Taxable Earnings and Tax Exemption in US Payroll

In most of the payrolls in SAP, there is an extensive use of Cumulation classes for deriving the various earnings for taxation purposes.

However in US there are many taxable earnings, and so cumulations cannot be used. So SAP has provided with the Tax model concept. Using tax model concept , we can group wage types for different type of taxes very effectively.

Tax Types :

Each type of tax has been assigned a 2 digit code, and is called as tax type.
These are maintained in the table T5UTT

Tax Authority and Tax Model

First we assign to each Tax Authority a Tax Model. At this point a tax model can be any 3 character numeric. Table T5UTE

Then for each of the tax model, we have various combinations which are based on, the Infotypes (0207, 0208, and 0209), value of the tax modifier for the employee, and value of the processing class 71 for the wage type.

For a combination of these, we need to assign a Tax Combo, in Table T5UTM

For for each of these tax combos we assign the applicable tax types. Table T5UTY

Looks confusing. Lets take an example.

We have an employee who has a wage type 1000.
The value for PC71 for the wage type is 1.
And for the employee in Infotype 207 and 208 - the value is CA


Now coming to our table, for Tax authority we have assigned the tax model 10.
And in the other table for tax model 10 -of the infotype os 207, and for the value of modifier 01, and

Now CA is assigned to Tax model 10.
And Tax Model 10, and our wage type 1000 , will be assigned tax combo 1,2,3.

So for this wage type taxes (ie the earnings on this wage type) 1, 3, 5, and 16 are deducted.

Quota Carryforward in SAP

There are different kinds of Absence quotas. Some of them are Vacation, Leave of Absence, PrivilegeLeave.

Some of the quotas gets expired by the end of the leave year. Where as some can be carryforwarded into the next. And there may be a scenario where in, there can be a limit on the number of days, the employee can carry forward.

For doing these in SAP we need

Compensatory Off Scenarios in SAP

When an employee works on a Holiday, he can either be given a Compensatory Off or Overtime.
What to begiven is a business decsision and also depends on the employee class.

Now lets see, how Compensatory Off scenario works in SAP.

When an employee works in a OFF Day or a Public Holiday, he gets an option to take Off on some other day. This Off is called as compensatory off.

In SAP, we can have two scenarios. One scenario is time evalaution without clock times and the other one is time evalaution with clock times. And the calcualtion of Comp off is different in these two scenarios.

Comp Off - Time Evalaution without Clock times

In case of Time eval without clock times, the employee working times are taken from planned working time, and unless the employee applies for a leave/absence, it is assumed that, the employee is working.
And it is also assumed that on OFF days and Public Holidays, the employee is not working.

Now there should be a way to inform the system that, the employee has worked on a Day OFF or public Holiday.

For this we can create a Attendace type. And when ever an employee works on a Day OFF or Public Holiday, and we need to give comp off, we can use this attendance type.

Then we need to write a rule, where in if any employee has got this attendance type, then popuate a pre defined time type by that many hours. This time type can be used in the creation of the comp off quota for the employee. Once done, when ever an employee has got his attendance type, the employee comp off quota is increated by that many hours, as given in the attendance type.

Now another absecne type has to be created , to use this comp off quota. The absece type can be named as comp off.

So in effective, to create a Comp Off we need an attendance type, an absence type and a absence quota.

Comp Off - Time Evalaution with Clock times

In this case the employee actual times enter the time eval. So we need a rule to check, if there are hours on any Day OFF. If there an any , then we can pass on the hours into a Time type and the rest of the process is same as the above.

Will try to update the post with some screen shots on how the rules will look like and how the quota is configured.

Indian Payroll In SAP

India Payroll.
This may not be giving the complete information on India Payroll in SAP, but i will try to provide the maximum information, so that the reader can get a good understanding on India Payroll.

Firstly, i would like to cover the Infotypes Specific to India Payroll. These are

01)IT0580 (Previous Employment Tax Details)
02)IT0581 (Housing(HRA / CLA / COA))
03)IT0582 (Exemptions)
04)IT0583 (Car & Conveyance)
05)IT0584 (Income From Other Sources)
06)IT0585 (Section 80 Deductions)
07)IT0586 (Section 80 C Deductions)
08)IT0587 (Provident Fund Contribution)
09)IT0588 (Other Statutory Deductions)
10)IT0589 (Individual Reimbursements)
11)IT0590 (Long term reimbursements)


01)IT0580 : Previous Employment Tax Details
In this infotype the previous employer income and tax details have to be entered. This infotype would be valid for those employees , who join in the middle of a  financial year and have worked in some other organization for the other part of the year.
If data is not entered here, the tax calculations may not be correct and even the form 16 would be showing incorrect tax details, and while filing the form 16, employee may have to club more than one form 16, and may end up paying some more tax to the Income tax department.

02)IT0581 : Housing(HRA / CLA / COA
Here we enter the House rent or Company Leased Accommodation or Company Owned Accommodation details.
Based on these details, employee will get HRA exemption. Even CLA (Company Lease Accommodation) and COA(Company Owned Accommodation) details are entered here. These definitely have some tax benefit, but also add some perk to employee salary.

03)IT0582 : Exemptions
Here we enter the various exemptions. Like Medical, LTA, exemption on Child Education Allowance, exemption on Child hostel allowance, exemption on other allowances and reimbursements.

04)IT0583 : Car & Conveyance
Here Car and Conveyance details are entered. Capacity of the car, type of Conveyance etc are entered.

Time Evaluation in SAP

Time Evaluation in SAP

In the initial days of my Career , i used to have a lot of questions on Positive and Negative Time evaluation, Time evaluation with and without clock time, and  a lot of questions between the different schema TM00, TM04 etc.

Over a period of time, i got answers to most of my questions.
Here i am sharing those.

The basic difference positive and negative time evaluation would be , what date is being captured and from where.
In negative time evaluation, only employee planned working hours are taken from Daily Work Schedule, and employee swipe in and swipe out data are not used or are not required.
Where as in positive time evaluation, Employee swipe in and Swipe out data from time terminals are used. So in a day an employee can have many clock in and clock out times. And normally only the first clock in and last clock out are considered.

And coming to the schema, there are only for reference. We have two main schema TM00 - Time evaluation with clock times, which i am calling as Positive time evaluation and TM04 -Time evaluation without clock times. You can also use TM00 to configure a negative time evaluation and similarly you can use TM04 for positive time evaluation. You can also have a schema , which does both.

It all bottoms down to the requirements, which is nothing but the expectations from the end user and the business processes.

Of course there are some functions which are specific to positive and negative time evaluations.

Canadian Payroll in SAP

Canada Payroll in SAP.

This may not be giving the complete information on Canada Payroll in SAP, but i will try to provide the maximum information, so that the reader can get a good understanding on Canada Payroll.

Some of the important concepts relating to Canada Payroll are :

1) CPP / QPP - Canada Pension Plan / Quebec Pension Plan
2) EI - Employment Insurance
3) ROE - Record of Employment
4) PPIP - Provincial Paternal Insurance Plan (QPIP)
5) Health Tax
6) Employee Tax Levy
7) WCB
8) Compensation Tax
9) Payroll Tax

Taxation In Canada

There are two type of Income taxes in Canada
1) Federal Tax
2) Provincial Tax


Important Infotypes for Taxation in Canada
1) IT0461
2) IT0462
3) IT0463
4) IT0464

US Payroll in SAP

US Payroll in SAP.

This may not be giving the complete information on US Payroll in SAP, but i will try to provide the maximum information, so that the reader can get a good understanding on US Payroll in SAP system.

Taxation In USA
In USA there are different tax types.

1) Federal with holding Tax - This is common across any State.
2) Then there is taxation at State level,City Level,  County Level, School and District Levy etc.

The above two are part of the Withholding tax. (tax type 01)

Apart from these, there are also (some of the important ones)

3) Employee Social Security tax - Tax type 03
4) Employee Medicare tax - Tax type 05

Employee Residence Tax Infotype - IT 0207

Fig 1 - Residence Tax Infotype

In figure 1, the Employee is from City Chanbersburg, which is in the state of Pennsylvania. So from the employee salary the following taxes are withheld.

1) Federal tax
2) Pennslvania State withholding tax
3)Chambersburg Borough City Tax
4)Chambersburg ASD School and district tax.



In the below figure you can see the various taxes withheld in the SAP system.

And the tax rates (except Federal) are different for all these tax types and are dependent on the State.
In SAP, all these taxes are not calculated by the SAP system, instead these are calculated by BSI tax factory.
From SAP all the data is sent to BSI, and in BSI the taxes are calculated and are returned back to SAP.


The Important infotypes with respect to taxation are
1) IT0207 - Residence Tax Area
2) IT0208 - Work Tax Area
3) IT0209 - Unemployment Tax Area

Canada Pension Plan - In SAP

CPP – CANADA Pension Plan
This is a deduction made from Employee earnings. The deduction goes into Employee pension plan. And is paid to employee by the government, when the employee retires. The company also makes an equal contribution to what employee is contributing.
In Quebec region instead of CPP, QPP is deducted. (QPP – Quebec Pension Plan).

Method of Calculation –
Every year, a Maximum amount is defined (This is the maximum ceiling amount on which the CPP/QPP can be calculated.). And also a Annual Basic exemption is defined.
So the maximum earnings which can be subject to CPP/QPP is Maximum ceiling amount – Annual Basic Exemption amount.
i.e (47200-3500)*4.95% = 2163.15 (for Year 2010. see table below)
So for the year 2010, for an employee the total CPP deductions cannot exceed 2163.15
If an employee reaches this amount half way in the year, then for the rest of the duration of the year, there would be no CPP deductions.

Example :
Employee pensionable earnings for a Month = 6000 $. (Stored in either of wage types /118, /119, /120, /121)
So the Basic exemption per pay period would be 3500/12 = 291.66 (assuming the employee is paid Monthly and there are 12 Pay periods in a year)
So the Earnings on which Pension is calculated is 6000-291.66= 5708.3
The Pension for the month would be 5708.3*4.95% = 282.56
So every month till July, 282.56 is deducted. At the end of July the total deductions cumulated would be 1977.93 And in the month of August 282.56 is not deducted as the total deduction would become 2260.5, which is greater than the maximum limit of 2163 (upto July 1977.93+282.56 for August). So for the month of August only 185.21 is deducted as the total deductions would be 2163.15(1977.93 upto July + 185.21 for August), and there would not be any deductions for the months September to December.

Relevant Wage types / Cumulation Classes

/118 and /119 are non exempt wage types i.e while calculating CPP/QPP, the basic exemption is not calculated on these amounts. These earnings can include wages which came from retro or bonus payments etc.

Table T5KTC stores the data like Max CPP / QPP amount, CPP/QPP rate and Basic Exemption

Function KATAX calculates CPP/QPP, when called with SI as the 1st parameter

CPP Slab Rates for Various Years – Source (http://www.cra-arc.gc.ca/)

Various Scenarios

1)Excess CPP deductions
If for an emplouee the CPP deductions were deducted in excess, then while filing their income tax and benefit returns, employees can claim the refund. However , the Employers cannot entitled for a refund.

2)Change of Job
If the employee changes the employment, during a year, the new employer will be deducting the CPP / QPP without considering the amount already deducted by the previous employer. Even though, the maximum amount of CPP has been deducted at the previous employer.

3)Transfer of Employees (to Qubec / from Qubec) to any other Province
If an employee from any other provice is transferred to Qubec, then the CPP deducted till date will be considered and the Max Amount for the province of Quebec will be valid
If an employee from Qubec is transferred to any other province, then the Max amount as per CPP would be valid, and the amount already deducted in QPP is also considered

4)In case of Mergers and Acquisitions
In these cases as per the rule(http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/rstrctrcpp-eng.html), the previously deducted CPP/QPP amount would be considered. In SAP, if because of these Mergers and Acquisitions, if there is a change in the Business numbers, then for the system to consider the previously deducted amount, an entry has to be made in table T5KBN.

Year End Forms
CPP Contributions are shown in Box 16 of T4 form. Only the Employee contributions are shown
QPP contributions are shown in Box 17 of T4 form. Only the Employee contributions are shown
QPP contributions are shown in Box B(SAP Box 2) of RL1 form. Employer QPP contributions are shown in Box B-S(SAP Box 2S) of RL1 form.

Exempting an Employee from CPP
If you want to exempt an employee from CPP deductions, then a relevant value has to be entered in infotype IT0464 (Additional Tax Data Canada), under CPP.

See the selected box in the below figure.

And the possible options can be

Related OSS Notes
2011 Year End -- 1630315, 1644067 – CPP Calculations for Employees aged 60 and above