Alleviate Cost Burdens with a Custom Fringe Solution in SAP Payroll

  • by Mike Timm, Managing Partner, Integrated Consulting Group LLC
  • June 17, 2008
Evaluate several benefits of fringe payroll in SAP Human Capital Management. Discover how to customize aspects of your fringe payroll to meet your business requirements.
Key Concept

A fringe is a percentage or flat fee charge that is added to payroll to offset the employer’s share of employee benefit costs throughout the year. Some examples of the costs employers incur are state unemployment insurance, vacation leave, and sick days. By using fringing, an organization can distribute the expense of an employee throughout the year more evenly.

All organizations with a large employee base need to spread costs throughout the year. Sounds simple enough, but payroll often produces actual costs differently, in which expenses are charged and accounted for during the first part of the year instead of distributing them over the entire year.

Take the example of the employer State Unemployment Insurance (SUI) tax, which typically reaches the maximum per employee in the first few months of the year. The employee meets the maximum taxable income during the first few months so standard SAP Payroll expenses the taxable amount in those first few months. Creating a custom fringing mechanism allows those taxable expenses to be disbursed evenly throughout the year.

Many organizations must rely on fringing to distribute cost burdens more evenly throughout the year and at different rates based on: organizational objects (e.g., company code, personnel area, employee group, or cost center), the frequency with which fringing rates are maintained, and the part of the organization that is responsible for maintenance, review, and reconciliation. This can be a daunting task and organizations typically struggle to develop a suitable fringing method to handle all of their simple and complex business requirements.

I’ll walk you through the required customizations to implement fringe payroll calculation in your SAP Payroll environment and provide you with lessons learned from my experience. The steps I describe in this article apply to all SAP system releases.

Mike Timm

Mike Timm is an SAP Certified Consultant who has specialized in SAP Human Capital Management since 1997. He is the managing partner of Integrated Consulting Group LLC, which he founded in 2000. Mike has been a speaker at SAP FI and HR conferences since 2003.

Mike  will be presenting at the upcoming HR Payroll Seminar November 7-8 in Chicago and November 27-28 in Orlando. For information on the event, click here

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