How to Automate Taxation of Wages Using a Flat-Rate Method During an Adjustment Payroll Run

  • by Sumy Nair, Senior SAP Configuror and Analyst, Los Angeles Community College District
  • October 7, 2015
SAP payroll schema and BSI TaxFactory 10.0 are tools that can be used to customize taxation of wages paid to employees. Learn how to customize and automate tax calculations on supplemental wages using a flat-rate method during adjustment payroll using SAP payroll and BSI TaxFactory 10.0.
Learning Objectives

Reading this article you will learn how to:

  • Use Personnel Calculation Rules (PCRs) to automate taxation of wages in SAP ERP HCM
  • Set up tax overrides in BSI TaxFactory 10.0
Key Concept

BSI TaxFactory overrides are used to customize tax calculations according to business needs. SAP Personnel Calculation Rules (PCRs) and payroll schema can be used to design customer-specific logic to automate business requirements.

Supplemental wages are payments to an employee that are not regular wages. According to IRS Publication 15, Section 7, an employer can choose to tax an employee’s supplemental wages at a flat rate (e.g., withheld at a flat 25-percent federal rate—no other percentage is allowed). In addition, each state has its own flat rate specified by its tax department (for example, the flat rate is 6.6 percent for California).

In a scenario in which your organization needs to do a lump-sum vacation payout for a separated employee or a group of separated employees, the payroll administrator can maintain infotype 0416 (quota compensation) or directly enter a vacation payout wage type in infotype 15 (additional payments) in the employee master data and process this via adjustment payroll.

If the lump-sum vacation payout wage type is set up as a supplemental payment (processing class 68 – specification 2) or as a vacation payment (processing class 68 – specification 4) as shown in Figure 1, and if the tax sub-schema settings in your SAP payroll system are set up as shown in Figure 2, the system taxes these wages using the separate aggregate method during the adjustment payroll run.


Figure 1
Processing class 68 and its specification values in table V_512W_D, accessed via transaction code SM31


Figure 2
The standard SAP tax sub-schema settings for function UPAR1
 

Sumy Nair

Sumy Nair has over 10 years of experience architecting and implementing SAP HCM techno-functional solutions for private- and public-sector organizations. She is currently working as a Senior SAP Configuror and Analyst for the Los Angeles Community College District.

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