What does a smart payroll system look like? It has a lot of business knowledge built in to it that users can leverage to get their work done, and to ease the implementation process. Sounds good, but what does that mean in practical terms, and why do we need it? Let's dig into a bit of that.
All About the Details
One of the most difficult and time-consuming tasks of an SAP Payroll project is understanding how the old system calculated, paid and reported payroll and then mapping that over to the new implementation. Why do we have to understand the old system? First of all - no two companies do payroll the same! And then, most times, the old system is where the knowledge is. Over the years, the payroll department has come to trust the legacy payroll system’s coded rules and calculations. And after a while, people forget the details about those rules and calculations. I stopped counting the number of times my configuration question was answered with ‘however the old system does it.’
Once we understand and document those rules and calculations, we need to map them over to the new payroll system. That doesn’t mean we recreate everything exactly in the new system, but we at least have to understand the differences so that testing and change management can be effective. Maybe the old system taxes some wages differently for a certain tax authority, and the new system does it better, or correctly. That’s great! But, we need to understand that difference for our parallel testing process and also to communicate to employees. This is detailed, tedious work that requires a good deal of business knowledge. This sort of work spans the whole process – calculating gross pay, taxes, garnishments, deductions and more. Even reports, compliance and interfaces are impacted (the interface to Accounting is one of the biggest black holes in many projects).
So the problem with SAP’s current payroll that Future Payroll has to solve is that it has to come with comprehensive, easily accessible business knowledge. These days, when we map the old to the new, clients most always ask, ‘Well, how does SAP Payroll do it?’ And that is often not easy to answer, and too often our answer is ‘There isn’t really anything delivered, we need to set it up.’ That gap needs to be closed. Some examples will make it more clear.
Let’s say we are setting up the ‘pretax’ deductions for healthcare in the US. Of course they aren’t really pretax for every type of tax in every tax authority. So the client will ask, how does the standard SAP system treat them for taxes? Getting that answer from the system isn’t so easy. There isn’t good reporting on that, and even when we do provide the information….. is it correct? I’ve had customers question and disagree with SAP’s delivered tax model for the US. After all, the tax model is just an initial delivery and isn’t maintained as things change. So we present the standard SAP configuration, and then we might update it or accept it as-is. But we end up doing that for dozens and dozens of earnings and deductions. Same goes for the eligible wages for different types of garnishments in the various states and other compliance-related items. This is a US example but it happens for every country.
So Future Payroll must have this business knowledge built-in, constantly updated and maintained, easily reportable and backed by SAP for every country (remember, this isn’t just a US issue). Which earnings & deductions are taxable for Cincinnati, OH withholding tax? Which wages are subject to creditor garnishments in California? What is included in the Workers Compensation wage base for Wisconsin? Where does a certain category of deduction appear on the W-2 and 941? And so on and so on, for each supported country. We need to see that business knowledge and have confidence in its quality so that the effort to create it isn’t duplicated for each customer implementation.
Providing this business knowledge in each country would be a big effort from SAP. And I know, SAP payroll is supported in dozens of countries already but as every SAP Payroll consultant will tell you, that support most often doesn’t go all the way. With Future Payroll, it has to go all the way.
Future Payroll also has to allow customers to add their own knowledge. For example, their own rules for wage bases used in pension or bonus programs, overhead charge calculations, deduction calculations and so on.
Now, even with being able to easily access all this business knowledge we still need to assign all the correct attributes to all the new earnings and deductions. We can make that easier, as I’ll describe in my next Future Payroll blog.