen.  On the left, click “Deductions:”

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To the right, click “Add,” and select “After Tax Deduction.”  A window will pop up – fill in the following:

Deduction Name: WA LNI

Standard Amount: [Leave Blank]

Company Max: [Leave Blank]

Liability Account: Payroll: WA Workers Comp Payable.

Click Add.

You’ve now set up your WA Workers Comp tax withholdings, and your Washington-specific payroll setup is complete.

Would you like help setting up your payroll?  Contact us today!

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