Options for Creating Payroll Earnings Elements for Mexico

Use the element template to create and configure earnings elements and their associated objects. The template prompts you for information that's used to create the necessary payroll objects. You can also edit the objects created by the element template.

You first create an element and then update it so that it's available for all payrolls.

Use the Elements task from the Payroll Calculation work area to create elements.

Primary classifications control processing, the priority in which elements are processed, and the balances they feed. They are designed to meet legislative requirements and you can't change them.

Earnings elements are created to represent salary, wages, shift pay, overtime pay, bonuses and so on. Here are the predefined earnings primary classifications you can choose for Mexico:

• Severance Pay

• Standard Earnings

• Supplemental Earnings

• Taxable Payments

Given below are some components you must consider when creating an earnings element for a Mexico payroll.

Earnings Elements Processing

The processing of the earnings is controlled by these components:

• Periodicity

• Proration

• Retroactive Changes

• Federal ISR Tax

• Mexican Taxability Rules

• CFDI Codes

Periodicity

Periodicity specifies the frequency of the element value. For example, salary element entries that hold annual salary values have an annual periodicity. You will also need to select the periodicity conversion rule that applies to the element. Rate conversion formulas change the periodicity of an amount. For example, the Standard Rate Annualized conversion formula can convert an annual salary amount to a weekly amount. For Mexico earning elements it's recommended you use the Mexico Rate Conversion rule.

Proration

Proration calculates proportionate amounts for recurring elements when payroll-relevant data changes during a payroll period, such as a person joining the enterprise or a mid-period pay increase. When you create an element, you specify its proration group and the rate conversion rule.

Retroactive Changes

Retroactive pay is when an employee receives an adjustment in the current pay period, but the adjustment must have been effected in a previous payroll period. A recalculation is then required. If you enable retroactive processing for an element, the retroactive pay event is associated with it and retroactive pay elements are automatically generated. To make an element subject to retroactive changes, select Yes and specify its retroactive group when it's created.

Federal ISR Tax

Mexico has specific element template rules to satisfy the calculation of ISR tax for earnings elements. To determine the rule for ISR tax, respond to the element template question:

• ISR tax calculation applicable to this element?

Note: ISR tax is the Mexican income tax that's paid by all residents and corporations of Mexico.

Regular means that the earning will be subject to the regular ISR calculation. Nonperiodic refers to infrequent payments that are distributed to every period to calculate the ISR tax. For example, Christmas Bonus would be considered for the nonperiodic ISR tax calculation.

When you create an earnings element, if you select Process and pay with other earnings only Regular will be available for the applicable ISR tax calculation. If you select Process separately, but pay with other earnings or Process Separately and pay separately, both Regular and Nonperiodic are available to select for the applicable ISR tax calculation.

Mexican Taxability Rules

Mexico has specific element template rules to specify the taxability rules for ISR tax and employer state tax. To determine the rule for the ISR tax and employer state tax, respond to the element template questions:

• ISR taxability rule applicable to this element?

The available options are:

ISR Taxability Rule	Description
Statutory	This is the default option, where the taxability rule formula determines the subject and exempt portions for the ISR tax calculation.
Full Subject	The ISR tax calculation uses the entire earnings amount.
Full Exempt	The entire earnings amount is exempt from ISR tax calculations.

• State taxability rule applicable to this element?

The available options are:

State Taxability Rule	Description
Statutory	This is the default option, where the taxability rule formula determines the subject and exempt portions for the employer state tax calculation.
Full Subject	The employer state tax calculation uses the entire earnings amount.
Full Exempt	The entire earnings amount is exempt from the employer state tax calculations.

CFDI Codes

Each time an employer makes any payment (such as earnings or benefits) to an employee, the employer must issue a XML CFDI file to be stamped by the SAT, the Mexican federal government agency for tax administration. When you define earnings element, you must select two CFDI codes; one for when the element result is positive and one for when the element result is negative.

Note: CFDI is the Internet Digital Tax Receipt. It's an electronic billing receipt validation system that enables taxpayers to validate, and issue billing receipts electronically over the Internet.

Employment Level

Earnings are distributed by assignment. Assignments are associated to jurisdictions, which determine the required tax calculations.

Earnings at the assignment level require no distribution, as the assignment is associated to a single jurisdiction. Oracle Global Human Resources Cloud Payroll determines the earnings distribution by jurisdiction and allocates the earnings based on standard hours worked.

Retroactive Pay

Retroactive pay is when an employee receives an adjustment in the current pay period, but the adjustment must have been effected in a previous payroll period. A recalculation is then required.

If you enable retroactive processing for an element, the retroactive pay event is associated with it and retroactive pay elements are automatically generated. When you enable retroactive processing, it:

• Recalculates them to find the changes.

• Adjust changes in the current payroll.