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Purpose
The purpose of this document is to give an explanation how the system handles the gross-up within the Payroll USA and the concept of the gross-up wages.
Overview
Introduction to gross up calculation in SAP US Payroll, wage types configuration and processing class definition.
For example, suppose you wish to pay an employee $1000 after taxes has been taken. In Infotype 15, you could create a record with wage type M031 with a $1000. The $1000 guaranteed net amount is passed to BSI, which determines the gross amount that would result in a net amount of $1000 after taxes. Suppose that BSI calculates that a gross amount of $1500 will result in a net payment of $1000. The system creates the wage type M032 with an amount of $1500 and stores this and the M031 wage type in RT. The grossed up amount is affected by several factors, including pay schedule (weekly, bi-weekly, semi-monthly, etc.) and the tax types that are relevant for the employee. There are two distinct types of gross ups: cash and non-cash. Cash gross up is one where the employee will receive an actual cash amount. In this case, the grossed up amount is set to accumulated into /101. The SAP delivered model wage types for gross ups are cash wage types. In other words, the wage type M032 is set to accumulate into /101. Typically, cash gross ups are used for bonus payments, such as year end bonuses. Some companies use cash gross ups to pay expatriate employees. A second type is gross up payment is non-cash gross up. In this case, the grossed up wage type is not set to accumulated into /101. SAP does not currently deliver model wage types for a non-cash gross up. Non-cash gross up is typically used to determine a payment for taxes on a taxable employee benefit. For example, suppose that an employee has the use of a company car. This benefit is considered to be taxable, so the employee would be liable for taxes on the use of the car. An employer may decide that the company should make a payment to cover the tax liability for this benefit. A non-cash gross up would be used to determine the tax owed on this benefit.
Processing
The processing of the gross up calculation is done in the payroll function USTAX. The gross ups are processed before the processing of the gross-to-net wages. Each gross up payment to be processed in the pay period is done in a separate BSI call. There is minimal processing for the gross up calculation. All that is needed is the guaranteed net amount along with the relevant tax types. This information is passed to BSI, which returns the grossed up amount along with the taxes. Deductions are not considered during payroll processing.
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