How to Create a Custom Organization in Workday: External Payroll Company Setup

Why Custom Organizations Matter in Workday

Have you ever wondered how to seamlessly integrate an external payroll provider into Workday? Many businesses rely on third-party payroll companies to handle employee compensation, tax compliance, and benefits administration. However, without properly configuring a custom organization in Workday, managing payroll processes can become a logistical nightmare.

Creating a custom organization for an external payroll company in Workday ensures accurate financial tracking, smooth data flow, and regulatory compliance. This guide will take you step by step through the process, making it easy to establish and manage your payroll setup within Workday.

Understanding Custom Organizations in Workday

A custom organization in Workday is a user-defined grouping of workers or entities that share specific attributes. Businesses use custom organizations for various purposes, such as managing cost centers, defining payroll groups, or organizing employees by department. When integrating an external payroll company, defining it as a custom organization ensures that payroll processing aligns with company policies and tax regulations.

Step-by-Step Guide to Setting Up an External Payroll Company in Workday

Step 1: Access the Workday Custom Organization Configuration

1. Log in to Workday as an administrator with appropriate permissions.
2. Navigate to Create Custom Organization in the Workday search bar.
3. Select External Payroll Company as the organization type.

Step 2: Define the External Payroll Company

1. Enter a meaningful Organization Name (e.g., “ABC Payroll Services”).
2. Choose an Organization Type that aligns with external payroll processing.
3. Add a detailed Description for internal reference.

Step 3: Assign Organization Roles

Assigning the right roles ensures that payroll data is properly processed and maintained. In Workday, typical roles include:

• Payroll Administrator: Manages payroll settings and compliance.
• HR Representative: Ensures employee details are correctly mapped to the payroll provider.
• Finance Manager: Oversees payroll transactions and reconciliation.

To assign roles:

1. Navigate to Maintain Organization Assignments.
2. Select the external payroll company.
3. Assign appropriate security roles to users based on responsibilities.

Step 4: Configure Payroll Details

1. Navigate to Edit Company Payroll Details.
2. Enter the External Payroll Company’s Tax Identification Number (TIN).
3. Set up Payroll Processing Frequencies (weekly, biweekly, monthly).
4. Link the external payroll provider to relevant Cost Centers and Company Codes.
5. Specify Country-Specific Payroll Regulations, if applicable.

Step 5: Establish Payroll Payment Elections

1. Navigate to Payroll Payment Elections.
2. Add payment details such as Direct Deposit, Check, or Payroll Card.
3. Validate banking information for external payroll transactions.
4. Assign employees to the appropriate payroll group.

Step 6: Integrate Payroll Reports and Compliance Checks

• Set up Payroll Reports for real-time payroll auditing.
• Ensure compliance with Country-Specific Taxation and Payroll Laws.
• Schedule automated Payroll Reconciliation Reports to avoid discrepancies.

Step 7: Testing and Validation

Before fully integrating the external payroll company into live payroll runs:

1. Conduct a Parallel Payroll Test (running the payroll in both Workday and the external system for comparison).
2. Verify Employee Compensation Calculations.
3. Ensure tax deductions align with company policies.
4. Validate compliance with regulatory bodies.

Best Practices for Managing an External Payroll Company in Workday

1. Regularly Audit Payroll Transactions

To maintain accuracy, schedule periodic audits to compare payroll data in Workday against external payroll provider records.

2. Keep Employee Information Up to Date

Ensure that all employee updates, such as promotions, pay changes, and new hires, reflect correctly in the external payroll system.

3. Monitor Tax and Compliance Updates

Tax laws and compliance requirements evolve. Stay updated on changes affecting payroll processing, especially for multinational organizations.

4. Automate Payroll Integration Where Possible

Using Workday’s API or integrations, automate data exchange between Workday and the payroll provider to reduce errors and improve efficiency.

5. Maintain Strong Security Protocols

Restrict access to payroll data by assigning appropriate security roles and enabling multi-factor authentication (MFA) for payroll administrators.

Conclusion: Streamlining Payroll with Workday Custom Organizations

Integrating an external payroll company into Workday is essential for businesses that outsource payroll processing. By setting up a custom organization, companies ensure a smooth payroll workflow, reduce administrative errors, and maintain compliance with financial regulations.

By following this step-by-step guide, your organization can efficiently configure and manage an external payroll company within Workday. Proper setup not only enhances accuracy but also saves time and resources, allowing HR and finance teams to focus on strategic business priorities.

Have you encountered challenges when integrating an external payroll provider into Workday? Share your experiences in the comments below!