How to Configure US Payroll and Salary Structure with OpenHRMS

Payroll is the total recompensation that a firm must pay back to its employees for their work and services. Companies can follow different payment methods such as daily pay, weekly pay, bi-weekly pay, or monthly pay based on the firm's business payroll policy. The HR responsible must be cautious about the payroll activities and should have a solid understanding of how it wants to be processed to keep regulations appropriately. Every company has an accounting department to handle the payroll processes. Manually managing all these complex operations will result in complexities.

The rich features and the adaptability of the OpenHRMS label the platform as an ample platform, and the system is a perfect solution for handling Payroll and HR-related operations. By associating the HR functions of the company with the financial systems, the OpenHRMS Payroll module allows businesses to reduce unwanted costs and helps to increase operational efficiency.

Processing Payroll is all about compensating employees for their work. A payroll encompasses the processes such as computing total wage earnings, withholding deductions, filing payroll taxes, and delivering payment. Manual handling of these complicated tasks will create inaccuracies and confusion. If an automated process like the OpenHRMS Payroll module is implemented, the processes will be accurate and efficient. And also, the system will help you to comply with various payroll regulations.

The most difficult part of a business operation in every country is its payroll management. There are different criteria for employee benefits in each country. So there is a lot to manage, such as employee salary details, bonuses, deductions, salary promotions, incentives, net pay, etc.

The OpenHRMS Payroll system simplifies payroll tax calculations for the US countries with all the advanced payroll features such as payroll automation, project-based payment, deduction management, and many other aspects.

The main elements of payroll calculation in the US are earnings, deductions, gross pay, taxable gross, and employees’ net pay. The OpenHRMS Payroll module is highly efficient in managing different countries' payroll activities.

This article offers a deep insight into US Payroll management and the Salary Structure configuration with the backing of OpenHRMS Payroll.

The Open HRMS Payroll system software is a great idea to regulate employees' contracts and salary attachments. The platform provides you the provision to define salary structure with the help of the advanced salary structure feature in the system. With the help of this feature, you can effortlessly register employees' salary details with various rules.

Main Component of Payroll in the US

When come to the US Payroll, It provides various heads for each employee's payroll such as company identification data, employee information, payroll information, total wage earnings, deductions, and payroll taxes. The company information such as the name and address of the company and identification number is recorded in the company details section. The worker's data encompasses the details like the full name, professional category, and DNI number. 

Earnings are the total amount of compensation received from a firm in return for the service provided to the employer based on the payroll calculated during the period of accounting. It is the gross pay before deductions. The earnings can be categorized into two types which are Taxable earnings and Non-taxable earnings. Most of the allowances come under non-taxable earnings.

Deductions in US Payroll

There are different types of deductions

Federal tax deductions

State and Local taxes

Pre-tax deductions 

Post-tax deductions

Social Security

Medicare Insurance

In these deduction categories, the social security and medicare insurance taxes come under the Federal Insurance Contribution Act taxes.

To calculate the Federal Tax, you can multiply the tax percentage of social security or medical care with taxable gross.

In the case of the State taxes and Local taxes, it will show differences based upon the employee location. 

Post-tax deductions contain extra benefits offered to an employee from the organization. By keeping in mind all these requisites, we can analyze the US Payroll processes within the OpenHRMS Payroll module.

Develop a Payroll Structure with OpenHRMS Payroll

When you open the OpenHRMS Payroll module, you will be able to view all the functional aspects of the module. Under the Configuration section, you have the Salary Structure menu which will allow you to develop payroll structures. The moment you select the mentioned menu, the system will direct you to the Salary Structures window. 

The Salary Structure window will list out all the saved Salary Structures and will preview the essential details such as Name, Reference, Salary Rules, and Company. It is also very comfortable for creating new Salary Structures. You just need to click on the Create button. 

We can create a new Salary Structure using this creation window. In the Form view, first, we can provide the name of the Salary Structure in the Name field. We can fill the Name field with ‘Base Salary Structure for US workers”. The company can be defined as a US company in the Company field. You can also fill in the Parent and Reference fields. After that, you are able to apply various salary rules for your new structure with the help of the Add a line button available under the Salary Rules tab. 

The instant you click on the Add a line button, the system will automatically depict the Salary Rules window where you can view all the existing Salary rules as shown in the image below. 

If you want to create a new Salary Rule, click on the Create button displayed bottom left corner of the Salary Rules window. Now a new form view will appear for adding a new salary rule. 

First, you can allocate the Salary Rules Name. Then choose the Category using the dropdown menu.

All the added Salary Rules will be displayed under the Salary Rules tab. 

If you want to create a new Salary Rule, when considering an example, if you need to add a Basic Salary as a salary rule, you can choose the Salary Rule creation window. In the form view, you can first mention the Salary Rule Name in the Name field. Then you can define the Category which can be given as basic. Next, you can allocate a code in the Code field. After that, you can provide the sequence number in the Sequence field. This sequence number is used for arranging calculation sequences. Then you have the Active field in the form view. You can set the Active field to false for hiding the salary rule without removing the rule. Likewise, you have the Appears on Payslip field which can be activated to display the salary rule on the payslip. In addition, the Company field will be automatically filled with the company name. 

Under the General tab, you can describe the conditions, computation data, and Company Contribution details. The Condition can be set in three ways. Always True, Range, or Python Expression. 

The Computation method for the rule amount can be defined in the Amount Type field. Generally, we are considering the basic salary as a wage described in the employee contract. As a result, the Python Code will be ‘result=contract.wage’. Finally, you can mention the Contribution Register available under the Company Contribution section. It is the eventual third party involved in the salary payment of the employees. Similarly, you can fill in the required details under the Child Rules tab, Accounting tab, Inputs tab, and Description tab. Later, you can click on the Save button to save all the details. 

Likewise, you can configure various salary rules. You can effortlessly include Earnings as a salary rule within this new structure. As we discussed that the Earnings are categorized into ‘Taxable  Earnings’ and ‘Non-Taxable Earnings’. So first, let us apply the Taxable Earnings of employees. To create them as a rule in this ‘New Salary Structure,  you can enter the rule name as Taxable Earnings, the Category field can be filled with Allowances. You can mention’TE’as the code. 

And then you choose the Amount Type as ‘Fixed Amount’. Then you can enter the amount in the Fixed Amount field. Here we can provide the fixed amount as 1000. Then you can select the Save &Close button to save the details. 

Now the Taxable Earning salary rule is also displayed under the new structure as showman below. 

The Non-Taxable Earning Salary Rule can be defined using the same method. Here we can provide the Fixed Amount of 100. 

After providing all the information, click on the Save button to save the details. 

Now we can create another rule for handling the Gross pay and give all the required details. 

The Goss pay is computed by summing the basic and allowances. Here for Gross calculation, we can use the Python Code. once you are given all the other information, you can choose the Python Code in the Amount Type field. Then you can define the Python Code. It can be given as result=categories.BASIC+ categories.ALW. 

In the above-mentioned python code, categories.ALW defines the sum of taxable earnings and non-taxable earnings. ALW is the code given for the allowance category. The remaining salary rules for the US are Federal Taxes, State Taxes, Local Taxes, Pre-tax deductions, and Post-tax deductions. Each of these taxes into a deduction type. 

We can configure each of them separately. First, we can define the salary rule for Federal Tax For Social Security. Provide the name of the Salary Rule., Category, Code, and other essential details. Then under the General tab, you can set the Condition Based on Python Expression. 

6.2% is the US Federal tax for social security. Which is mentioned in the python expression as seen in the screenshot above. Once it is added to the Salary rule, we can create the next Federal Tax for Medicare Tax. Here also you can provide all the required information in the Salary Rule window and you can mention the Python condition.

we can add Federal Taxes for medicare tax. It comes from the deductions category as mentioned in the image below. 

 The Federal tax for medicare for US employees is 1.45%. So we should define it in the python code. Under the General tab, you can fix conditions based on the python expression as described in the screenshot below. 

The next rule we are required to apply is the State Taxes and Local Taxes which can also be included by following the same method. So we can provide the Rule name and Category. It has also come under the Deduction category.  

In the case of State and Local tax, it indeed shows differences between city to city and state to state. We can add a fixed amount in the Amount Type field, as shown in the image below.

After giving the required information, save it as a sales rule. Next, we are required to add the employee's pre-tax, and post-tax deductions to this salary structure. So we can add the Pre Tax deduction. Enter the name, category, and other details. 

Here also, we can set the Amount Type as FFixedAmount and provide the Fixed amount in the Computation section, as shown in the image below. 

Likewise, you can include the Post tax Deductions salary rule by providing all the required information. In the Computation section, the Amount Type field can be filled with a Fixed amount and add the amount as $70, as portrayed in the image below.

Next, we want to add the Taxable Gross. For that, we can choose the Salary Rule window. Here in the Salary Rule window, allocate the Name as Taxable Gross. Choose the Category, Code, Sequence, and other details.

When calculating the taxable gross, we need to subtract the gross amount from non-taxable earnings and pre-tax deductions. Based on these, we can set a python code under the Computation section as described in the image below.

Then you can save the Salary Rule by clicking on the Save & Close button. Now all the created salary rules are viewable under the Salary Rules tab in the new Base for New Structure window, as shown in the image below. 

Now you can save the new structure by clicking on the Save button. 

The new salary structure will be listed in the Salary Structures window, as shown in the image below.

This is how the OpenHRMS Payroll module facilitates you to manage Salary Structure for US companies.