Estimating the Total Annual Income

PeopleSoft Global Payroll for Spain calculates IRPF taxes for the state and all of the fiscal territories as a percentage of an employee's taxable income. The percentage of an employee's income that applies to IRPF taxes is based on the employee's annual income, minus reductions due to personal situations, number of dependents, salary level, and disability. You run the process that calculates the tax percentage as part of regular payroll. Whenever information affects an employee's taxes, the employer must recalculate the tax percentage by running the normalization process. The law states that employers must normalize tax percentages for their employees at least once quarterly even if no information changes.

When calculating an employee's tax percentage, either for the first time of the year or through the normalization process, the system estimates the employee's annual income because the actual amount is not available until the end of the year.

The system calculates the estimation of annual income to use as the tax base for IRPF taxes. An employee's total annual income includes fixed income, variable income, and in kind income. This estimation is necessary because the only time you can calculate the true tax base is in the December payroll run when the year is complete. The rest of the year therefore requires an estimation of the tax base for the remaining months.

The system performs the same tax base estimate calculations for all fiscal territories, both state and historical.

PeopleSoft Global Payroll for Spain enables you to control the level of accuracy that you want to have for the tax base estimate defining how you want the system to estimate the annual taxable base during the calculation of IRPF taxes.

The system takes fixed income and benefits income amounts from the Compensation page of the Job Data component (JOB_DATA) and the annual benefits base rate from the Benefits Program Participation page. These values are considered the theoretical annual compensation, so the system uses these values as the starting point of the estimation.

To estimate the variable income Global Payroll Spain use as the base the variable income from last year.

Employees with a net guarantee receive special treatment for tax percentage calculation. The system performs a normalization process each month, regardless of whether the normalization schedule is set up for the employee's pay entity and tax location, because the system needs to perform the net to gross process to calculate the fixed income part of the tax base. The system use the Target Compensation Rate field value on the Compensation page of the Job Data component as guarantee net and retrieves a gross amount after an iterative process.

For employees who are not net-paid, the system calculates the estimated fixed income using the annual rate. The annual rate comes from the employee's compensation rate and frequency or the target compensation rate, depending on the employee, on the Compensation page of the Job component. The system prorates this value for the remainder of the year or contract by:

1. Calculating an annual value for the compensation by multiplying the entered amount by the entered frequency.

2. Calculating a daily value by dividing the annual amount by the number of days in the year. When determining the number of days in the year, the system includes the number of days of extra periods for which the employee is eligible.

3. Calculating the value of the remaining portion of the year by multiplying the daily amount by the number of days in the remaining portion of the year. When determining the number of days in the remaining portion of the year, the system includes the number of days of the extra periods that are paid during that time period and for which the employee is eligible.

The system considers the employee's current job records and accrued seniority earnings, the remaining days in the year, and the pending extra periods in the calculation of estimated fixed income. For seniority earnings, the system uses the effective date data from the Job records.

PeopleSoft Global Payroll for Spain enables you to include future job data events and future seniority events in the year as part of the calculation of estimated fixed income. Use the CLI VR EST FUTURO variable to control this functionality.

With the CLI VR EST FUTURO variable you can specify that the system consider job record data with future effective dates in the estimated fixed income. For example, perhaps an employee's compensation rate in May is 1000 euros but in August this value increases to 1500 euros. To consider job records with future effective dates (future information in the Job record), set the character value of the CLI VR EST FUTURO variable to Y.

With the CLI VR EST FUTURO variable you can also specify that the system calculate future accrued seniority earnings in the year as part of the calculation of estimated fixed income. The system computes the values for each seniority segment using the seniority compensation base elements as of each segment date. For example, if an employee is hired in August 2003 and receives a seniority amount every three years, then in August 2006 the employee is due the increase in seniority earnings. The system thus uses the current seniority earnings amount for January through August and uses the future seniority amount for August through December during the calculation of the seniority portion of the estimated fixed income.

To perform the initial set up of the CLI VR EST FUTURO variable, select Set Up HCM, Product Related, Global Payroll & Absence Mgmt, Elements, Supporting Elements, Variables. Access the CLI VR EST FUTURO variable and set it to the desired character value. The default value of this variable is N. The setting for this variable controls both the future job data and seniority events simultaneously. You can also control this setting by using the supporting element override functionality at the payee level.

Although salary in kind is fully taxable, it may contribute fully or only partially to the Social Security base depending on its source. When a company provides salary in kind as part of normal labor agreement or contract agreement, the salary in kind contributes fully to the Social Security base. If, however, the company provides salary in kind voluntarily then a certain amount of it is exempt from contributing to the Social Security base.

To determine whether voluntary salary in kind is exempt, compare the sum of all the earnings considered as salary in kind to 20 percent of the IPREM (Indicador Público de Renta de Efectos Múltiples), which is a statutory rate published by the government each year. If the sum of all a payee's earnings does not exceed 20 percent of the professional minimum salary, not all of the salary in kind contributes to the Social Security bases. Any earnings in excess of 20 percent of the IPREM contribute fully to the Social Security base. When a payee receives more than one earning that is considered salary in kind, you must calculate the individual excess for each earning in proportion to its value.

Examples of different earnings that are salary in kind include housing, loans with an interest rate below the legal interest rate, cars, insurance contributions, and pension plan contributions.

The withholdings associated with the salary in kind can be paid by the employer (withholdings in kind not passed on) or by the employee (withholdings in kind passed on). If a withholding is passed on, it will be discounted in the payroll for the employee as a tax deduction (deduction in kind) (IRPF SPCR). If a withholding is not passed on, the employer will pay the deduction to the tax institution. All the withholdings in kind must be shown in an element IRPF SPC (Ingresos a cuenta efectuados) or In kind withholdings made.

As a starting point in estimating salary in kind income, the system uses the value in the Annual Benefits Base Rate field on the Benefits Program participation page for estimation of in kind income because this benefits compensation is equal to in kind compensation. You can access this field through the Benefits Program Participation link on the Job Data component.

The system uses the same effective date data from the Job Data component when calculating the estimated in kind income.

Use the CLI VR EST FUTURO variable to indicate whether to include rows of data with future effective dates within the current year in the calculation. Set the character value of the variable to Y to include future data. If you set the variable to N, the system uses the as of date value to perform the estimation of the remaining part of the year. You can set the value for this variable at the element level by accessing it through the Variables component. Select Set up HCM, Product Related, Global Payroll. Elements, Supporting Elements, Variables. You can also set the character value of this variable through the supporting element overrides functionality.

If you enter in kind income through another means, the system might include that in kind income as part of that other category. For example, if you enter the in kind income through the Pay Components group box on the Compensation page of the Job Data component, the system manages the salary in kind as part of fixed income.

PeopleSoft Global Payroll for Spain enables you to determine at the earning level which calculation method to use for estimating the variable compensation part of the tax base. For example, you might need to change how you estimate the variable compensation because the bonus is following a different schedule compared to last year or a bonus or commission is not being paid anymore this year when it was last year.

You can calculate the variable compensation part of the estimated tax base by using any of these three methods:

• Method 1 is based on last year's values and used for variable compensation that follows last year's schedule.

  When you define an earning in PeopleSoft Global Payroll for Spain, you must update some accumulators to define whether the earning is paid and taxable and contributes to social security. When defining whether the variable earning is taxable, you must assign the CLI AC ING VR1 S accumulator to specific earnings to indicate this estimation method.

  This method uses the array TAX AR ING VAR EST to retrieve values from record GPES_TAX2_RSLT, which stores every calculation result. This array adds that part of the variable compensation to each slice between the pay period end date of the previous year and the end date of that same year. For example, if you calculate the estimated variable income for March 2006, the array totals every variable income from April 1, 2005 to December 31, 2005.

• Method 2 is based on last year's values and is used for variable compensation that does not follow last year's schedule.

  When you define an earning in PeopleSoft Global Payroll for Spain, you must update some accumulators to define whether the earning is paid and taxable and contributes to social security. When defining whether the variable earning is taxable, you must assign the CLI AC ING VR2 S accumulator to specific earnings to indicate this estimation method.

  Use this calculation method when you expect differences in the earnings payment schedule but want to use the previous year's values in the estimation because you do not know the current year's values.

  This calculation method uses the previous year's total variable income, rather than a specific period, as the maximum variable compensation (base amount) value for the variable compensation part of the estimated tax base for the current year. Each month the calculation process subtracts the year-to-date variable compensation amount from this base amount to determine the tax base estimation for variable compensation. When the payee reaches the base amount limit, the calculation process does not perform the variable compensation estimation again for the rest of the year. For example, if last year a payee earned 10000 euros and by June of this year the payee has already earned 9000 euros, then the calculation process uses only the remaining 1000 euros as part of the tax base estimation for the variable compensation. When the payee reaches the 10000 euros limit, the system stops calculating the variable compensation estimation and uses the actual data.

• Method 3 is based on current year values and is used for variable compensation for which you know the current year values.

  When you define an earning in PeopleSoft Global Payroll for Spain, you must update some accumulators to define whether the earning is paid and taxable and contributes to social security. When defining whether the variable earning is taxable, you must assign the CLI AC ING VR3 S accumulator to specific earnings to indicate this estimation method.

  Use this calculation method when you know what is going to be paid this year for earnings of variable compensation. The calculation process estimates the variable compensation part of the tax base based on the information that is already in the system for current-year variable income as entered through payee earnings and deduction assignment. To be able to perform that estimation, you set the variable CLI VR EST ASIGN to Y.

The system makes no differentiation between fiscal territories when estimating the variable compensation. The system performs the three calculation methods, including the corresponding earnings based on their setup (which CLI VR ING VRx S the earnings contribute to) in each method. The system calculates the variable tax base as a sum of year-to-date value, plus the current month value, plus the estimated value for the remaining months in the year.

The above topics explains how the system calculates the estimated portion of each member of the annual tax base (fixed income, in kind income, and variable compensation). You saw that in the case of fixed income and in kind income the starting point of the estimation is the values in the Job Data component. But what happens with other compensation that you do not enter through the Job Data component, compensation that is recurring and that is reasonable to consider as part of the tax base estimation? This other compensation is the type that is entered through the payee earning and deduction assignment functionality. PeopleSoft Global Payroll for Spain enables you to decide whether to consider compensation coming from payee earning and deduction assignments when the system calculates the tax base.

Use the CLI VR EST ASIGN and CLI VR EST ASG SOB variables to control whether to include earnings entered through earnings and deduction assignments as part of the tax base estimation. These variables enable you to include recurring earnings that are not entered through the Job record.

You can override these variables in three ways:

• Variable definition: Modify the CLI VR EST ASIGN variable at the variable definition level.

  You can define the default value of this Global Payroll variable element during the implementation phase. If you set the default value of the variable to N, the system does not perform estimation for the values that you enter through earning and deduction assignments. If you set the variable value to Y, the system does perform analysis of earning and deduction assignments as part of the tax base estimation.

• Earning definition: Override the CLI VR EST ASG SOB variable at the earning definition level.

  You can override the default value of the CLI VR EST ASG SOB variable on the Supporting Element Overrides page of the earnings definition by setting it to N, provided that the default value of the variable at the variable definition level is set to Y. The system estimates the amounts coming from earning and deduction assignments but bypasses the earnings for which you have set the variable override value to N. Oracle recommends that if you are using earning and deduction assignments to override values coming from the Job record, you set the variable value of the earning to N at the earning level. Otherwise, the system might count the earning twice—once through the Job Data component and once through the earning and deduction assignment. This override level affects the specific earning for every employee.

• Supporting element override: Override the CLI VR EST ASG SOB variable value of a basic or recurring earning for a specific employee.

  You can do this by using the supporting element overrides functionality within the components of the Earnings and Deductions Assignments menu by changing the character value of the CLI VR EST ASG SOB variable to N. This override level affects that specific entry (earning and payee combination) only.

Earnings are categorized as either fixed, in kind, or variable income at the earning level. When you create earnings in PeopleSoft Global Payroll for Spain you must assign the earning to certain accumulators to define whether the earning is payable and taxable and whether it contributes to social security. Regarding taxes, you include the earning in a different accumulator depending on its categorization. For example, you include fixed income in the accumulator CLI AC ING DIN FJO. This categorization enables the calculation process for the tax base estimate to split earnings entered through earnings and deduction assignments into their appropriate categories for the estimation. The system determines which member of the tax base (fixed, in kind, variable) the earning belongs to by checking which accumulators the earning is a member of in the earnings definition. The system then adds the earning to the corresponding member of the tax base.

When the take base estimation process reads the earning and deduction assignment and performs the corresponding calculation and frequency conversion, the system performs an earning-by-earning estimation. This means that the system determines the extra periods to which each earning belongs when it calculates the number of days in the year. When the tax base estimation process evaluates an earning, it takes into account whether the earning is included in pending extra periods. To calculate an annual amount, the system multiplies the earning amount by the specified frequency (element frequency or calendar period frequency). Then the system calculates the daily value by dividing the annual amount by the total number of days in the year. When calculating the number of days in the year for an earning, the system again takes into account the extra periods that include that earning. For example, let us assume that an employee who is paid monthly has two extra periods that both include earning A. The total number of days in the year for earning A would be then be 360 for the year, plus another 30 days for each extra period, for a total of 420 days. After the system calculates the daily value for an earning, it calculates the amount for the remaining part of the year by multiplying the daily amount by the remaining number of days. When calculating the remaining number of days, the system once again takes into account the extra periods pending payment.

Normally, PeopleSoft Global Payroll for Spain estimates the tax base for a payee using that payee's job data and assigned earnings and deductions. You can adjust this tax estimation by including compensation calculated during payroll processing. To enable the inclusion of earnings from payroll processing in tax base estimation, set the value of the variable CLI VR EST FLX AJT to Y.

Irregular income occurs due to having a generation period over two years. Irregular income receives special tax treatment because the whole income is added to the annual fixed income, but at the same time 40, 50, or 70 percent of that amount is considered as a deduction as part of the tax calculation process (similar to the available deduction calculation process). Therefore, during tax percentage calculation, the system reduces the taxable base of irregular income by the corresponding percentage.

See Calculating Available Deductions.

Companies can enter compensation for part-time employees from a variety of sources such as the Job component, and earnings assignment. They can enter theoretical compensation and apply the full-time equivalent to determine compensation for part-time employees or they can enter compensation directly that is already reduced based on the schedule. PeopleSoft Global Payroll for Spain has two categories for part-time employees:

• Regular part-time: These employees have a daily or weekly recurring schedule. The system treats them as full-time employees, but with a reduced daily schedule. You identify them in the system by overriding the variable CLI VR RED JORNADA with the number of working hours per day.

• Irregular part-time: These employees do not have a recurring schedule. They are paid a different amount each month depending on how many days they work.

PeopleSoft Global Payroll Spain provides flexibility in setting up the system for both types of part-time employees.

PeopleSoft Global Payroll for Spain provides an alternative way to calculate the tax base by delivering two configurable formulas that your implementation team can use to set up custom requirements for estimating tax base. These configurable formulas are distinct from the delivered tax base estimation formulas so that modification and use of these configurable formulas does not affect the maintenance of the standard delivered formulas.

The configurable formulas are:

• CLI FM CALC ING A: Use this formula to write your own code for calculating the estimated tax base without using the delivered calculation method. The code that you enter in this formula overrides the whole tax base. You can use this formula to provide an override to the calculated tax base by assigning the value to the element through any mechanism that Global Payroll core provides to override supporting elements.

• CLI FM EST OTROS: Use this formula to include other earnings in the tax base calculation in addition to the ones entered through the Job Data component, through the components in the Earning and Deduction assignment menu, or through flexible compensation.

You can use the following variables to define how you want the system to calculate the tax base estimation:

• CLI VR EST FUTURO: At the variable definition level, use this variable to control when the system includes future information from the Job record (annual fixed income and annual in kind income) and future seniority increases in addition to current information.

• CLI VR EST ASIGN: At the variable definition level, use this variable to control whether the system includes future information for earnings that are entered through earning and deduction assignments as part of the tax base estimate calculation

• CLI VR EST ASG SOB: At the Supporting Element Overrides portion of the earning definition level, use this variable to control whether the system includes the earning in the tax base estimate calculation when the earning is entered through the Earnings and Deduction Assignments components. At the earnings and deduction assignment level, use this variable to control whether the system includes the earning in the tax base estimate of the specific employee.

These variable elements have a definition value as defined through the Variable component (Setup HCM, Product Related, Global Payroll & Absence Mgmt, Elements, Supporting Elements, Variable, Definition). This value is the default value for every employee. You can override the default value at these levels: pay entity, pay group, payee, calendar, element definition, and positive input (using Global Payroll core override functionality).

PeopleSoft Global Payroll for Spain enables you to override each member of the estimated tax base or the final estimated tax base. Use the following elements to override the value of specific parts of the calculated tax base estimate:

• CLI FM CALC ING A: Override the annual income calculation value.

• CLI VR FIJO SOB: Override the annual fixed income value.

• CLI VR SPC SOB: Override the annual salary in kind value.

• CLI VR VRBLE SOB: Override the annual variable income value.

The system uses the override values that you enter instead of the calculated values for the corresponding part of the tax base estimate. You perform these overrides using the supporting element override functionality.