Process Flow
When you access Payroll, the Indian payroll driver (HINCALC0) calls the accompanying payroll schema, which consists of a sequence of functions. For each activity, the individual functions import data from internal tables and payroll relevant files.
Payroll is then performed as follows: -
- The system updates the databases and imports the master data relevant to payroll.
- The system imports the last payroll result.
- The system calculates the gross wage and considers the shift schedule, shift change compensation, and valuation bases. Any master data relevant to payroll is included in the calculation at this point.
- The system calculates the partial period factors, lump sums and salary elements, and cumulates the gross results.
- The system calculates the net remuneration, and performs retroactive accounting if specific master data has been changed in previous payroll periods.
Result
After the payroll run, you can transfer the payroll results to Financial Accounting.
1.4 GROSS PART OF PAYROLL
Purpose
Using this component you determine an employee’s gross pay, according to contractual requirements, which is composed of payments and deductions.
Different factors determine whether such payments and deductions increase or reduce the taxable income. Such factors include the statutory regulations of India.
Individual gross values are grouped together as bases for taxes according to the specifications of India and its states/regions and pay scale regulations for a profession. These gross cumulations are used to calculate specific values.
1.5 NET PART OF PAYROLL
Purpose
This component enables you to determine an employee’s net remuneration, according to contractual requirements. Net pay is the amount paid after the deduction of tax and other statutory contributions from gross remuneration.
You can use different gross values to calculate deductions. For this reason, you form different totals during a payroll run, which you then use for future processing.
Deductions
Purpose
This component calculates all payments to third parties with the exception of taxes and other statutory contributions, which are deducted directly from the employee’s pay. Maximum thresholds for deductions and outstanding payments are taken into account.
Features
Within payroll, deductions can refer to gross remuneration or to net remuneration. The following types of deductions are differentiated between: -
Statutory deductions include taxes or PF payments, for example.
Voluntary deductions include payments like voluntary contribution towards PF etc.
Moreover, you differentiate between: -
For example a donation
For example, in the case of imputed income or a savings plan.
1.6 SUBSEQUENT ACTIVITIES
Purpose
The component comprises the activities that you must carry out after payroll (gross - net - payroll).
1.6.1 REMUNERATION STATEMENT
Purpose
The R/3 System lists all the payments and deductions made for an employee in a clear format on the remuneration statement. The standard system also allows you to enter personal or general notifications for your employees. These are printed on the remuneration statement as additional information. This additional information, for example, general company information or birthday greetings can be entered in the Notifications infotype (0128).
You usually create a remuneration statement after the payroll run and before the bank transfer. If you perform more than one payroll run in a single period, you can create remuneration statements after each payroll run.
You specify the format, structure and form content for the remuneration statement in Customizing for Payroll under Remuneration Statement.
1.6.2 WAGE AND SALARY PAYMENTS
Purpose
The process of wage and salary payment allows you to make payments to third parties as well as to your employees. This process supports different payment medium, for example, bank transfers and cheques.
Prerequisites
The employee master data contains the following payment data: -
Infotypes used from International version.
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Organizational Assignment infotype (0001)
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Personal Data infotype (0002)
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Payroll status infotype (0003)
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Addresses infotype (0006)
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Planned working time infotype (0007)
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Basic pay infotype (0008) in which you can specify the wage types related to monthly earnings. For Mastek, Indian payroll, they will be Basic Pay, HRA, Sp. Allowance, India Allowance, Conveyance Allowance, Lunch Allowance and Adhoc Allowance.
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Bank Details infotype (0009) in which you specify the main bank and, if required, other bank details for your employees The term Bank details therefore has a broader meaning: For example, you can also specify in this infotype that payment should be effected by cheque/bank transfer.
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Recurring payments/deductions infotype (0014) in which you capture the details of periodic/regular earnings or deductions. For Mastek, Indian payroll, they will be Medical Reimbursement, Reimbursement of Books, Leave Without Pay, Guesthouse Deduction, Personal Courier and Personal STD/ISD Phone Call.
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Additional payments infotype (0015) in which you capture the details of annual or irregular earnings or deductions. For Mastek, Indian payroll, they will be LTA and Performance Pay.
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Contract elements infotype (0016)
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Monitoring dates infotype (0019)
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Family details infotype (0021)*
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Membership fees infotype (0057), which you can also set up to make payments to third-parties in particular cases
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Cost distribution infotype (0027), which you can also set up to assign the internal order number if the cost of the employee is to go to the internal order number. You can also assign the percentage so that only that percentage of cost goes to the internal order.
If this infotype is not maintained or the percentage assigned to the internal order in this infotype is not 100 percent, then the system picks the cost center assignment from infotype 0001 to attach the cost.
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Personnel IDs infotype (0185)*
- These infotypes have been modified to handle Indian requirements.
India-specific infotypes containing payment information: -
These infotypes have been created for India payroll only: -
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Previous employment tax details infotype (0580)
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Housing (HRA/CLA/COA) infotype (0581)
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Exemptions infotype (0582)
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Car & Conveyance infotype (0583)
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Income from other sources infotype (0584)
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Section 80 deductions infotype (0585)
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Investment details (Section 88) infotype (0586)
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Provident fund contribution infotype (0587)
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Other statutory deductions infotype (0588)
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Long term reimbursements infotype (0590)
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Nominations infotype (0591)
1.7 POSTING TO ACCOUNTING
Purpose
Reporting for posting payroll results to Accounting, otherwise known as posting to Accounting, is a subsequent activity that is carried out after a successful payroll run. It usually takes place for each payroll period. During posting to Accounting, all posting data for the payroll results is selected, summarized, formatted, and then posted to the integrated components in Accounting.
You can also archive the data created in posting to Accounting.
Integration
Different R/3 components are involved in posting to Accounting, and these components have different data requirements: -
- Payroll (PY)
- Financial Accounting (FI)
- General Ledger Accounting (FI-GL)
- Accounts Payable (FI-AP)
- Accounts Receivable (FI-AR)
- Special Ledger (FI-SL)
- Controlling (CO)
INTEGRATION OF THE COMPONENTS IN POSTING TO ACCOUNTING
Payroll (HR)
The principal organizational concept in Payroll is the wage type. A wage type classifies personnel expenses according to tax, insurance, labour legislation, pay scales and other operational characteristics. In Payroll, wage types are also used for saving additional information in the payroll results, for example, in the form of cumulation wage types (total gross amount or gross tax amount), or in the form of wage types for other important amounts (statutory net pay or transfer amount). The organizational assignments valid for all periods are also created within Payroll as well as special cost assignments, and the wage types are assigned to this information.
During payroll, additional wage types are created to provide data for cost accounting and these are saved in the payroll results, for example, the portion of the wage that is not applicable on public holidays.
Financial Accounting (FI)
Financial Accounting is responsible for the flow of payments. The payment flows are posted to particular accounts depending on the type or identity of the receiver, and on the due date of the payment.
Cost Accounting (CO)
Cost Accounting splits the costs according to the type (cost type = G/L account) and assigns them to cost centers or to other cost assignment objects (additional account assignment). Posting to accounting allows you to post costs to the following account assignment objects: -
- cost center
- Order
- Further account assignments:
- Cost object
- Work breakdown structure element
- Network number
- Activity number
- Sales order
- Position in customer order
Implementation Considerations
To ensure that the process of posting to accounting is completed successfully and without problems, please make the following settings: -
- Customize the components involved (wage types, accounts, other account assignment objects)
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Customize Reporting for posting to Accounting
The individual components involved in posting to Accounting can be organized as follows:
- All components are in the same clients of the R/3 System.
-
The accounting components are in a different system to the Payroll application component. This could be a different R/3 System, an R/2 System, or a third-party system.
If the individual components are distributed in various systems, see setting up Posting to accounting.
- Reporting for posting payroll results to Accounting
- Posting documents
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In Customizing for Cross-Application Components under Scenarios ‘Posting payroll results to Accounting’.
Features
Posting to Accounting allows you to perform the following functions: -
- Post retroactive accounting runs
- Posting to special periods
- Create cross-company code transactions
- Post results using personnel numbers
- Post results to employee customer and vendor accounts
- Post results to substitute cost centers
- Post results to fixed cost centers
- Provide data for Personnel Cost Planning
1.8 REPORTS
Purpose
You can create reports and statistics using this component.
1.8.1 The Statutory Reports
Payroll-India caters to the following legal reports for these functionalities: -
- Provident Fund
- Employee State Insurance
- Professional Tax
- Labour Welfare Fund
PF Monthly Reports
- Provident Fund report for Regional Provident Fund Commissioner (RPFC): -
- Form 5 - Return for employees’ qualifying for membership for the
month
- Form 10 - Return of the members leaving service during the month
- Form 12A - Statement of contributions for the month
- Pension Fund report for exempted Trusts (Though this is not applicable for Mastek, this is for the information only): -
- Form 4 - Return of members leaving service
- Form 5E - Return of the members leaving service during
the month
- Form 6 - Statement of contributions for the month
ESI Reports
- Form 6
- Form 7
These reports are generated every half-year, in the months of October and April for the preceding contribution period.
Professional Tax (PTax) Reports
Payroll-India caters to the PTax Reports for the following states: -
- Andhra Pradesh (Monthly) - Not applicable for Mastek
- Gujarat (Monthly) - Not applicable for Mastek
- Karnataka (Monthly) - Applicable for Mastek
- Maharashtra (Monthly) - Applicable for Mastek
- West Bengal (Monthly) - Applicable for Mastek
- Tamil Nadu (Half-Yearly) - Applicable for Mastek
- Madhya Pradesh (Annual) - Not applicable for Mastek
These reports are to be generated at the relevant frequency for those states where PTax is applicable.
The selection screen captures the following information: -
- The PTax report can be generated for a PTax grouping created for the Personnel Subarea.
- The report is printed in the relevant format for each state as applicable and for those employees for whom the PTax and return is applicable.
Labour Welfare Fund Reports
Payroll-India caters to Labour Welfare Fund reports for the following states: -
- Gujarat (Half-Yearly) - Not applicable for Mastek
- Maharashtra (Half-Yearly) - Applicable for Mastek
- West Bengal (Half-Yearly) - Applicable for Mastek
- Karnataka (Annual) - Applicable for Mastek
- Tamil Nadu (Annual) - Applicable for Mastek
- Kerala (Annual) - Not applicable for Mastek
- Andhra Pradesh (Annual) - Not applicable for Mastek
2.0 UNITED STATES PAYROLL
Introduction
MASTEK Ltd. As part of its global exercise to synergize and unify business operations through SAP implementation wishes to utilize the SAP US Payroll component for calculating gross payroll of its employees. The net payroll processing for MSI employees is out sourced to ADP. Using the standard SAP – ADP link the gross payroll results shall be uploaded to ADP for the final processing.
The SAP US Payroll allows MSI to process payroll for employees in the United States, using data from SAP Personnel Administration and Benefits under a wide variety of configurations. The SAP Payroll system also offers a number of standard payroll reports.
The Tax Reporter component will allow MSI to generate all required state and federal tax forms, such as SUI reports and W-2s. Further reports can be generated using Ad Hoc Query in conjunction with an SAP Payroll Infotype. However bulk of MSI requirements for legal reporting etc shall be met by ADP as the net payroll processing will be in their domain.
Integration
The Payroll component is integrated with other SAP HR components, such as Personnel Administration and Benefits. There are also interfaces to other SAP modules such as Financial Accounting and Controlling.
2.1 COMPENSATION FOR USA
PAY SCALE TYPE
During the discussions it was realized that across Mastek Group, the compensation paid to the employees is divided into the following classifications: -
- Technical – Professional
- Technical – Semi-professional
- Non-Technical – Professional
- Non-technical – Semi-professional
- Others – Professional
- Others – Non-professional
The same will be configured as the Pay Scale Types in the SAP R/3 system.
PAY SCALE AREA
The Pay Scale Area will remain same as we have defined our Personnel Areas. Therefore the following will be the Pay Scale Areas in the SAP R/3 system: -
- Santa Clara
- Dallas
PAYROLL AREA & PAYROLL PERIOD
In MSI, a semi monthly payroll period shall be used for running the payroll. Hence the payroll area defined in the SAP R/3 system for MSI is: -
02 – Semi Monthly - USA
PAY SCALE GROUP
The Pay Scale Group will be in terms of grades in the organization. The list of Pay Scale Group that is to be customized as under: -
- T2
- T3
- G2
- G3
- G4
- G6
- G8
- G10
- G12
- G14
- G16
- G18
- G20
- Project Trainee
- Temporary
PAY SCALE LEVEL
There is no sub-classification of Pay Scale Groups, which can be mapped to the Pay Scale Level. At Mastek the salaries are defined in terms of Total Annual Gross (TAG) and then the money is divided into the various wage types of the employee.
For the purpose of customization, one Pay Scale Level will be defined
For the US compensation, Dallas has been taken as base location. The location is also considered for the US compensation package.
To start the compensation review, first Mastek has to map the US Grades with the Indian Grades. The US Grades are as follows: -
D2 D1
C2 C1
B2 B1
A2 A1
How they are mapped: -
Indian Grade US Grade
G4 D2
G6 D1
G8 C2
G10 C1, B2
G12 B1
G14 A2
G16 A1
The salary survey is done by an external agency and the salaries are fixed based on that. There are four major heads under which the salary is fixed for the review: -
- Base Salary
- Location Allowance
- Skills
- Performance Pay
NOTE: MASTEK has decided that Indian grades shall be applicable globally and the US grades shall be mapped to equivalent Indian grades. However MASTEK is yet to provide the mapped list of grades for the same.
The Reviewed salary is paid as Base salary and the relevant amounts are paid under the other heads. Thus the salaries are finalized for each and every employee in USA.
It is to be noted that the salary survey report is Grade based in USA.
As Dallas is taken as Base location, the amount for Location Allowance is fixed on the basis of the location the employee is scheduled to work in. For finalizing the location allowance the following factors are taken into account: -
- Accommodation Cost,
- Transportation Cost,
- Tax Rate, and
- Food Cost.
All this is relevant to the Indian employees who visit USA from India. There is no information available as to how the compensation review takes place for the US nationals in USA.
2.2 USA SPECIFIC BENEFITS ADMINISTRATION
COBRA
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. It requires the vast majority of employers to offer continuation of coverage to covered employee and their dependents who, due to certain COBRA qualifying events, lose group health plan coverage.
Infotype 0211 COBRA Qualified Beneficiary
Infotype 0212 COBRA Health Plan
Infotype 0270 COBRA Payments
- MSI pays 100% for its employee’s health insurance premiums. Employees’ dependents are eligible to participate in the same health insurance, however it’s the employees’ responsibility to pay the premium costs.
- Anthem Health provides both Medical and Dental insurance for MSI employees and their dependents.
LIFE INSURANCE
- MSI provides life death and dismemberment insurance coverage for all of its employees through UNUM Life Insurance Company effective from the date of joining MSI.
- The beneficiary will receive two times the employees’ annual base salary.
401 K PLAN
- All employees are eligible for this plan
- MSI does not make any contributions to this plan
- Employee can contribute up to 25% to a maximum of USD 10,000 per calendar year.
CAFETARIA PLAN
- Also known as Section 125 Plan.
- Employees can pay for medical and dependent care expenses with Pre Tax Dollars to avail of tax benefit under this plan.
- Employees may choose to have designated amount of their income directed towards this plan.
- This is solely and employee contributed benefit.
2.3 STANDARD SAP US PAYROLL FEATURES
SAP Payroll allows MSI to run payroll for employees in all states. Requisite statutory reports, such as Federal forms 940, W-2, W-3, and all state SUI forms are also supported by the SAP system.
Payroll does not just involve the calculation of remuneration, but consists of a variety of processes that are becoming increasingly important due to the employer’s increased obligation to supply benefits and medical welfare. These benefits are products of:
- Labor law
- Tax law
- Contribution law
- Benefits law
- Civil law
- Reporting law
- Information law
- Statistics law
Payroll can be integrated in Personnel Administration, Time Management, and Accounting:
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Standardized data retention enables you to use master data and other payroll relevant data from Personnel Administration.
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Time data, entered via Time Management, is automatically included in the Payroll and is valuated during the payroll run.
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Information on expenses and payables from Payroll is posted for accounting directly in Financial Accounting, and you assign the costs to the appropriate cost center. You can also control the financial system of third-party providers.
The System calculates the gross and net pay, which comprises the individual payments and deductions that are calculated during a payroll period, and are received by an employee. These payments and deductions are included in the calculation of the remuneration using different wage types.
However, since MSI has out sourced its net payroll processing to a third party called ADP. Hence only the gross payroll shall be run and an interface shall be provided to send data to ADP for net payroll processing and deduction of Taxes etc.
After the remuneration payroll you can carry out various subsequent activities, for example, you can see to remuneration payment or the creation of various lists, and make evaluations.
The Gross Payroll component processes employee master data from SAP Personnel Administration and generates wage types and amounts to be used by the Net Payroll component, or to be exported to a third-party product for net calculation. Pre-tax deductions and earnings are processed within the Gross Payroll component.
Integration
The Gross Payroll component is closely integrated with the SAP Personnel Administration and SAP Benefits components
Payroll in Dialog Mode
Purpose
The payroll program is run at a specific point in time, not only to calculate an employee’s basic remuneration but also any special payments, overtime payments or bonuses that must be effected for the period in question. You can follow the procedure of payroll directly in dialog mode.
Payroll in dialog mode is particularly suited to simulate a payroll run for an individual payroll area or individual personnel numbers.
Payroll in a Background Operation
Use
When you have checked all the settings for the payroll run, and have tested the run in a simulation run, you can perform the payroll run in a background job.
Off-Cycle Activities
Purpose
As an addition to regular payroll, which carries out payroll at fixed regular intervals, this function enables you to carry out specific off-cycle payroll activities for individual employees on any day.
You can issue a check to replace payments that were originally made to an employee by check or by transfer but which the employee did not receive, or if the check is in an unusable condition (for example, torn).
You can reverse payroll results that were created by a regular or off-cycle payroll run.
You can enter a check number into the system retrospectively for a payroll result for which you have already issued a check manually.
2.4 MSI US PAYROLL - GROSS PROCESSING
Purpose
The Gross Payroll component processes employee master data from SAP Personnel Administration and generates wage types and amounts to be used by the Net Payroll component, or to be exported to a third-party product for net calculation. Pre-tax deductions and earnings are processed within the Gross Payroll component.
Integration
The Gross Payroll component is closely integrated with the SAP Personnel Administration and SAP Benefits components
Payments
The individual payments form the basis for the calculation of an employee’s gross remuneration, which is the core part of payroll. Gross remuneration is the starting point for the calculation of social insurance and tax payments, and also for the calculation of net remuneration.
Structure
In the R/3 System, payments are split into the following categories according to their characteristics:
Basic pay consists of the fixed wage and salary elements that are paid in every payroll period. You enter them in the form of wage types in the basic pay (0008) infotype.
- Recurring payments and deductions
Recurring payments and deductions are paid or retained with fixed frequency. The system determined the payments using factors such as overtime, leave or substitutions. The wage types that illustrate these factors are entered in the recurring payments and deductions (0014) infotype. In the processing stage the system uses the Customizing settings representing the collective agreement.
Additional payments are remuneration elements that are not usually paid in each payroll period, and that are not paid at regular intervals. You enter them in the Additional Payments (0015) infotype.
Benefits Integration to Payroll
Purpose
Users of the R/3 Benefits component can use Benefits Integration to streamline the payroll calculation process for their employees. The Benefits Integration component allows benefits-related deductions and contributions entered in master data to be processed during net payroll processing.
Integration
This component integrates the Payroll component with the Benefits component. Deduction and contribution amounts can be remitted to benefits providers using functionality from the Third Party Remittance component.
2.5 THE PAYROLL PROCESS
2.6 US PAYROLL REPORTING
Introduction
The R/3 HR Payroll System provides all regulatory and tax reports required by U.S. federal and state law, such as SUI reports for state unemployment agencies, W-2 reports for the federal and state governments, and the Multiple Worksite Report for the Bureau of Labor Statistics. Additional payroll reports are available for other business purposes, such as the New Hire Report. These reports allow efficient evaluation of payroll data and ensure compliance with government regulations.
Integration
Payroll reports access information from all HR Infotypes and evaluate data from HR Time Management and HR Organizational Management as well as HR Personnel Administration.
Features
R/3 Payroll offers numerous internal and regulatory reports, including:
- New Hire Reporting
- Tax Reporter for federal and state reports
Law requires companies to report the results of their payroll calculation to several tax authorities, including the federal government and many state and local governments. This component enables you to produce regulatory reports for government authorities in the format required by each authority.
Reports that Tax Reporter supports include Form 940 – Employer’s Annual Federal Unemployment Tax Return, Form 941 – Employer's Quarterly Federal Tax Return, Form W-2 – Wage and Tax Statement, the 1099-R form and the Multiple Worksite Report.
NOTE:-In case of MASTEK the above reports may be provided by ADP since ADP shall be responsible for running net payroll and doing all calculations and deductions for the same.
