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SAP Payroll is a flexible tool

by Faisal Iqbal

February 5, 2012

Varied processes

Recording the Salaries and Allowances, valuating them according to employees’ working time, adjusting the outstanding payments / deductions, calculating the net salaries, transferring the salaries to employees banks for a large number of employees aligned with company policies and procedures requires lot of effort.

SAP Payroll system take care of all of the processes outlined above. Closely integrated with the core HCM components (Personnel Administration and Time Management system), it provides a comprehensive solution to most (if not all) of the complex scenarios covered by today’s Payroll function executed at various organizations.

A brief Description

Continuing to the series of my earlier write-ups, in this piece of writing I’ve provided an overview of SAP Payroll module. For easy understanding, I’ve categorized the component in 4 parts (i.e. Administrative Structure, Salary Structure, Data Entry and Salary Calculation & Disbursement) and have described the concept by first explaining the basic elements of Payroll and then the processes of Payroll with some explanation of technical structure of the component.

1. Administrative Structure

In an organization, the employees are classified differently for their jobs and as a result they are paid accordingly. Therefore before setting-up the payroll, you need to set-up the administrative structures which in SAP terminology are referred as Enterprise & Personnel Structures. The items within both structures, from HR perspective, are Personnel Areas, Personnel Sub-Areas and Employee Groups & Employee Sub-Groups, first 2 items belonging to Enterprise Struc ture while the other 2 to Personnel Structure. For instance, if an enterprise has a factory, a showroom and a head-office in 3 different cities, you could define these as 3 different personnel areas. Assuming the factory and showroom has shifts (9-5 and 10-6 for example) while the head-office staff works only on 9-5 schedule. Since you may require to group 9-5 employees (regardless of their placement) for timing / administration purposes, you may define these as personnel sub-areas. Obviously there are different ways to interpret an organization in different personnel areas / sub-areas, however, it is clear from the example that an organization have to have an administrative structure. Similarly classifying the employees in different grouping helps in easy administration of payroll and therefore SAP gives you an option of creating employee groups and sub-groups. A good example could be Regular Employees and Contractors with further sub-grouping of Long-Term Contract, Short-Term Contract for instance.

2. Salary Structure

There’s another classification required for setting-up of payroll and its Salary Structure. SAP refers it as Pay Scale Structure. It includes the Pay Scale Type, Area, Group and Level. These are used to differentiate the payment amounts paid to different type of employees with grades & increment levels. In addition to Pay Scale Structure, the payments have to be classified as base, regular or occasional payments. All of the payments / deductions with min & max amounts are defined as wage types while they are maintained differently in employee master data. Each of the wage types, according to the way its paid to an employee is maintained in Infotype Basic Pay, Recurring Payments and Deductions, and Additional Payments. Infotype 0008 (Basic Pay) is used to store the salary elements which are considered as base elements such as Basic Salary, while the infotype 0014 (Recurring Payments and Deductions) is used for payme nts / deductions which are paid / deducted on regular basis. The Infotype 0015 (Additional Payments) stores the occasional payments / deductions. Based on some criteria, these wage types amounts can be automated.

3. Data Entry

For each of the employees certain data must exist in the system including the Personal Data (to identify an employee), Organizational Data (to differentiate the working locations in a payroll period), Working Time with Absence & Attendance etc (to determine the employee’s presence and to compensate him accordingly). The payroll data entry is usually part of the Personnel Administration Processes; while you hire an employee and perform a hiring action, you store different types of information for employee in different infotypes including the infotypes mentioned above. Similarly if an organizational assignment is changed, it has an impact on employee’s payroll and therefore such information is part of the typical data maintenance. In addition to personnel actions, you can also maintain the information independently. And as explained in personnel administration article, such information could be maintained together for a list of employees using Fast Entry.

4. Salary Calculation & Disbursement

In addition to setting-up the administrative & salary structures and maintaining the master data mentioned above, the company policies / rules for payroll are implemented in Payroll Schema. When payroll is run using a payroll driver, relevant schema is selected for calculating the right amount for employees. SAP delivers country-specific payroll schemas as well as an International Schema. You can copy these schemas / modify according to your requirements.

When you’ve the payroll set-up correctly and have maintained the master data of employees, you can now run the payroll which calculates the salaries of employees. Typic ally, the payroll is first simulated (i.e. a test run) to ensure its error free, then the master data is locked for any changes through release payroll step and then payroll is run. If, after a payroll run, some errors are found, these could be corrected only by changing the payroll status to correction. You can then, after correction, run the payroll ONLY for affected employees. As soon as you’re done with the process, you can post the results to Accounting and transfer employee’s salaries to their banks.


In short, we could say it’s not only about recording the amounts to be paid to employees, in fact in addition to recording the Salaries & Allowances, it has much to do with calculations based on company’s procedures and ultimately paying the right amounts in right time to employees.

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