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.

What is a gross up?

A gross up is a type of payment in which a gross amount is calculated so that, after taxes are deducted, an employee receives a specified net payment. The specified net amount is called the “guaranteed net amount” and the calculated gross amount is called the “grossed up amount.”

In SAP payroll, the user enters the guaranteed net amount into master data.  During payroll processing, the system passes the net amount to BSI, which determines the gross amount, that ill yield the net after taxes have been deducted.

The guaranteed net wage types can be identified by a Processing Class 68 value of 5 (Gross up using regular method) or 6 (Gross up using supplemental method).

SAP delivers the model wage types M031 and M032 for gross up payments.  M031 is the guaranteed net wage type and M032 is the gross up amount wage type. M031 and M032 are linked in view V_512W_B ( IMG Path : Spro – Payroll USA – Tax – Tax-related Wage types – Maintain Gross up Wage types).  M032 is the first derived wage type of M031. The linked wage type M032 stores the grossed up amount that is calculated by BSI.  Both the guaranteed net and grossed up amounts are stored in the Results Tables.
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.