payroll

MODULE 2: PAYROLL SETUP

Module Overview Issuing payment to a worker requires much preparation before you can print a check. This module examines the general setup that you must perform before you can start maintaining calendars, positions, and workers for Payroll in Microsoft Dynamics® AX 2012.

The information that you set up in this module determines how frequently and at what rate workers are paid. Additionally, you will identify the taxes that both the company and the worker are liable for and how to withhold or pay for them.

This module also briefly reviews the prerequisite features that must be set up in other modules before you can process payroll. Ledger accounts for payroll, accounting distributions, journals, methods of payment for check and direct deposit, and a vendor account must all be set up in the General ledger and Accounts payable modules. Although these features are typically not configured by a Payroll staff member, it is important to recognize that other modules in Microsoft Dynamics AX play key roles in the end-to-end payroll process.

Objectives

The objectives are:

• Review Payroll parameters and the parameters that are shared with the Human Resource Management (HRM) module.

• Create pay cycles to determine when payments are issued to workers.

• Define how frequently benefit deductions, employer contributions, and other earnings are calculated.

• Create and maintain earning codes for all types of earnings that an employer offers to workers.

• Set up tax information for a legal entity and its workers.

• Review the General ledger setup that is required to process payroll.

• Review the Accounts payable setup that is required to process payroll.

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Payroll in Microsoft Dynamics® AX 2012

Setting Up the Module Parameters

Payroll Parameters

Use the Payroll parameters form to customize the module to fit your company's processes. You can define settings that control how your payroll is calculated and generated, specify payment and accounting methods, and set up numbering sequences for Payroll transaction documents. Typically, you set these parameters before you start to process the payroll. You can change the parameters at any time.

Click Payroll > Setup > Parameters > Payroll parameters to open the form. Click a link on the left side of the form to view each area.

Calculation Settings

The calculation settings determine how certain features in a payroll run are processed before a pay statement is submitted for payment.

Field Description

Batch bundle size The number of pay statements or earnings statements that can be grouped and processed together. Typically this field is left at zero and there is no limit on the number of statements that can be grouped.

Accounting date options for earnings

The accounting date to use for earnings. If you choose to summarize earning statement lines when pay statement lines are generated, the accounting date for each earning line is the pay period end date. If you choose not to summarize earning statement lines, then the original date from the earning line is the accounting date. The accounting date for the pay statement earning line is used for the earnings when the pay statement is posted. For benefits and tax lines, the pay period end date is always used.

Payroll clearing account The ledger account that accumulates earnings to be distributed to other liability accounts. You must select an account to post pay statements.

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Module 2: Payroll Setup Field Description

Apply annual retirement wage limit

If this check box is selected, retirement benefits on all retirement plans stop calculating when the worker reaches the annual wage limit.

Recover arrears in all payment run types

If this check box is selected, arrears are recovered in all payment types. If it is cleared, arrears are recovered only on your regular payroll runs and not in special or additional runs.

Arrear threshold If an amount is put in arrears, or if an amount in arrears is recovered, the pay statement is automatically recalculated to make sure that taxes for the pay statement are correct. For example, in some instances, the arrearage amount changes the taxable wage, and the change in taxable wage causes a change in the tax amount. The change in the tax amount then changes the amount that can be taken in arrears, and then this changes the taxable wage. The arrear threshold prevents the calculation of arrears from continuing forever. Iterative arrears calculations are stopped when the threshold amount is reached. The default threshold amount is 1.00 United States dollar (USD). The smallest amount that you can have is 0.01 USD.

Payment Issuance

Payment issuance determines how worker payments are processed through the Accounts payable module. The features that you select in this area of the Payroll parameters form are set up before you set up Payroll for the first time. The Accounts payable setup that supports Payroll is discussed in the "Accounts Payable Setup" lesson later in this module. The following table describes how each field affects processing.

Field Description

Check method of payment The method of payment that is used when pay statements are disbursed to workers as checks.

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Payroll in Microsoft Dynamics® AX 2012 Field Description

Electronic method of payment

The method of payment that is used when pay statements are disbursed to workers as electronic payments.

Vendor account for worker payments

Payments to workers are generated in the Accounts payable module. The payables process requires a vendor account. Therefore, you must create a vendor account to use for worker payments and select the vendor in this field.

Payment journal name The payment journal to use when you submit pay statements for payment. Only journals with the Payroll disbursement journal type are available.

Print employer contributions Select the check box to print employer contributions for taxes and benefits on the pay statements that you issue.

Procurement category The category to use for the vendor invoice lines that are used to pay workers.

Number Sequences

Enter a code in the Number sequence code fields to identify the document number for Payroll documents such as the earnings statement, pay statement, and the vendor invoices that worker payments are issued through. You must also define the sequence code for payroll batches—an identifier for groups of earnings that are generated at the same time. Unique identification numbers are generated with the code as a prefix for the documents that are listed in the Reference field.

Human Resources Shared Parameters

Use the Human resources shared parameters form to define settings that are used for all legal entities. Click the link on the left-side of the form to view each area. Click Payroll > Setup > Parameters > Human resources shared parameters to open the form.

The description of the areas located on this form include the following:

• Identification: You can select the identification types that represent the identification numbers that are assigned to workers. This includes worker Social Security Numbers (SSN) and other federal forms of identification.

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Module 2: Payroll Setup • Number sequences: You can set up the codes for numbering

sequences for Human Resources documents. If you do not use the Human resources module, you must set up at least the Personnel number and Position number sequences.

• Payroll: Displays the most recent Payroll tax version information that is installed for Microsoft Dynamics AX. Click the Update tax data link to load the currently installed tax data so that it is used for tax calculations.

• Positions: Contains the Available for assignment field. By default, this field determines whether workers can be immediately assigned to newly created positions. If you select the Never option, you must manually set the date that a new position is available for assignment. If the Always option is selected, the position is available on the date the position is created.

Pay Cycles and Pay Periods Pay cycles determine how frequently a payroll is run and the days that workers are paid. For each pay cycle that you create, you must generate the pay periods that make up the cycle and then specify the payment date for each period.

You can create pay cycles with the following frequencies:

• Daily

• Weekly

• Biweekly

• Semimonthly

• Monthly

• Quarterly

• Semiannually

• Annually

Pay cycles are assigned to positions to determine when workers in those positions are paid. Your company can use different pay cycles for different groups of positions. Because there are many options, you can set up pay cycles almost any way that you want. For example, you can select to pay all salary workers two times a month on the last day of each pay period, and pay hourly workers weekly on the Wednesday following the end of the pay period. Another option is that all workers are assigned to bimonthly pay cycles. However, workers in one department are paid on the last day of the pay period whereas another department is paid on the following Monday.

Pay cycles are also assigned to payroll calculation frequencies to determine when benefits and recurring earnings are processed.

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Payroll in Microsoft Dynamics® AX 2012 Pay Cycles and Pay Periods Form

Use the Pay cycles and pay periods form to create pay cycles and to generate pay periods for the cycles. You can also maintain existing pay cycles and default payment dates.

Click Payroll > Setup > Pay cycles and pay periods to open the form.

Working With Pay Periods

The grid area displays the pay periods that are generated for the pay cycle. The Default payment date column displays the date when worker payments are scheduled for a pay period.

Click Generate to open the Enter pay period details dialog box and to generate pay periods for the pay cycle. The dialog box differs, depending on whether you are creating a new pay cycle or updating an existing pay cycle. Additional information for generating and, or updating pay cycles includes the following:

• When you generate pay periods for new pay cycles, you specify the number of periods to generate, the first date of the first pay period, and the first default payment date. The pay period process uses this information to generate the pay periods.

• If you update an existing pay cycle, you can add more pay periods to the cycle and set the default payment date for the periods that you add. The start date for the first additional pay period is the first calendar day after the last existing pay period. Pay periods are not automatically generated for future years. Therefore, you must periodically maintain the pay cycles.

You can also use the grid area on the Pay cycles and pay periods form to change the payment dates for each pay period and to review open and closed pay periods. Use the Status filter field to view open pay periods, all pay periods, or closed pay periods. When you open the form, only open pay periods are shown. Pay statements cannot be generated or submitted for payment when the statement is for a closed pay period.

Changing Payment Dates

The Default payment date column displays the date when worker payments are scheduled to be issued. After you generate pay periods for the pay cycle, you can change these payment dates so that payments are not scheduled on holidays, weekends, or any day when issuing payments is not possible. You can also change the payment date on the pay statement before you submit it for payment.

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Module 2: Payroll Setup Demonstration: Creating a Pay Cycle

This demonstration shows how to create a pay cycle record and how to generate pay periods and payment dates for the cycle.

Demonstration Steps

1. Create the pay cycle record. a. Click Payroll > Setup > Pay cycles and pay periods. b. Click New. c. In the Pay cycle field, enter a name for the pay cycle. For

example, enter "Weekly" for a cycle that includes week-long pay periods.

d. In the Description field, enter a description for the pay cycle. e. In the Pay cycle frequency field, select how frequently a payroll

is run for the cycle.

2. Generate pay periods and define payment dates for the cycle. a. Click Generate. b. In the Number of periods field, enter the number of pay periods

to create for the cycle. For example, if you are creating a quarterly pay cycle and select to generate 24 pay periods, the process will generate six years of pay periods.

c. In the pay period grid area, select a pay period that must have its payment date changed.

d. Enter a new date in the Default payment date column.

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Lab A: Create a Monthly Pay Cycle Scenario

Mia, the Payroll Administrator at Contoso Entertainment System USA, must create a new monthly pay cycle for one of Contoso's new office locations. The new office opens January 1, 2013. She must generate pay periods for the whole year. The payment dates for this pay cycle are on the first day of the following month. Mia realizes that some pay dates will occur on weekends. Mia must change each weekend payment date to the previous Friday. The 6/1/2013 and 9/1/2013 default payment dates occur on a weekend.

Lab Setup

When you first open Microsoft Dynamics AX, an error message may display stating that the server is unavailable. This occurs when the Microsoft Dynamics AX service could not be started by the virtual machine. To start the service, follow these steps.

1. Click Start > All programs > Accessories > Command Prompt. 2. Enter "net start AOS60$01" and press Enter. It can take more than a

minute for the service to start. 3. After the service starts, close the Command Prompt.

High Level Steps 1. Create a new monthly pay cycle. 2. Generate pay periods for the year. 3. Change the default payment dates that occur on a weekend to the

previous Friday.

Detailed Steps 1. Create a new monthly pay cycle.

a. Click Payroll > Setup > Pay cycles and pay periods. b. Click New. c. In the Pay cycle field, enter "Monthly". d. In the Description field, enter "Monthly - First day of following

month." e. In the Pay cycle frequency field, select Monthly from the list.

2. Generate pay periods for the year.

a. Click Generate. b. In the Number of periods field, enter "12".

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Module 2: Payroll Setup c. In the First period start date field, enter "1/1/2013". d. In the First payment date field, enter "2/1/2013". e. Click Create.

3. Change the default payment dates that occur on a weekend to the

previous Friday. a. In the grid area, find the row with the 6/1/2013 default payment

date. b. Click in the Default payment date column for the 6/1/2013

date. c. Click the Calendar button and select 5/31/2013. d. In the grid area, find the row with the 9/1/2013 default payment

date. e. Click in the Default payment date column for the 9/1/2013

date. f. Click the Calendar button and select 8/30/2013. g. Click Close.

Calculation Frequencies Payroll calculation frequencies differ from pay cycles because they determine when benefit contributions, deductions, and other recurring earnings for a worker are processed. Frequently these payroll elements are not processed every pay period like a worker payment. Calculation frequencies schedule when these amounts are calculated.

For example, you can pay a car allowance on the first pay period of every month, or process a term life insurance benefit on the last pay period of every quarter. Other common calculation frequencies include the first pay period of the year, yearly on a specific date, and alternating pay periods.

You create the calculation frequency and assign the pay periods to it. After you have created the frequency you assign the frequency to benefits and earning codes for workers' position assignments.

If you do not assign calculation frequencies to earning codes, deductions, and contributions, they are processed in every pay period for a pay cycle.

Payroll Calculation Frequencies Form

Use the Payroll calculation frequencies form to set up custom frequencies for benefits, deductions, and some earnings types. The frequencies determine the pay periods that the calculations occur in. Click Payroll > Setup > Payroll calculation frequencies to open the form.

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Payroll in Microsoft Dynamics® AX 2012 If you do not set up payroll calculation frequencies, all earnings, contributions, and deductions are processed every pay period. You can create custom frequencies to fit your company's preferred process.

Selecting Pay Periods for the Calculation Frequency

You must identify the pay periods in a pay cycle that the calculation occurs in. Typically, you identify the pay periods in each pay cycle that your organization uses. For example, you might have positions with a weekly pay cycle and positions with a semimonthly pay cycle. If your organization offers a car allowance that should always be processed in the first pay period of the month, you must define that pay period for each pay cycle that is assigned to workers in the organization.

Use the Pay cycle field to work with and view the different pay periods that make up the frequency. The pay periods in the grid area display the pay periods when the calculation is scheduled to occur for the selected pay cycle. To add pay periods from the selected pay cycle to a calculation frequency, click Add. A dialog box appears so that you can select multiple pay periods at the same time. To remove a pay period, select the pay period in the grid area, and then click Remove.

The Status filter field determines whether only open, closed, or all pay periods are displayed.

Demonstration: Create Payroll Calculation Frequencies

This demonstration shows how to create a new payroll calculation frequency and how to specify the pay periods that the calculations occur in.

Demonstration Steps

1. Create a new calculation frequency record. a. Click Payroll > Setup > Payroll calculation frequencies. b. Click New. c. Enter a name for the frequency in the Frequency field. d. Enter a short description for the frequency in the Description

field. e. In the Pay cycle field, select the pay cycle to associate the

frequency with.

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Module 2: Payroll Setup 2. Add pay periods to the calculation frequency.

a. Click Add. b. On the Select pay period dialog box, select the pay periods from

the selected pay cycle to add to the calculation frequency. For example, if you are creating a calculation frequency for the first pay period of each month, select the check box to the left of the first pay period that ends in each month.

c. After you have selected all the pay periods for the calculation frequency, click Add to insert the pay periods into the calculation frequency.

d. Repeat steps 2a through 2c to add pay periods to other pay cycles that your company uses. For example, if your company uses both weekly and semimonthly pay cycles, and you are creating a calculation frequency for the first pay period of each month, you must select the first pay period for each month in each pay cycle.

e. Click Close to close the form.

Earning Codes Earnings are the base employer expense that is paid to the worker. Earning codes define the rules and calculation methods for a worker’s earnings, and they also determine the taxation and reporting rules that apply to worker earnings.

You must create a unique earning code for each type of earning that your company offers. In addition to base salary and hourly earning codes, you will create earning codes for overtime, vacation, sick leave, bonuses, and worker allowances. You can also create gross up earning codes to gross up taxes and to make sure that workers are paid a specific, additional amount, frequently for bonuses or reimbursements.

Together with fixed compensation plans and schedules, earning codes are one element of the process that calculates a worker's wages when you generate earnings.

Earning Codes Form

Use the Earning codes form to define the elements that determine a worker's pay and taxation. Earning codes also control how the earnings are recognized as expenses in your company's general ledger.

Click Payroll > Setup > Earning codes to open the form.

After they are set up, earning codes are assigned to workers. When you process a payroll, the earning codes are used to calculate a worker's earnings for that pay period.

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Payroll in Microsoft Dynamics® AX 2012 Field Description

Include in payment run type Select the payment run that will include this earning code. Select Primary to indicate that the code is used in regular payroll processing. Additional payment run types are for special payrolls, such as bonuses and awards. Gross up and Automatic payment run types work together to process a specific earning amount and an additional gross up amount.

Base earnings component Select this check box if the earning code should be considered when calculating the base wage for a worker.

Rate basis Select the rate at which the earnings are calculated. For example, select Hourly for hourly earnings. If you are creating an earning with an amount that is paid over a period of time, select Pay period, Monthly, or Annual. Select Flat amount for one-time earnings.

Unit of measure Select Hours for all earnings which pay out based on time or salary. Select Each for all earnings which pay out based on dollars only such as a bonus, fringe benefit, etc. Select Pieces for earnings which payout based on the number of pieces processed.

Productive Select this check box if the earning code represents the worker's worked hours.

Tax method Select the type of earnings generated by this earning code to determine the tax calculation rates. Supplemental wages are typically compensation that is paid to a worker in addition to his or her regular wage.

Fringe benefit type Select Standard or Group term life from the list for the benefits that a worker is taxed on even though he or she does not receive an additional amount in his or her pay.

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Module 2: Payroll Setup Field Description

Amount of multiplier For calculated earnings, enter a multiplier to apply to the earnings. For flat amounts (Rate basis=Flat amount), enter the earning amount.

Gross up earning code Select the earning code to process as the additional gross up earning. This field is available only for the earning codes where the Include in payment run type field is set to Gross up.

Base definition Select the base earnings to use when you calculate the benefit amounts that are based on a worker's regular pay. For example, if overtime pay is 1.5 times the regular hourly wage, select Time and a half to calculate the benefit amounts at the time and a half rate.

Best Practice: Select the Primary and additional option in the Payment run type field when you create the earning codes that are usually used only in primary payment runs. If you select Primary and additional, you can use the earning code multiple times in one pay period.

Accounting for Earnings

Use the Accounting FastTab on the Earning codes form, to define how to record the expense in the general ledger. If the expenses related to the earning code are related to a project, you can specify a project category for the code that identifies how the earning amount should be reported in the project.

Use the Posting rules grid area to specify the main account that the earnings post to. Use the Legal entity field to select the company that you want to set accounting criteria for. The selected legal entity determines the chart of accounts that is available in the Posting rules fields. By doing this, you can set different main accounts for the different legal entities that will use the earning code.

Click Add to insert a new grid row. If the earnings for different departments, jobs, or workers must post to different main accounts, enter the account in the Main account column and select the department, job, or worker that the rule applies to. Leave the Department, Job, and Worker fields blank to post all earnings that are generated from an earning code to the same main account.

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Payroll in Microsoft Dynamics® AX 2012 Reporting W-2 Information for Earnings

Use the Reporting FastTab to associate earning codes with box numbers on W-2 forms. The W-2 form is used to report wages and any withheld taxes for workers to the United States Internal Revenue Service (IRS). There is only one option available for the reporting country—the United States.

After you have processed payroll, you can use the Form W-2 report to print W-2 forms and the Form W-2 electronic report to generate an electronic file for submission to the IRS.

Maintaining Earning Code Versions

Occasionally, you must update the earning codes to increase the amounts of bonuses or wages and to change reporting information. Although the changes that you can make to an earning code are limited to the rate basis, amount or multiplier, and reporting codes, you can use the Maintain versions form to define when these changes take effect and when old versions expire. Certain elements of an earning code, such as the payment run that the code is used in, and the taxing method cannot be set to change sometime in the future.

The Maintain versions button, form, and record filter are used throughout Microsoft Dynamics AX. After you are familiar with setting effective dates for new versions of a record, you can maintain several versions for many types of records in the Payroll module and throughout Microsoft Dynamics AX.

The Maintain versions button and record filter are available on many forms throughout Microsoft Dynamics AX.

Creating New Earning Code Versions

On the Earning codes form, select the earning code to update and then click Maintain versions to open the Maintain earning code versions form. Use the Rates tab to update the earning rate or the flat amount and the Reporting tab to update W-2 reporting information for the earnings. When you update the rate or reporting information, you set the date that the change will take effect. You can choose to start using the new earning code version immediately or select a date in the future. When you finish entering the new rate or reporting information, the earlier version is set to expire before the new version takes effect.

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Module 2: Payroll Setup Reviewing Older Versions

Click the Current record filter on the Earning codes form to display the state of all records at a date that you specify. Enter the date, and then click Apply. The form displays all earning codes for that date.

Demonstration: Enter a Regular Hourly Earning Code

This demonstration shows how to create an earning code that will be used as the base earning code for hourly workers.

Demonstration Steps

1. Create the earning code record. a. Click Payroll > Setup > Earning codes. b. Click New. c. In the Earning code field, enter a name for the code. For

example, enter "base". d. In the Description field, enter a description of the code. For

example enter "Regular base earnings".

2. Define how earnings and taxes are calculated. a. In the Include in payment run type field, select Primary and

additional. b. In the Tax method field, select Regular to tax the earnings at the

standard rate. c. Select the Base earnings component check box to include the

earning code in the worker base pay calculation. d. In the Rate basis field, select Hourly as the rate to use to

calculate earnings. e. In the Unit of measure field, select Hours. f. In the Amount or multiplier field, enter "1". g. In the Base definition field, select Base time.

3. Enter accounting and reporting information.

a. In the Legal entity field, select the company to define accounting information for.

b. Click Add to insert a new row in the table. c. In the Main account column, select the default main account to

post earnings to. For example, regular earnings will typically post to the Salaries – Wages Expense account.

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Payroll in Microsoft Dynamics® AX 2012 d. Repeat steps 3a through 3c for each legal entity that will use the

earning code. e. Specify where on the W-2 report to report earnings from this

code in the Reporting FastTab.

Demonstration: Create a Gross Up Earning Code

This demonstration shows how to create a bonus earning code and how to create a gross up earning code to gross up the taxes for the bonus earnings.

When you create the earning codes to pay a worker a specific amount after taxes, two earning codes are required. You create a main earning code for the earnings, for example, a bonus or relocation reimbursement. You also create a secondary earning code to pay the taxes that originate from the main earning code, frequently known as a gross up. The main code references the secondary code. Therefore, the secondary code must be created first.

Demonstration Steps

1. Create the secondary gross up earning code. a. Click Payroll > Setup > Earning codes. b. Click New. c. In the Earning code field, enter "Bonus gross up". d. In the Description field, enter a description of the code. e. In the Include in payment run type field, select Automatic. f. Click OK to update the tax method, base earnings, and quantity

unit. g. In the Accounting FastTab, click Add to insert a new grid row. h. In the Main account column, select a main account to post the

earnings to.

2. Create the main earning code. a. On the Earning codes form, click New. b. In the Earning code field, enter "Performance bonus". c. In the Description field, enter a description of the code. d. In the Include in payment run type field, select Gross up. e. Click OK to update the tax method, base earnings, and quantity

unit. f. In the Gross up earning code field, select the Bonus gross up

earning code that you set up earlier. g. In the Accounting FastTab, click Add to insert a new grid row. h. In the Main account column, select a main account to post the

earnings to. i. Click Close.

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Module 2: Payroll Setup

Lab B: Maintain Earning Codes Scenario

Mia, the payroll administrator at Contoso Entertainment System USA, is notified that the company car allowance will be increased by five percent starting in 2014. Additionally, in 2014 a new late shift earning code will be used for warehouse workers. Mia must update the car allowance earning code for 2014 by creating a new version of the earning code. She must also create a new earning code for the late shift workers who will earn slightly more for each hour than the day shift workers assigned to the same position.

Exercise 1: Increase the Car Allowance Amount in 2014 Exercise Scenario

Mia must create a new version of the car allowance earning code that will take effect on January 1, 2014. The new version will increase the amount by five percent. The currency that is used is the United States dollar (USD) and the current rate is 100.00 USD. The new rate is 105.00 USD.

High Level Steps 1. Open the earning codes for car allowances. 2. Create a new version of the earning code.

Detailed Steps 1. Open the earning codes for car allowances.

a. Click Payroll > Setup > Earning codes. b. Select the Car allowance earning code from the list on the left

side of the form.

2. Create a new version of the earning code. a. Click Maintain versions. b. On the Rates tab, click Add. c. In the Effective field, enter "1/1/2014". d. In the Amount or multiplier field, enter "105.00". e. Click Close. f. Click Yes.

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Payroll in Microsoft Dynamics® AX 2012 Exercise 2: Create a Late Shift Earning Code Exercise Scenario

Mia must create an earning code for workers that are assigned to the late shift so that they earn an additional amount for each hour that is greater than the standard rate for their position assignment.

• The earning code should be processed in Primary and Additional payment runs.

• Earnings from the code are subject to Regular tax rates.

• Workers that are assigned this code earn an additional 1.10 USD for each hour that they work.

• All expenses for late shift earnings must post to main account 602100.

High Level Steps 1. Create a new "Late shift" earning code record. 2. Enter the rate and tax information. 3. Specify the main accounts to post expenses to.

Detailed Steps 1. Create a new "Late shift" earning code record.

a. Click Payroll > Setup > Earning codes. b. Click New. c. In the Earning code field, enter "Late shift". d. In the Description field, enter "Late shift".

2. Enter the rate and tax information.

a. In the Include in the payment run type field, select Primary and Additional.

b. In the Rate basis field, select Flat amount. c. In the Unit of measure field, select Hours. d. In the Tax method field, select Regular. e. In the Amount of multiplier field, enter "1.10".

3. Specify the main accounts to post expenses to.

a. In the Accounting FastTab, in the Legal entity field, select USMF.

b. In the Posting rules grid area, click Add. c. In the Main account column, select 602100. d. Click Close.

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Tax Setup In Microsoft Dynamics AX, in the Payroll taxes area, you must first identify the states where you have operating units and the rates for unemployment taxes. Later you must set up tax-related information for workers to calculate the taxes for which each worker is responsible. This module discusses the tax setup that is used throughout the organization. For more information about how to define worker-specific tax criteria, refer to the "Worker Setup" module later in this course.

Identify Employer Tax Regions

An important factor in determining whether a legal entity must pay taxes in a state is whether the legal entity has a significant business presence, in the state. In Microsoft Dynamics AX, each state or territory that has a legal entity with a significant business presence is defined as an employer tax region. You identify the states and territories where your company has a business presence by using the Employer tax regions form.

Click Payroll > Setup > Taxes > Employer tax regions to open the form.

Every legal entity must have at least one employer tax region. Legal entities that have a significant business presence in more than one state have multiple employer tax regions. These employer tax regions are used with multiple-state taxation and reciprocity rules to determine when and where you should withhold and pay taxes.

On the Employer tax regions form, select the Active check box for each state or territory where your company has a significant business presence.

Define Worker Tax Regions

Tax regions identify the cities where your workers can work and where they claim residency for payroll tax deductions. You must set up these regions before you start to process payments for workers. Tax regions determine the set of taxes that are considered when earnings are generated for workers.

Use the Tax regions form to define worker tax regions. Click Payroll > Setup > Taxes > Tax regions to open the form.

Before you start, it is helpful to determine the county, state, and ZIP Code/Postal Code for each city that you will identify as a tax region. When you enter a tax region, if this region is considered as more than one tax region, you will receive a message that asks you to define and select the specific tax region.

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Payroll in Microsoft Dynamics® AX 2012 Demonstration: Set Up a Tax Region

This demonstration shows how to create a new tax region for workers.

It is helpful to determine the county, state, and ZIP Code/Postal Code for each city that you identify as a tax region before you enter the tax region record.

Demonstration Steps

1. Enter a new tax region. a. Click Payroll > Setup > Taxes > Tax regions. b. Click New. c. In the Name or description field, enter a name to identify the

tax region. For example, enter "UT – Salt Lake". d. In the ZIP/postal code field, enter the ZIP Code/Postal Code for

the tax region. For example, enter "84101". e. Click OK to save the tax region.

Set Up Tax Codes

You do not have to create tax codes. Microsoft Dynamics AX provides the codes for all payroll taxes. However, you must specify how your organization uses each tax code. You do this by entering information such as your organization's account ID with the taxing authority, taxing rate, and the wage base if it is necessary. Additionally, you must enter the reporting requirements for each tax code for W-2 forms. You must also define how to post the tax withholdings to the general ledger and the vendor account for the agency that the tax is paid to. You must enter this information for each legal entity to which a tax code applies.

The tax codes are automatically assigned to workers based on the tax regions they work in, their position, and the legal entity that is responsible for their payment.

Maintaining Tax Code Versions

You can maintain versions of the information that you enter for each tax code by clicking Maintain versions and entering a new version to take effect on the date that you specify. You can update your account number for the taxing authority, tax rate, wage base, and the reporting requirements for each legal entity the tax code applies to. This helps when you know in advance that the tax rate will increase on a specific date, and you want to make sure that workers are taxed at the correct rate when the rate change takes effect.

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Module 2: Payroll Setup Demonstration: Configure a Tax Code

This demonstration shows how to enter company-specific information for a tax code.

Demonstration Steps

1. Enter tax code details. a. Click Payroll > Setup > Taxes > Tax codes. b. Select the tax code to update from the list of tax codes on the left

side of the Tax codes form. c. In the Tax code details FastTab, in the General tab, enter

information about the legal entity and the taxing criteria. i. In the Legal entity field, select the legal entity that you

are entering information for. ii. In the Report description field, optionally enter a

description of the tax. The description you enter is used on pay statements and other reports instead of the default tax description. Leave this field blank to use the default tax description.

iii. In the Wage base field, enter the earnings value to use as the basis for calculating taxes. Some tax authorities do not require a wage base.

iv. In the Rate field, enter the rate the legal entity pays. For example, if the taxing rate is 1.8 percent, enter "0.018".

2. Enter accounting and vendor information. a. In the Tax code details FastTab, in the Accounting tab, define

the tax authority's vendor account and the rules for posting the tax withholdings to the general ledger.

i. In the Vendor field, enter the vendor account for the agency that the tax is paid to. Leave the Vendor field blank to manually create tax payment invoices.

ii. In the Project category field, enter the category to post tax amounts to in a project. If the tax code will never be used for transactions that are posted to a project, leave the field blank.

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Payroll in Microsoft Dynamics® AX 2012 iii. In the Default financial dimensions group, enter the

default financial dimensions to use for the main account when you post the transaction.

iv. In the Main account field, enter the main account that this tax should post to. For employer taxes, enter the main account where employer tax expenses are posted to. For worker taxes, enter the main account where the tax withholding liability is posted to.

3. Repeat steps 1c and 2a for each legal entity that the tax code applies to.

General Ledger Setup Many standard general ledger features that support Payroll in Microsoft Dynamics AX are already set up before the Payroll module is set up. These include ledger accounts, accounting distributions, the payroll journal, and the rules for posting accounting entries to the general ledger.

Setting Up a Payroll Journal

A journal consists of debit and credit transactions. For payroll processing, the journal contains transactions for the pay statement that is generated during payroll processing. Some modules use journals to create and work with entries before the entries are posted. For the Payroll module, a special Payroll disbursement journal type is used.

Journals are set up by using the Journal names form in the General ledger module. Click General ledger > Setup > Journals > Journal names to open the form. A Payroll disbursement journal type requires you to enter a bank account for the offset account. The bank account is the account the payments are issued from.

After the journal is set up, an administrator enters the journal in the Payment journal name field on the Payroll parameters form, in the Payment issuance page.

Setting Up a Batch Transfer Rule for Payroll

Batch transfer rules determine how accounting entries on a document post to the general ledger. For Payroll processing, the pay statement contains the entries that post. Use the General ledger parameters form, and the Batch transfer rules page to define the rules for posting pay statements.

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Module 2: Payroll Setup Click General ledger > Setup >General ledger parameters to open the form.

When pay statements are posted to the general ledger, they can be posted in either summary or detail. If you select to summarize the entries, then the pay statement lines with the same dates, currency, and ledger accounts are combined into a single accounting entry.

The payroll batch transfer rule also determines whether the pay statement lines are transferred immediately to the general ledger. Asynchronous transfers can take some time to transfer, whereas synchronous transfers occur immediately on posting. If you select to post immediately, you cannot summarize payroll accounting entries.

About Posting Definitions

A posting definition consists of rules that are defined to generate balanced ledger entries, accounts and, or dimensions that are system-generated. You can apply the rules to account numbers and financial dimensions on an accounting distribution on the source document line, such as a pay statement. To use the Payroll module in Microsoft Dynamics AX, a payroll posting definition must be defined. A posting definition is created on the Posting definitions form and is made up of match criteria and generated entries.

When a match exists between the accounts that are entered in the match criteria and the accounts or dimension values that are entered in the transaction, ledger entries are generated based on the generated entries that are specified on the posting definition.

Note: An originating entry is a collection of transaction line properties. These properties include the combination of main account and financial dimensions and the transaction date. A system-generated entry is also a collection of properties. The system-generated entry depends on the posting definition that you set up.

Your company's accounting or finance manager sets up the posting definitions for payroll expenses. The rules set up in the posting definition create the balancing entries for the payroll-related originating entries that are created when a pay statement is posted to the general ledger.

Accounts Payable Setup The Accounts payable module issues payments to workers, either by check or direct deposit. When you process a pay statement, vendor invoices are created in Accounts payable. Then, the invoice is processed and paid based on the preferred method of payment for the worker.

Vendor invoices require both a vendor account to represent the party being paid and a procurement category to describe the payment line items.

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Payroll in Microsoft Dynamics® AX 2012 Disbursement Account and Payment Procurement Category

Vendor invoices are created and paid through the Accounts payable module to pay workers' wages. Vendor invoices require a vendor account. Therefore, you must create and assign a vendor account to use on the invoices that you generate during payroll processing. You do not have to create a vendor account for each worker. One vendor account is used to process all payments.

You create the vendor account by using the Vendors form. This form only requires that the account have a name, account number, and group. Typically, a name such as "Payroll vendor" is used to identify the account so that it is not unintentionally used by nonpayroll or Human resources users.

Specify the Payroll Vendor Account and the Procurement Category

Use the Payroll parameters form to identify the vendor account and the procurement category to use for the payments your company issues to workers.

Click Payroll > Setup > Parameters > Payroll parameters to open the form. Click the Payment issuance link to identify the Accounts payable features that are required by the Payroll module.

After the vendor is created, the account is identified as the vendor account for payments by entering it in the Vendor account for work payments field on Payment issuance page.

Vendor invoices also require a code to describe each line item. The descriptive code is the procurement category and you can specify the code to use for worker payments in the Procurement category field. Typically, the Payroll category is used.

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Module Review When you first prepare to process payroll, you must set up the earning code, pay cycles, taxes, and the calculation frequencies for your organization. Setting up this information helps make sure that workers are paid the appropriate rate and that the appropriate tax amounts are recognized before payments are issued.

Additionally, you used the Maintain versions form to enter date-effective changes for a record.

Test Your Knowledge

Test your knowledge with the following questions.

1. You must create earning codes for which of the following earning types?

( ) Salary and hourly wages

( ) Vacation

( ) Bonuses

( ) Allowances

( ) All the options that are listed.

2. You cannot change a pay period's payment date after it is set on the Pay cycles and pay periods form.

( ) True

( ) False

3. One earning code can be used by multiple legal entities.

( ) True

( ) False

4. You must create a tax code for each possible payroll tax.

( ) True

( ) False

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Payroll in Microsoft Dynamics® AX 2012 5. Which of the following is the best way to change the earning code, if the rate

on the earning code will change in the future?

( ) Delete the current earning code and create a new one when the rate change takes effect.

( ) Create a new earning code to make up the difference between the current rate and the future rate.

( ) Use the Maintain versions feature to set the current rate to expire and the new rate to take effect on a specific date.

( ) None of the options that are listed.

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Test Your Knowledge Solutions

Module Review and Takeaways

1. You must create earning codes for which of the following earning types?

( ) Salary and hourly wages

( ) Vacation

( ) Bonuses

( ) Allowances

(√) All the options that are listed.

2. You cannot change a pay period's payment date after it is set on the Pay cycles and pay periods form.

( ) True

(√) False

3. One earning code can be used by multiple legal entities.

(√) True

( ) False

4. You must create a tax code for each possible payroll tax.

( ) True

(√) False

5. Which of the following is the best way to change the earning code, if the rate on the earning code will change in the future?

( ) Delete the current earning code and create a new one when the rate change takes effect.

( ) Create a new earning code to make up the difference between the current rate and the future rate.

(√) Use the Maintain versions feature to set the current rate to expire and the new rate to take effect on a specific date.

( ) None of the options that are listed.

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payroll

Documents

review payroll parameters

payroll run

payroll setup module

endtoend payroll process

payroll transaction

payroll staff member

pay statement

accounting date options