Introduction

Managing payroll efficiently is crucial for any enterprise. SAP Payroll offers a robust solution, enabling Canadian enterprises to navigate the complexities of payroll management across all provinces and territories. Integritty brings you a detailed blog which dives into the Canadian payroll management through SAP HCM, focusing on key aspects such as vacation pay and gross-up calculations.

1. Understanding Vacation Pay in Canadian Payroll

The Basics of Vacation Pay

In Canada, employees typically earn a minimum of two weeks of paid vacation after a year of service. For those who don’t utilize their vacation days, the law mandates employers to compensate with vacation pay. This pay is a percentage of the employee’s annual gross wages, which includes:

• Regular wages and commissions
• Performance-based bonuses and gifts
• Room and board allowances
• Overtime and termination pay

However, it excludes tips, non-performance-related bonuses, expense allowances, and employer contributions to benefit plans.

Calculating Vacation Pay in SAP Payroll

SAP Payroll intricately manages this calculation using the payroll function KAVAC in the K000 schema. The calculation is based on the /1VE wage type (Vacationable earnings amount). The accrual of amounts into /1VE depends on the PRCL 67 value, linked to various settings in the IMG (Implementation Guide) under Payroll Canada.

For instance, wage type M003 in IT 0008, depending on its PRCL 67 value, contributes to the /1VE accumulation. These settings allow customization based on provincial laws and company policies. Importantly, when employment ends, the remaining vacation pay must be disbursed within a week.

2. Gross-Up Calculation in SAP Payroll

The Concept of Gross-Up

Gross-up is a payroll process where the employer bears the additional tax burden to ensure the employee receives a specified net amount. This approach is often used for specific payments like bonuses or relocation expenses.

Implementing Gross-Up in SAP

In SAP Payroll, the gross-up amount is inputted in Info type 0015 for a specific wage type, such as M350 or M360 for regular or bonus payments. The system then performs iterative calculations to determine the total payout needed to cover both the net amount and associated taxes (tax, EI, CPP, etc.), as defined in T541A.

The wage type /167 (Guaranteed Net Pay) plays a crucial role here. It represents the net amount an employee is to receive. If the calculated amount falls short, SAP Payroll generates a claim to make up the difference. The configuration also involves specifying the types of deductions and payments to be considered in the gross-up calculation.

Practical Implications

This sophisticated functionality ensures that employees receive the exact net amount intended by the employer. It’s particularly useful in scenarios where additional payments, like bonuses, are made, and the employer wishes to cover the tax implications for the employee.

Integritty and our Canada payroll expertise

Integritty has a vast payroll domain knowledge with the combination of SAP and SuccessFactors ECP expertise. We have been helping Canadian enterprises with their complex payroll enhancements, support and implementations. Get in touch with us to book a non-obligatory workshop/demo meeting.