Introduction
If you have been working on Australia payroll, either with public sector or private sector clients, one topic that comes up in implementation workshops is the concept of annual leave loading, or as it is commonly called, leave loading.
Earlier, the SAP system configuration for leave loading was done with a view to use the SAP time management module. Things were pretty tightly coupled with time management in terms of the absence quotas (if the leave loading was to be paid basis a fixed date) and the absences being applied (if the leave loading was to be paid basis the absence applied by the employee)
With employee central payroll, the dynamics have shifted considerably on how the solution will be configured to achieve the client objectives. The consulting part still remains unchanged, though. In this short guide, I will describe the consultant and configuration perspectives for building leave loading requirements in the SAP/ EC payroll system. There is a slight difference in the set up for private and public sector companies and shall be discussed accordingly.
A word of caution: This blog post explains how the SAP system configuration is set up to achieve the leave loading requirements of Australian clients. This blog post does not and cannot comment on the legislation or compliance aspects of the client requirements. A legislative manager or a tax practitioner alone can set the tone on those aspects. This is just a configuration/ consultant perspective on how to map client requirements into system design – a collaboration with legislative experts will be indispensable during the workshops and through till the end of the project and ongoing support phase to ensure that the system is compliant as per Australian labor laws. In short, the legal and compliance aspects are not in scope of this blog post.
What is leave loading?
To say in simple terms, leave loading is a bonus payment used to compensate employees for extra pay lost when taking leave (for example, overtime pay). It also contributes towards additional expenses incurred while an employee is on leave (for example, travel costs).
Is annual leave loading a part of ordinary time earnings or not?
That is a million dollar question on the minds of every consultant (and client) when we look at paying annual leave loading payments to employees. The reason it is significant is because this will decide whether the superannuation calculations will include this amount or not. The answer is already available on the ATO website. To make it concise and easy to remember, annual leave loading that is paid to compensate for lost opportunity to work overtime is NOT supposed to be added into ordinary time earnings calculation even though it is true that we add annual leave pay into ordinary time earnings. This requires certain steps to be taken from the client end and can be easily found on the ATO website.
I will describe how to go through a client implementation workshop for gathering leave loading requirements with two approaches in mind: one with SAP on – premise payroll with SAP time management module and the second with EC Payroll in combination with EC time off.
A] Leave Loading for SAP HCM On – Premise Customers using SAP Time Management as their leading time management solution
When tackling the leave loading payment set up in the SAP system, try to understand from the client on how they intend to pay it to their employees. A look at the legacy payout method would be helpful too.
Lead consultant perspective: As a lead consultant I pose certain questions to the client during the implementation workshop, checking to see how I can translate their requirements into system design for my configuration consultant to put into tables in the backend SAP on – premise/ EC Payroll system.
I will also consider whether the client is a on – premise payroll client with SAP time management module being implemented or is it an EC payroll client with EC time off as their leading time management system. The reason I will need to know this detail is because it will influence how the configuration at the backend can be achieved and hence may need some workarounds/ innovative approaches where there may be limitations in standard SAP configuration. It would be wise to include the EC time off/ SAP time management consultant in the workshop with the client to ensure no requirement is lost in translation. Of course, we need to know well before we start, if this is a private or a public sector client.
Configuration consultant perspective: As a configuration consultant working on an Australian payroll client, I will need to have a mapping between the requirements and the SAP system tables and schemas to achieve the client objective.
As a lead consultant, I will ask my client the following questions:
When your configurer is asking these questions, what he/she wants to really know is:
Real Question Do the cumulation classes related to superannuation such as 41, 42, 72 & 73 need to be checked or not in table V_512W_D?
Real Question What option should be selected for the field LLDTY in the table V_T5QLL. If your client chooses to pay by entitlement on a fixed date, then you will need to enable the QLVLL function in the payroll sub schema QLVE embedded inside the subschema QT00. Do not make changes in the standard SAP sub schemas, the best practice would be to copy them into custom namespace and then modify as required. If your client however would pay based on the absences then use the schema as – is. The rule QLLP will calculate the payment using valuation basis and the percentage mentioned in the table V_T5QLL. The rule QLLD will calculate the tax impact if any in the same schema. If this is an advance payment run, the rule used will be QALD instead. Both the rules will refer to the specification in processing class 21, the leave loading constant LVELD, the CRT table for the wage type used for leave loading payment (for checking the total leave loading payout done for the current year) for deriving the tax implications. Your client would need to provide you the requirements.
Real Question What date should be set for transfer to IT 2006 entitlements in the table V_T559L in SAP Time
Real Question What wage types are to be set up – different for each payment. This would be the wage type that would be entered in the field LLWTY in the table V_T5QLL. The next question would be - what would be the option for processing class 21, for each of these wage types in the LLWTY field, based on the type of taxation expected. For e.g. if the leave loading has to be added into /111 above the threshold value of AUD 320 (the leave loading payment through the year which exceeds AUD 320 is subject to tax) then the option ‘L’ is selected. If the payment is to be marginally taxed then the option ‘4’ is selected. Your client would need to provide you the requirements.
Real Question What would be the value input into the field LLPER in the table V_T5QLL. Set up the valuation basis for the wage types being used for the leave loading payments as per the daily rate to be used i.e. /001, /002 etc. The daily rate calculation for leave loading payments will have to be discussed in advance with the client during the workshop session where rates of payment are designed.
A.1] Leave Loading for SAP HCM On – Premise Customers using SAP Time Management as their leading time management solution – Public Sector Companies
For Australia public sector companies, we need additional information to set up the SAP system. The configurer uses a different node in SPRO to set up the public sector rules for leave loading. This comes under the following branch:
Payroll Australia --> Australia public sector HCM --> Public Sector Payroll --> Leave loading
For public sector companies we need to understand the following details from a client in a workshop:
In case of public sector companies, we will need to use the schema ALL1 with the redesigned tax solution which in turn uses the schema QPS1 which embeds the subschema QPS0 for leave loading calculation.
In the subschema, AUPLD is used to determine the payment method and the payout amount when the criteria is met (mentioned in the table V_T5QPBS5A). When AUPLD is combined with parameter YES, it means that the tax threshold will not be used for payment at the end of the leave loading year.
In the redesigned tax solution, the taxation for leave loading payments is calculated in the QNTAX function itself. Payroll constants are used for specifying the leave loading tax free amount, the minimum number of months for higher duty, payment ceiling and the rounding factor.
B] Leave Loading for EC Payroll Customers using EC Time Off as their leading time management solution
The concepts remaining constant between SAP on – premise or EC Payroll, the system set up will differ in that the way things are split between EC (for the time inputs, request for leave loading etc.) and the backend EC Payroll system.
B.1] Inputs from EC to ECP
Lets see how the system gets bifurcated in terms of the inputs to EC Payroll from EC:
Steps to configure the ECP system for leave loading calculations:
Conclusion
Leave loading is a complex requirement in Australia and this is only a feeble attempt at trying to decode the way in which the configuration can be set up in the system. Legal and compliance requirements are not in scope of this blog post. Values of constants such as tax free threshold, maximum leave loading paid in a year etc. should be confirmed with the legislative manager/ tax experts and configured upon confirmation. SAP does deliver certain pre-configured constants in V_T511K while others may need to be maintained after careful consideration of the labor law.
If you have been working on Australia payroll, either with public sector or private sector clients, one topic that comes up in implementation workshops is the concept of annual leave loading, or as it is commonly called, leave loading.
Earlier, the SAP system configuration for leave loading was done with a view to use the SAP time management module. Things were pretty tightly coupled with time management in terms of the absence quotas (if the leave loading was to be paid basis a fixed date) and the absences being applied (if the leave loading was to be paid basis the absence applied by the employee)
With employee central payroll, the dynamics have shifted considerably on how the solution will be configured to achieve the client objectives. The consulting part still remains unchanged, though. In this short guide, I will describe the consultant and configuration perspectives for building leave loading requirements in the SAP/ EC payroll system. There is a slight difference in the set up for private and public sector companies and shall be discussed accordingly.
A word of caution: This blog post explains how the SAP system configuration is set up to achieve the leave loading requirements of Australian clients. This blog post does not and cannot comment on the legislation or compliance aspects of the client requirements. A legislative manager or a tax practitioner alone can set the tone on those aspects. This is just a configuration/ consultant perspective on how to map client requirements into system design – a collaboration with legislative experts will be indispensable during the workshops and through till the end of the project and ongoing support phase to ensure that the system is compliant as per Australian labor laws. In short, the legal and compliance aspects are not in scope of this blog post.
What is leave loading?
To say in simple terms, leave loading is a bonus payment used to compensate employees for extra pay lost when taking leave (for example, overtime pay). It also contributes towards additional expenses incurred while an employee is on leave (for example, travel costs).
Is annual leave loading a part of ordinary time earnings or not?
That is a million dollar question on the minds of every consultant (and client) when we look at paying annual leave loading payments to employees. The reason it is significant is because this will decide whether the superannuation calculations will include this amount or not. The answer is already available on the ATO website. To make it concise and easy to remember, annual leave loading that is paid to compensate for lost opportunity to work overtime is NOT supposed to be added into ordinary time earnings calculation even though it is true that we add annual leave pay into ordinary time earnings. This requires certain steps to be taken from the client end and can be easily found on the ATO website.
I will describe how to go through a client implementation workshop for gathering leave loading requirements with two approaches in mind: one with SAP on – premise payroll with SAP time management module and the second with EC Payroll in combination with EC time off.
A] Leave Loading for SAP HCM On – Premise Customers using SAP Time Management as their leading time management solution
When tackling the leave loading payment set up in the SAP system, try to understand from the client on how they intend to pay it to their employees. A look at the legacy payout method would be helpful too.
Lead consultant perspective: As a lead consultant I pose certain questions to the client during the implementation workshop, checking to see how I can translate their requirements into system design for my configuration consultant to put into tables in the backend SAP on – premise/ EC Payroll system.
I will also consider whether the client is a on – premise payroll client with SAP time management module being implemented or is it an EC payroll client with EC time off as their leading time management system. The reason I will need to know this detail is because it will influence how the configuration at the backend can be achieved and hence may need some workarounds/ innovative approaches where there may be limitations in standard SAP configuration. It would be wise to include the EC time off/ SAP time management consultant in the workshop with the client to ensure no requirement is lost in translation. Of course, we need to know well before we start, if this is a private or a public sector client.
Configuration consultant perspective: As a configuration consultant working on an Australian payroll client, I will need to have a mapping between the requirements and the SAP system tables and schemas to achieve the client objective.
As a lead consultant, I will ask my client the following questions:
- Does the leave loading payment impact superannuation calculations?
- Which system are we going to use; pay on fixed date using entitlements or pay when employee applies absence?
- In case of entitlements, which date would the payout occur? Anniversary date, end of entitlement validity period, end of calendar year?
- In case of absence in the system, which absences are eligible?
- What wage types are to be configured – separate for each quota type/absence type, normal tax or marginal tax, is it a leave loading lumpsum payout?
When your configurer is asking these questions, what he/she wants to really know is:
- Does the leave loading payment impact superannuation calculations?
Real Question Do the cumulation classes related to superannuation such as 41, 42, 72 & 73 need to be checked or not in table V_512W_D?
- Which system are we going to use; pay on fixed date using entitlements or pay when employee applies absence?
Real Question What option should be selected for the field LLDTY in the table V_T5QLL. If your client chooses to pay by entitlement on a fixed date, then you will need to enable the QLVLL function in the payroll sub schema QLVE embedded inside the subschema QT00. Do not make changes in the standard SAP sub schemas, the best practice would be to copy them into custom namespace and then modify as required. If your client however would pay based on the absences then use the schema as – is. The rule QLLP will calculate the payment using valuation basis and the percentage mentioned in the table V_T5QLL. The rule QLLD will calculate the tax impact if any in the same schema. If this is an advance payment run, the rule used will be QALD instead. Both the rules will refer to the specification in processing class 21, the leave loading constant LVELD, the CRT table for the wage type used for leave loading payment (for checking the total leave loading payout done for the current year) for deriving the tax implications. Your client would need to provide you the requirements.
- In case of entitlements, which date would the payout occur? Anniversary date, end of entitlement validity period, end of calendar year?
Real Question What date should be set for transfer to IT 2006 entitlements in the table V_T559L in SAP Time
- What wage types are to be configured – separate for each quota type/absence type, normal tax or marginal tax, is it a leave loading lumpsum payout?
Real Question What wage types are to be set up – different for each payment. This would be the wage type that would be entered in the field LLWTY in the table V_T5QLL. The next question would be - what would be the option for processing class 21, for each of these wage types in the LLWTY field, based on the type of taxation expected. For e.g. if the leave loading has to be added into /111 above the threshold value of AUD 320 (the leave loading payment through the year which exceeds AUD 320 is subject to tax) then the option ‘L’ is selected. If the payment is to be marginally taxed then the option ‘4’ is selected. Your client would need to provide you the requirements.
- What is the percentage rate of payment and which daily rate would be applicable?
Real Question What would be the value input into the field LLPER in the table V_T5QLL. Set up the valuation basis for the wage types being used for the leave loading payments as per the daily rate to be used i.e. /001, /002 etc. The daily rate calculation for leave loading payments will have to be discussed in advance with the client during the workshop session where rates of payment are designed.
A.1] Leave Loading for SAP HCM On – Premise Customers using SAP Time Management as their leading time management solution – Public Sector Companies
For Australia public sector companies, we need additional information to set up the SAP system. The configurer uses a different node in SPRO to set up the public sector rules for leave loading. This comes under the following branch:
Payroll Australia --> Australia public sector HCM --> Public Sector Payroll --> Leave loading
For public sector companies we need to understand the following details from a client in a workshop:
- What will be the leave loading start and end date – would it be as per state or federal government standards? – This will help fill in details for the fields BDDMM & EDDMM in table V_T5QPBS5A table.
- Will leave loading be done basis the previous year entitlement or the current year entitlement? – This will help configure the field for payment control in the V_ T5QPBS5A table
- In case leave loading payout does not happen in a year, then the client needs to specify how and when this will be paid out i.e. whether this will be paid out in the first pay period of the following year, whether it will be paid out in the last pay period of the current year or will the unpaid leave loading balance be forwarded to the next year – This information will help us in configuring the unpaid leave loading option field in the table V_T5QPBS5A
- Does your client have a minimum criteria for payout of the leave loading? If yes, decide on those criteria – This helps in configuring the field for minimum criteria decision in table V_ T5QPBS5A
- Does your client want a single percentage applied for paying leave loading or would there be a variation on how the leave loading percentage is applied? – This information helps us set up configuration to determine the percentage used for payout. If single level percentage is to be used then the requirement is straightforward and can be configured with specification of the percentage directly in table V_ T5QPBS5A. However, if multiple variations can occur then we will need to understand the dependent quota on which this variation will depend and then configure the dependency and percentage in table V_ T5QPBS5B.
- What wage types will add into the daily rate for the payout? – This information will help to decode which wage types will need to be set for processing class 88.
In case of public sector companies, we will need to use the schema ALL1 with the redesigned tax solution which in turn uses the schema QPS1 which embeds the subschema QPS0 for leave loading calculation.
In the subschema, AUPLD is used to determine the payment method and the payout amount when the criteria is met (mentioned in the table V_T5QPBS5A). When AUPLD is combined with parameter YES, it means that the tax threshold will not be used for payment at the end of the leave loading year.
In the redesigned tax solution, the taxation for leave loading payments is calculated in the QNTAX function itself. Payroll constants are used for specifying the leave loading tax free amount, the minimum number of months for higher duty, payment ceiling and the rounding factor.
B] Leave Loading for EC Payroll Customers using EC Time Off as their leading time management solution
The concepts remaining constant between SAP on – premise or EC Payroll, the system set up will differ in that the way things are split between EC (for the time inputs, request for leave loading etc.) and the backend EC Payroll system.
B.1] Inputs from EC to ECP
Lets see how the system gets bifurcated in terms of the inputs to EC Payroll from EC:
- Assumption: EC is the leading time management solution for your client. The client is a public sector company in Australia.
- Below is a process flow diagram describing the leave loading process from EC to ECP.
Steps to configure the ECP system for leave loading calculations:
- Firstly the business switches for master data replication (HR_SFEC_SFWS_SC_MDEC2HR_01) and time data replication (HR_SFEC_SFWS_SC_TDEC2HR_01) should be turned on.
- When an employee of a public sector company is eligible to receive leave loading payment, they can submit a request through EC for a payout. Alternately, the payment request can also be made by the HR (or) manager depending on the organizational structure in place.
- EC time account types are mapped to ECP wage types in the table T
- Upon data replication, the leave balances from EC are replicated into wage types in IT 0015. How does system know which time balances to replicate into which wage types in IT 0015? Quite simple. The view V_HREC_T5QPBSLL is used to map the quotas to corresponding wage types. SAP provides standard wage types for accrual and entitlement as LAxx and LExx for accrual and entitlement respectively.
- For public sector ECP leave loading calculations, we use a different payroll function in the schema ALL1 which is AUELD.
- This function uses the configuration set up in the view V_T5QPBS5A and the mapping from the view V_HREC_T5QPBSLL to determine the payment.
- Since EC is the time management system, some of the settings in the view V_T5QPBS5A are no longer supported in ECP. For e.g., only State leave loading calculation based on previous year leave entitlement is supported, Unpaid leave loading option is not supported and neither is minimum criteria definition etc.
Conclusion
Leave loading is a complex requirement in Australia and this is only a feeble attempt at trying to decode the way in which the configuration can be set up in the system. Legal and compliance requirements are not in scope of this blog post. Values of constants such as tax free threshold, maximum leave loading paid in a year etc. should be confirmed with the legislative manager/ tax experts and configured upon confirmation. SAP does deliver certain pre-configured constants in V_T511K while others may need to be maintained after careful consideration of the labor law.
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