Period End Accrual Provisions Processing Of Payroll Expenses in

Oracle E-Business Suite

A White Paper

October 2011
Contents

Executive Summary ......................................................................................................... 3

Legal / Statutory Requirement ...................................................................................... 3
Business Requirement ..................................................................................................... 4
Future Process .................................................................................................................. 5
Configuration Requirements .......................................................................................... 6
Advantages ..................................................................................................................... 17
Limitations ...................................................................................................................... 18
Conclusion ...................................................................................................................... 18
About Mahindra Satyam’s Oracle Competency ........................................................ 18
 Executive Summary

Employee benefits are all forms of consideration given by an entity in exchange

for service rendered by employees. International Accounting Standards prescribe
the standards for accounting and disclosure for the employee benefits. The
guiding principle is that the cost of providing employee benefits should be
recognized in the period in which the benefit is earned by the employee, rather
than when it is paid. In many organizations, the actuarial provisions for these
benefits are recorded in GL by creating a manual journal for statutory
obligations. The accrual is based on the calculation rules (manual) defined by the
organization for making the payments to the employees. The payments are made
to the employee upon the employee meeting the eligibility criteria. The manual
journal entry by GL team can be based on the assumptions and may not be
accurate.
The proposed solution designed in Oracle Payroll will provide the finance team
authenticated information based on the rules of the organization and ensures
seamless integration between payroll and General Ledger

Legal / Statutory Requirement

As a part of employment benefits and employee benefits, the employers are

bound to bear the expenses at the time of resignation or post the resignation.
These benefits are obligatory based on Law of the land.
International The benefits can be categorized as follows....
Accounting Standard  Short-term employee benefits
(IAS – 19) o Compensated Absence
The objective of this o Profit Sharing or Bonus
Standard is to  Long-term employee benefits
prescribe the o Long Service Leave
accounting and o Profit Sharing, Bonuses and Deferred compensation
disclosure for  Post Employment benefits
employee benefits o Gratuity
provided by an o Pension
employer in exchange o Post Employment Life Insurance
for employee benefits. o Post Employment Medical Care
The International Accounting Standards has made it mandatory to accrue such
expenses in the financial statements submitted by the organizations. The
actuarially determined liability should be taken to the P & L account as a prior
period item.

The Standard requires an entity to recognize:

o A liability when an employee has provided service in exchange for
employee benefits to be paid in the future
o An expense when the entity consumes the economic benefit arising from
service

Business Requirement

To meet such an obligatory requirement, HR defines policies and maintains the

information for each employee w.r.t. each benefit. This information is passed
onto finance team periodically or as and when required to accrue expenses and /
or reverse the provisions.
Provisions Policy Definition and Execution
Policy Definition

Statutory Rules Analyze requirement HR Policy

Policy Approval

Analyze the policy Approve the policy

Policy Execution

Personnel Publish the data Journal Preparation Post and

Data to Finance Reverse
the jornal

This creates a dependency for finance on HR to get the information. The business
requirement is to reduce the dependency of finance on HR to receive an offline
communication to create or reverse the journals for this purpose.
Employee benefits are
Future Process
all forms of
consideration given by This solution automates the accounting process for the provision. This approach

an entity in exchange can be used to automate any such employee benefit. The following process flow

for service rendered explains how gratuity can be accrued after automating the requirement

by Employees. Future Process

Assign “Gratuity

HR
Start Accrual” to
employee

Payroll
Process Cost Break Down Verify the Run Transfer
Verify results Run Costing Summary Report
General Payroll results To GL
Ledger

Run “Program – Import Reconcile the Post the

End
Journals” Journal Journal

ID Process Description Performer

1 Element Entry Gratuity Accrual is an information recurring element HR

which needs to be attached to the employee to
calculate the gratuity expense which will be incurred
by the organization till the payroll period.
2 Payroll Run Run Regular Payroll Run. The element “Gratuity Payroll
Accrual” is processed to give the results of Gratuity
that needs to be provisioned. These results are
captured in the “Pay Value” of the “Gratuity Accrual”
element
3 Verify the The results of the payroll process can be verified by Payroll
results Element Results Listing report to verify the “Gratuity
Accrual” results
4 Costing Run Costing to generate the accounting entries Payroll
5 Cost Break Generate Cost Break down Summary Report for the Payroll
Down date Range or for the run to verify the results of the
Summary payroll
Report
6 Verify the The results of the costing w.r.t. Gratuity Accrual Payroll
Costing Results should be,
Element - Gratuity Accrual
Dr Gratuity Expense
Cr Gratuity Provision

Element - Gratuity Accrual Adjustment

(Positive Adjustment)
Dr Gratuity Expense
Cr Gratuity Provision

Element - Gratuity Accrual Adjustment

 ID Process Description Performer

(Negative Adjustment)
Dr Gratuity Provision
Cr Gratuity Expense

Element - Gratuity Expense

Dr Gratuity Provision
Cr Salary Payable
7 Transfer To GL Run “Transfer To GL” to transfer the results of the Payroll
costing to GL.
8 Import Journal Run “Program – Import Journal” to import the journal GL
9 Reconcile the Verify the Journal imported from Payroll. GL
Journal
10 Post Journal Post the Journal to see that the changes are reflected in GL
financial statements

Configuration Requirements

The solution is designed based on the principle that the information elements
with the input value as “Pay Value” can be costed.

User Defined Balance

The solution requires 2 user defined balances to be created. They are
Gratuity Provision To Maintain the information about the gratuity
provisioned for an employee
Gratuity Paid To maintain the information about the gratuity paid
to an employee

1. Gratuity Provision

Name Gratuity Provision

Reporting Name Gratuity Provision

Units Money

Currency OMR

Use for Remuneration No

Dimensions  Assignment Inception To Date (_ASG_ITD)

 Assignment Run (_ASG_RUN)

2. Gratuity Paid
 Name Gratuity Paid

Reporting Name Gratuity paid

Units Money

Currency OMR

Use for Remuneration No

Dimensions  Assignment Inception To Date (_ASG_ITD)

 Assignment Run (_ASG_RUN)

Elements

Navigation: Global HRMS Manager -> Total Compensation -> Basic -> Element
Description

The following elements need to be created for meeting the requirements.

1. Gratuity Accrual

2. Gratuity Accrual Adjustment

3. Gratuity Expense

The configuration details have been detailed below.

1. Gratuity Accrual

Gratuity Accrual
Name

Gratuity Accrual
Reporting Name

To be attached to an employee for processing the

Description
Gratuity Provisions
Information
Primary Classification

Benefit Classification

Processing
Y
Type: Recurring

N
Type: Nonrecurring

Y
Termination Rule: Actual Termination
 N
Termination Rule: Final Close

N
Multiple Entries Allowed

N
Additional Entry Allowed

N
Closed for Entry

Y
Process in Run

N
Indirect Results

N
Adjustment Only

N
Third Party Payment

500
Priority

Y
Once Each Period

Skip Rule

Currency

Input
OMR

Output
OMR

Input Values

User Database
Name Unit Sequence Required Enterable Item

Pay Value Money 1 N N N

Basis Character 2 Y Y Y

Balance Feeds

Value Name Balance Name Units Add or Subtract

Pay Value Gratuity Provision Money Add

2. Gratuity Accrual Adjustment

Gratuity Accrual Adjustment

Name

Gratuity Accrual Adjustment

Reporting Name

To be attached to an employee when the adjustments

Description
 to the provisions to be made
Information
Primary Classification

Benefit Classification

Processing
N
Type: Recurring

Y
Type: Nonrecurring

N
Termination Rule: Actual Termination

Y
Termination Rule: Final Close

Y
Multiple Entries Allowed

N
Additional Entry Allowed

N
Closed for Entry

Y
Process in Run

N
Indirect Results

N
Adjustment Only

N
Third Party Payment

505
Priority

Y
Once Each Period

Skip Rule

Currency

Input
OMR

Output
OMR

Input Values

User Database
Name Unit Sequence Required Enterable Item

Pay Value Money 1 Y Y N

Balance Feeds

Value Name Balance Name Units Add or Subtract

 Value Name Balance Name Units Add or Subtract

Pay Value Gratuity Provision Money Add

3. Gratuity Expense

Gratuity Expense
Name

Gratuity Expense
Reporting Name

To be attached to an employee while making the

Description
payments to the employee
Earnings
Primary Classification

Benefit Classification

Processing
N
Type: Recurring

Y
Type: Nonrecurring

N
Termination Rule: Actual Termination

Y
Termination Rule: Final Close

N
Multiple Entries Allowed

N
Additional Entry Allowed

N
Closed for Entry

Y
Process in Run

N
Indirect Results

N
Adjustment Only

N
Third Party Payment

1500
Priority

Y
Once Each Period

Skip Rule

Currency

Input
OMR
 Output
OMR

Input Values

User Database
Name Unit Sequence Required Enterable Item

Pay Value Money 1 N N Y

Balance Feeds

Value Name Balance Name Units Add or Subtract

Pay Value Gratuity Expense Money Add

Element Links

Navigation: Global HRMS Manager -> Total Compensation -> Basic -> Link

1. Gratuity Accrual

Gratuity Accrual
Name

Information
Classification

Recurring
Type

Eligibility Criteria
<As per the requirements>
Organization

<As per the requirements>

Group

<As per the requirements>

Job

<As per the requirements>

Position

<As per the requirements>

Grade

<As per the requirements>

Location

<As per the requirements>

Employment Category

<Payroll>
Payroll

Salary Basis

N
Link To All Payrolls

Costing
 Costing
Costable Type

Y
Transfer to GL

10.00.52216.000.00.00
Costing
(Company.Cost Center.Gratuity
Expense.Activity.Inter Company.Future Use)
10.00.21101.000.00.00
Balancing
(Company.Cost Center.Gratuity
Provision.Activity.Inter Company.Future Use)

2. Gratuity Accrual Adjustment

Gratuity Accrual Adjustment

Name

Information
Classification

Non Recurring
Type

Eligibility Criteria
<As per the requirement>
Organization

<As per the requirement>

Group

<As per the requirement>

Job

<As per the requirement>

Position

<As per the requirement>

Grade

<As per the requirement>

Location

<As per the requirement>

Employment Category

<Payroll>
Payroll

Salary Basis

N
Link To All Payrolls

Costing
Costing
Costable Type

Y
Transfer to GL

10.00.52216.000.00.00
Costing
(Company.Cost Center.Gratuity
Expense.Activity.Inter Company.Future Use)
 10.00.21101.000.00.00
Balancing
(Company.Cost Center.Gratuity
Provision.Activity.Inter Company.Future Use)

3. Gratuity Expense

Gratuity Expense
Name

Earnings
Classification

Non Recurring
Type

Eligibility Criteria
<As per the requirement>
Organization

<As per the requirement>

Group

<As per the requirement>

Job

<As per the requirement>

Position

<As per the requirement>

Grade

<As per the requirement>

Location

<As per the requirement>

Employment Category

<Payroll>
Payroll

Salary Basis

N
Link To All Payrolls

Costing
Fixed Costing
Costable Type

Y
Transfer to GL

10.00. 21101.000.00.00
Costing
(Company.Cost Center.Gratuity
Provision.Activity.Inter Company.Future Use)
10.00.22114.000.00.00
Balancing
(Company.Cost Center.Salary Payable.Activity.Inter
Company.Future Use)
Formulae

The elements Gratuity Accrual and Gratuity Expense need to be processed using
the formulae. The formulae developed for this purpose are detailed below...

XXOM_GRATUITY_PROVISION_FF
XXOM_GRATUITY_PROVISION_FF
Name

Oracle Payroll
Type

To Calculate the Gratuity Provision

Description

Y
Verified

/*
Formula
FORMULA NAME: XXOM_GRATUITY_PROVISION_FF
FORMULA TYPE: Oracle Payroll
DESCRIPTION: Calculate the provision to be made to the employees
towards the Gratuity.
--
INPUTS:
- basis (Basic Or Gross)
- Prorate_Start (date)
- Prorate_End (date)
--
DBI Required:
- GRATUITY_PROVISION_ASG_ITD - To get the Gratuity
Provisioned Till Date
- GRATUITY_PROVISION_ASG_RUN - To get the Gratuity
Provisioned During the Run
- ASG_SALARY - To Get the Basic Salary
- EMP_HIRE_DATE - Employee Joining Date
- EMP_TERM_DATE - Employee Termination Date
- PAY_PROC_PERIOD_END_DATE - Pay period Start Date
- ELEMENT_NAME - Element Name to get the message
- ASG_SALARY_BASIS_ANNUALIZATION_FACTOR -
Annualization Factor is to arrive at the Annual Salary
--
Change History
01 Feb 11 durgaprasad_tavva Created
*/
/* Main Body of Formula */

DEFAULT FOR GRATUITY_PROVISION_ASG_ITD is 0

DEFAULT FOR GRATUITY_PROVISION_ASG_RUN is 0
DEFAULT FOR ASG_SALARY IS 0
 DEFAULT FOR EMP_HIRE_DATE is '1950/01/01 00:00:00' (DATE)
DEFAULT FOR EMP_TERM_DATE is '4712/12/31 00:00:00' (DATE)
DEFAULT FOR PAY_PROC_PERIOD_END_DATE is '4712/12/31
00:00:00' (DATE)
DEFAULT FOR ELEMENT_NAME IS 'NO ELEMENT'
DEFAULT FOR ASG_NUMBER IS '0000'
DEFAULT FOR ASG_SALARY_BASIS_ANNUALIZATION_FACTOR
is 0

INPUTS ARE BASIS (TEXT), PRORATE_END (DATE),

PRORATE_START (DATE)

V_GRATUITY_TO_PROVISION = 0
V_SALARY = 0
V_CALC_END_DATE = LEAST(EMP_TERM_DATE,
PAY_PROC_PERIOD_END_DATE, PRORATE_END)
V_TOTAL_DAYS =
DAYS_BETWEEN(V_CALC_END_DATE,EMP_HIRE_DATE) + 1

IF BASIS = 'BASIC' THEN

(
V_SALARY = ASG_SALARY
)
ELSE
(
V_SALARY = OM_GET_GROSS_SALARY(V_CALC_END_DATE, 'Y')
)

V_GRATUITY_TO_PROVISION = V_SALARY *
ASG_SALARY_BASIS_ANNUALIZATION_FACTOR *
V_TOTAL_DAYS / (12 * 365) - (GRATUITY_PROVISION_ASG_ITD -
GRATUITY_PROVISION_ASG_RUN)

V_MESG = ASG_NUMBER || ' - ' || ELEMENT_NAME || ' -

Gratuity Provisioned - ' ||
NUM_TO_CHAR(V_GRATUITY_TO_PROVISION,'999,999,999.999')

RETURN V_GRATUITY_TO_PROVISION, V_MESG

XXOM_GRATUITY_EXPENSE_FF
XXOM_GRATUITY_EXPENSE_FF
Name

Oracle Payroll
Type

To Calculate the Gratuity Expense

Description
 Y
Verified

/*
Formula
FORMULA NAME: XXOM_GRATUITY_EXPENSE_FF
FORMULA TYPE: Oracle Payroll
DESCRIPTION: Calculate the amount to be paid to the employees
towards the Gratuity.
--
INPUTS:
- Pay_Value
--
DBI Required:
- GRATUITY_PROVISION_ASG_ITD - To get the Gratuity
Provisioned Till Date
- GRATUITY_EXPENSE_ASG_ITD - To get the Gratuity Paid
Till Date
- ELEMENT_NAME - Element Name to get the message
--
Change History
01 Feb 11 durgaprasad_tavva Created
*/
/* Main Body of Formula */

DEFAULT FOR GRATUITY_PROVISION_ASG_ITD is 0

DEFAULT FOR GRATUITY_EXPENSE_ASG_ITD is 0
DEFAULT FOR ELEMENT_NAME IS 'NO ELEMENT'
DEFAULT FOR ASG_NUMBER IS '0000'
DEFAULT FOR ASG_SALARY_BASIS_ANNUALIZATION_FACTOR
is 0

INPUTS ARE Pay_Value

PayValue = GRATUITY_PROVISION_ASG_ITD -
GRATUITY_EXPENSE_ASG_ITD

V_MESG = ASG_NUMBER || ' - ' || ELEMENT_NAME || ' -

Gratuity Paid - ' || NUM_TO_CHAR(PayValue,'999,999,999.999')

RETURN PayValue, V_MESG

Formula Result Rules

The elements Gratuity Accrual and Gratuity Expense need to be processed using
the formulae.

Global HRMS Manager -> Total Compensation -> Basic -> Formula Results
1. Gratuity Accrual

Gratuity Accrual
Name

Information
Classification

Gratuity Accrual
Description

Standard
Processing Rule

XXOM_GRATUITY_PROVISION_FF
Formula Name

Formula Results

Input
Valu Message
Name Type Element e Units Severity

V_GRATUITY_T Direct Gratuity Pay Money

O_PROVISION Result Accrual Value
V_MESG Message Information

2. Gratuity Expense

Gratuity Expense
Name

Earnings
Classification

Gratuity Expense
Description

Standard
Processing Rule

XXOM_GRATUITY_EXPENSE_FF
Formula Name

Formula Results

Input
Valu Message
Name Type Element e Units Severity

PAYVALUE Direct Gratuity Pay Money

Result Expense Value
V_MESG Message Information

Advantages

The solution offers the following benefits:

 Automate the accruals to be provisioned towards the statutory expenses
incurred by the organization

 Seamless integration of HR & GL w.r.t employee benefit accrued.

 The costing functionality offers to distribute the costs across the cost centers
based on the movement of the employee between the cost centers and thus
provides accurate data so that there is no impact because of the movement of
employees between the organizations and cost centers.

Limitations

The provisions can’t be calculated post the termination of the employee as the
accrual element designed in the recurring element.

Conclusion

The solution detailed above provides a way to integrate HR, Payroll and General
Ledger modules with minimum user intervention. Also the solution ensures that
the organizations adhere to latest accounting standards.

About Mahindra Satyam’s Oracle Competency

For over 16 years, Mahindra Satyam's Oracle practice has been innovating to add
more business value to global customers by bringing alignment between business
and IT. It is our endeavor to become a globally trusted leader in providing Oracle
enterprise solutions, delivering superior Project, IT and Business Value to
customers.

As an Oracle Platinum Partner, Mahindra Satyam maintains various

specializations in different areas of Oracle competencies to provide value to
customers to differentiate among many other service providers.

Oracle Practice Highlights

 Over 16 years of experience in providing Oracle solutions

 Presence in 45 countries
 Worldwide Platinum Partner of Oracle with 10 specializations and four
Advanced Specializations
 One of the largest and reputed Oracle practices with 3,000+ consultants
 One-stop-shop for most of the Oracle product lines – Oracle E-Business Suite,
PeopleSoft, JD Edwards, Siebel, and other Edge Applications and
Middleware technologies
 1,500+ engagements across the ecosystem with 50+ Fortune Global 1000
customers
 40+ Oracle R12 engagements; 90+ engagements in Oracle Fusion Middleware
technologies
 Oracle Solution Engineering Centers, which are strategic innovation and growth
centers
 Delivery xPress - Our accelerator factory for faster, better and cost-effective
services
 Upgrade xPress for accelerated upgrades Micro vertical focused solutions to
resolve industry-specific pain points
 xPress Solutions – preconfigured solutions for quick results in select verticals
 Focus on Cloud and Mobility services

Oracle Practice Footprint

Since the inception of Oracle practice, Mahindra Satyam has been closely aligned
with Oracle technology roadmap and application strategy. We have built new
competencies for various products/technologies acquired by Oracle. Some of the
competencies already existed in Mahindra Satyam even before those products
were acquired by Oracle.
Author: Durga Prasad Tavva
Durga Prasad is seasoned Oracle eBusiness professional. Durga has over 10 years of IT experience during which,
he has been involved in product development, package development and product implementation of enterprise
applications. At Mahindra Satyam, Durga Prasad has been involved in managing and consulting of Oracle E-
Business Suite of applications with a specific focus on Oracle HRMS.