How to Use Gross-Ups in SAP US Payroll

  • by Steve Bogner, Managing Partner, Insight Consulting Partners
  • May 15, 2004
In certain cases, such as for prizes and expatriate pay, a company wants to pay taxes for employees so that they take home the right amount in net pay. Using examples, the author explains the technicalities of the gross-up process, which starts with net pay and works backward to the gross amount.

Many companies use gross-ups for some payments to employees. Common examples are for prizes and expatriate pay. Suppose your company publicizes that any employee who has perfect attendance for a year will get a $100 bonus. That $100 is taxable income, which means the employee takes home only the after-tax portion of that. It doesn’t sound very good to say the bonus is $100 less any taxes you owe on it! To make sure the employee takes home $100 in cash, the company backs into the gross taxable amount, essentially paying the taxes on it on behalf of the employee.

Some companies also use gross-ups when paying expatriates because it makes the payment process easier. The company may determine that an expatriate needs $10,000 in net pay per month to meet all his or her requirements in the foreign country. So it pays the salary as a gross-up, ensuring the employee gets the right amount of money in net pay. Then the gross-up taxes are taken into account along with hypothetical taxes, home country, and host country taxes in the year-end tax equalization process.

Steve Bogner

Steve Bogner is a managing partner at Insight Consulting Partners and has been working with SAP HR since 1993. He has consulted for various public, private, domestic, and global companies on their SAP HR/Payroll implementations; presented at the SAP user's group ASUG; and been featured on the Sky Radio Network program regarding SAP HR.

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