SAP Payroll – Payroll Payments Made Easy

sap payrollWhenever a company grows in size, calculating the remuneration, wages, benefits, and medical welfare of its employees becomes a time-consuming, complicated process. But fortunately, SAP HR has a component called SAP Payroll which makes the entire process of calculating remuneration and payroll taxes, reading wage types from specific info types, calculating benefits premiums, and storing the results of the payroll calculation easy, organized, quick, and simple. The Payroll components are integrated with other SAP HR components, such as Personnel Administration and Benefits. The Payroll components can be integrated in other SAP HR components, such as Personnel Administration and Benefits and other SAP modules such as Financial Accounting and Controlling (SAP FICO), Time Management, Incentive Wages and Accounting.

Overview of SAP

SAP provides end to end solutions for financials, manufacturing, logistics, distribution etc. SAP has different functional and technical modules such as Sales and Distribution (SD), Material Management (MM), Human Resources (HR), Finance (FI), Controlling (CO), Investment Management (IM), Production Planning (PP), Plant Maintenance (PM), Document Management System (DMS), Portfolio and Project Management (PPM) which cover different aspects and areas of a business. SAP Beginners CourseSAP Architect are great knowledge resources for SAP modules. To get a peek into some of the important and popular SAP modules, check these courses to help you become a pro:

Features and Configuration of SAP Payroll

SAP Payroll allows you to process payroll for employees by using data from SAP Personnel Administration and Benefits.  The system calculates the gross and net pay, which are derived from the employee’s remuneration and deductions. The derived salary or wage is calculated and paid during a payroll period and different wage types are used for this purpose. After calculating the remuneration, subsequent activities can be performed, for example, calculating payroll taxes on a given set of wages, generating standard payroll reports, reading wage types from specific info types, calculating benefits premiums, and storing the results of the payroll calculation, creating various lists, and making evaluations. The Tax Reporter component allows you to generate all required state and federal tax reports and W-2s.

Functions and Processes of Payroll

Payroll does the following functions:

  • Compute employees gross salary
  • Make necessary deductions
  • Calculate Net salary
  • Generate Checks or direct deposits

Payroll executes the following processes in the system:

  • Maintains payroll related infotypes
  • Runs periodic payroll
  • Transfers data to FI/CO
  • Transfers third party remittance data to Accounts Payable
  • Generates tax reports and standard reports

Terms Used in Payroll

Payroll Area

Payroll area is used to group employees who have the same cycle and frequency of payment date. For example, M1 may be used to define the group of executive staff who are paid once in a month.
As a rule, the payroll is run for payroll areas. The following information is provided for payroll through the payroll area:

  • Number of employees for whom a payroll run is to be run
  • Specific payroll dates

The specific dates for which the payroll is run are determined as follows:

  • The general payroll period is stored as a period modifier for each payroll area. For example, payroll can be performed on a monthly, semi-monthly, bi-weekly, or weekly basis.
  • The exact dates are stored for each valid accounting period. The exact dates of the current payroll period are determined by using the payroll control record, which contains the period for which the last payroll was run, and the next period for which the payroll will be run.

A payroll area can only be changed at the end of a period. For example, let’s assume an employee’s status has changed from an hourly paid industrial worker to a fixed salaried employee in the middle of a month. If these statuses are in different payroll areas, and if the payroll is run monthly, then the new payroll area can be entered only at the beginning of the next month.

Period Parameter

It determines how frequently the payroll would be run, i.e monthly, biweekly, weekly etc. Usually it is depicted by a two digit no, say, 01 for monthly, 02 for weekly, and so on.

Date Modifier

If two groups of employees have the same periodicity for running the payroll but have different paydays, then the system requires two date modifiers to differentiate between the different paydays.

For example, Payroll is run monthly in a company.  But the payday is the 15th of the month for industrial workers and 20th of the month for salaried executives.  Since the payroll periodicity is the same for both groups of employees, which is monthly in this case, the system requires two date modifiers as differentiators to be able to determine the two paydays.

Payroll Period

It determines the period for which a payroll is run and for which the results are created.

  • Payroll periods must be generated for each combination of Period Parameters and Date Modifiers assigned to a payroll area.
  • The payroll period includes a “start date”, an “end date”.

For example, let’s assume in an enterprise the first payroll period for the year 2010 begins on 01 January. Now depending whether weekly or monthly is used as the basis for Period Parameter for calculation, the Payroll Period 05 2010 can have the following meanings:

Weekly Period Parameter: Period 05 2010 = 31 January-06 February 2010

Monthly period parameter: Period 05 2010 = 01-31 May 2010

 Pay Scale Structure

The pay scale structure is defined by the following elements:

  • Pay scale type
  • Pay scale area
  • Employee subgroup grouping for collective agreement provisions
  • Pay scale group
  • Pay scale level

Pay Scale Type

The pay scale type is the area of economic activity for which a collective agreement is valid. The area in which it is valid may be determined at company or trade union level and often applies to a whole industry, for example, the chemical and metal processing industries or the civil service.

Within a pay scale type, you define the pay scale groups and levels for each pay scale area and employee subgroup grouping for collective agreement provisions. Eg.

  • 10 – non union workers
  • 20 – collective agreement for part time contract

The pay scale types are described by a four-character alphanumeric identifier per country grouping and are defined in Customizing for Personnel Administration.

Pay Scale Area

Differentiates payscales based on geographical area, for example 20 may depict the employees in New York.

The default values for pay scale types and groups are linked to the personnel subarea and are defined in Cutomizing for Personnel Administration. These default values are suggested when you create a record in the Basic Pay infotype (0008).

Payscale Group

Pay scale groups and pay scale levels are the criteria used to classify data for job evaluations and indirect valuations. Pay scale levels are subdivisions of pay scale groups. It is used to differentiate employees payscales based on functionality. For example, JR01 may represent the group of junior administrators, and JR02 may represent the senior clerks.

Payscale Level

This subdivision denotes the payscale level of an employee, for example, L1 may represent level 1 clerks, L2 may depict level 2 clerks, and so on.

Employee Subgroup for Collective Agreement Provisions

Within the employee subgroup grouping for collective agreement provision you restrict the eligibility of pay scale groups, so that only certain pay scale groups are valid for specific employee subgroups.  You define the employee subgroup grouping for the collective agreement provision by employee group. Within a pay scale area, you define the pay scale groups and levels for each pay scale type and employee subgroup grouping for collective agreement provisions.

Control Record

It determines the current payroll period for a payroll area. A control record performs the following functions:

  • Defines the payroll past for retroactive accounting
  • Locks master data and time data so that no changes can be made during the payroll processing period.
  • Defines the earliest possible retroactive accounting date for each payroll area.

Process of Payroll

The process of payroll takes care of all the functionality of maintaining the employees data, processing the salaries of employees, making all statutory deductions and payments, and generating payslips, tax records, and distributing the salaries.

A Payroll Control record goes through the following stages:

Released Payroll:

  • At this stage, the Payroll Control Record is set to “Release for Payroll”, so that past and present HR Master Data are locked for those particular employees.

Start Payroll:

  • Here payroll run is executed for one payroll area, for the payroll period defined in the Payroll Control Record. If errors occur, a list displays the list of employees rejected during the payroll run.


  • At this stage, the Payroll Control Record is set to “Released for Correction”.
  • Past and present HR Master Data for those particular employees is now unlocked for corrections and appropriate corrections are done to fix the payroll errors.

 Exit Payroll:

  • At this stage, the Payroll Control Record is set to Exit Payroll.
  • Past and present HR Master Data for those particular employees is now unlocked in the SAP system.
  • The payroll run is closed off for the particular period and it is not possible to go backwards to the payroll results.


The SAP Payroll component is an extremely efficient program which incorporates automatic calculations and fast data retrieval capabilities. This dramatically reduces manual errors and permits proper database management of large volume of payroll data.  Its innovative design and high-performance payroll functions minimize the time needed to prepare and execute regular payroll runs for employees, and generates reports and taxes at a lower cost and lesser effort. The Payroll Process in SAP begins with the entry and maintenance of data and ends with further subsequent activities which are performed after each payroll is completed to satisfaction. SAP Payroll is a component of SAP HCM Module. SAP has designed several other modules over time that focus on different areas of a business. Learn SAP Course – Online Beginner Training will give you a quick overview of the different modules of SAP.