How to do Payroll Transaction Categorization in Docyt?


Payroll is a vital aspect of bookkeeping as it involves meticulously tracking and recording all financial transactions related to employee compensation. This includes salaries, wages, bonuses, and deductions. The payroll process also includes important tasks such as calculating and withholding taxes, contributing to retirement and healthcare plans, and issuing pay-checks or direct deposits.

1. To record payroll, begin by downloading the bi-weekly/monthly payroll summary report from Online Payroll sites such as ADP, Gusto, Quick Books Payroll, or as provided by the client. A typical payroll summary report will have the following format.

2. A payroll summary report includes important data fields that give a clear picture of employee compensation and relevant financial information for a specific time period. While the specific fields may differ based on the organization's payroll system and reporting needs, the following data fields are usually included:

a. Check Date: This refers to the date on which the payroll is recorded or booked.

b. Employee Names: This field displays the names of all the employees.

c. Hours: This field represents the number of hours worked by an employee.

d. Total Paid: In simple words it is the gross pay of an employee.

       It includes Net pay + Tax Withheld + Deductions.

e. Check No.: The check number refers to the unique identification number assigned to a salary check. It is used to track and record the specific payment made to an employee.

f. Employer liability in payroll refers to the taxes that employers are required to pay on behalf of their employees. These taxes are distinct from the taxes that employees pay from their own pay-checks and are usually paid directly by the employer to the government.

g. Total expense: Total expenses in payroll encompass the overall expenditure that an employer incurs to remunerate their employees for their services. This includes salaries or wages, benefits, and payroll taxes. It represents the total amount of money that an employer invests in their workforce during a specific timeframe, such as a week, month, or year.
Total Expense (Payroll Liability)= Total Paid + Employer Liability

3. Here is an example of a typical journal entry for the payroll summary report mentioned above:

Categorizing Payroll Transactions in Docyt (Manual Process)


When categorizing transactions in Docyt, the Accounting Team must identify payroll transactions and assign them to the payroll liability category. There are two types of transactions that need to be identified and categorized: one for salary and wages, and the other for payroll taxes.

To categorize this type of transaction, follow the steps mentioned below:

  1. Select the salaries & wages and payroll tax related transactions.

  2. Choose 'Payroll charges' as the transaction type and select 'Payroll Liability - Docyt' as the category.

  3. Click on the 'Categorize Transaction' button to assign the appropriate category to the identified transaction.

  4. After categorizing these transactions in Docyt, the system will automatically generate entries for salary payments and payroll tax payments in QuickBooks Online.


Automatic Categorization of Payroll Transactions in Docyt

1. Additionally, the Docyt AI has the capability to learn and recognize how payroll transactions are categorized during the initial process. As a result, it will automatically categorize future payroll transactions, making the overall categorization process more efficient and streamlined.


2. If your online payroll services are already connected to QBO (for example, Gusto or QuickBooks Payroll), the accounting team should enable the autopilot setting. This involves defining a condition where, if the transaction type is 'Payroll Charges', the action should be set to 'Do not Push to Ledger'. This setting is important to avoid any duplicate entries in QBO. An example explaining this is provided in the attached screenshot.

WARNING: If the business requires Docyt to push payroll transactions to the ledger, do not enable ' Do not push to Ledger' setting in Auto Pilot.