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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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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

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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
Check method of payment

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

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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 batchesan 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:

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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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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.

2.

In the Pay cycle frequency field, select how frequently a payroll


is run for the cycle.

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.
2.

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

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.
3.

Click Create.

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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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.

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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 workers 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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Field
Include in payment run type

Description
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

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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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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 countrythe 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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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.

2.

In the Main account column, select a main account to post the


earnings to.

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.

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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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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.
3.

In the Amount of multiplier field, enter "1.10".

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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Module 2: Payroll Setup

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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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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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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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 2: Payroll Setup

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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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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Module 2: Payroll Setup

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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