Legal Entities for Global Payroll

A legal entity is an entity unequivocally identified and given rights and responsibilities under commercial law, through registration with the territory's appropriate authority.

A legal entity can legally:

• Own property

• Trade

• Repay debt

• Account for themselves to company regulators, taxation authorities, and owners according to rules specified in the relevant legislation (as performed through balance sheets, income statements, specified reports, and so on)

The judicial system may enforce its rights and responsibilities.

For your enterprise, a legal entity may help you with:

• Facilitating local compliance

• Minimizing your tax liability

• Preparing for acquisitions or disposals of parts of the enterprise

• Isolating one area of the business from risks in another area

  For example, your enterprise develops property and also leases properties. You could operate the property development business as a separate legal entity to limit risk to your leasing business.

There are no predefined legal entities. You must create all legal entities that apply to the enterprise you're setting up. Use the Legal Entity HCM Information task from your implementation project.

There are several things you need to consider when you define your legal entities.

• What roles will they play

• What types of legal entities do you need

• What registrations will they require

• Does your organization support any retirees

• How to configure them for your HR reports

Roles of Legal Entities

In configuring your enterprise structure, the contracting party on any transaction is always the legal entity. Individual legal entities:

• Own the assets of the enterprise

• Record sales and pay taxes on those sales

• Make purchases and incur expenses

• Perform other transactions

Legal entities must comply with the regulations of their registering jurisdictions.

To support local reporting requirements, you create and register legal reporting units (LRUs) within a legal entity.

You're required to publish specific and periodic disclosures of your legal entities' operations based on the different jurisdictions' requirements. Certain annual or more frequent accounting reports are referred to as statutory or external reporting. You must file these reports with the specified national and regulatory authorities.

For example, your publicly owned entities (corporations) are required to file quarterly and annual reports, as well as other periodic reports, with the Securities and Exchange Commission (SEC), which enforces statutory reporting requirements for public corporations. Individual entities privately held or held by public companies don't have to file separately.

Disclosure requirements are diverse. For example, your local entities may have to file locally to comply with local regulations in US dollars, as well as being included in your enterprise's reporting requirements in different currency.

A legal entity can represent all or part of your enterprise's management framework.

Types of Legal Entities

There are two types of legal entities.

This kind	Does this
Legal employer	A legal entity that employs workers.
Payroll statutory unit (PSU)	A legal entity responsible for paying workers, including the payment of payroll tax and social insurance. A PSU can pay and report on payroll tax and social insurance on behalf of one or many legal entities. That choice depends on the structure of your enterprise.

When defining a legal entity, consider how you're going to use it.

• If you're using the legal entity in an HCM context, designate it as a legal employer. All workers must be assigned to a legal employer.

• If you're using it in a payroll context, designate it as a PSU for payroll processing and tax reporting.

  Limit your organization to one PSU for employees and one for retirees. This helps you:

  • Control how the payroll process calculates limit taxes.

  • Control overtime calculations between multiple TRUs.

  • Track deferred compensation contribution limits.

    For further info, see Contribution Limits for Deferred Compensation Plans in the Help Center.

  • Issue pension payments to retirees.

• You can define a legal entity that's both a legal employer and a PSU.

• To group multiple legal employers together for tax reporting purposes, assign them to the same parent PSU. If your legal employers represent different companies, assign them to separate PSUs.

There are no predefined legal entities. You must create all legal entities that apply to your enterprise.

Registrations

When you create a legal entity, it automatically establishes a registration with the identifying jurisdiction. For each employer, create a registration for tax jurisdiction and specify its unique identifying number. If the legal entity has an LRU that interacts with other legal authorities, create additional registrations as appropriate.

Note: Capture the unique identifying number, registered name, and other details using the Legal Reporting Unit Registrations task.

If you don't define the registration, some payroll processes may not function properly.

Configuration for Retirees

If your organization includes retirees:

1. Define separate PSUs for employees and retirees. Do not assign both employees and retirees to the same PSUs or to the same legal employers.

2. Designate these PSUs with the 2-Tier - Multiple Assignment employment model.

3. When you set up a tax reporting unit (TRU) for a retiree, specify the distribution code that it. Set up a separate TRU for each distribution code you require.

Additional Reporting Info

When defining a legal entity, use the Legal Entity HCM Information task from your implementation project. Provide additional info required for HR reporting.

If the legal entity is also a PSU, specify:

• Fiscal year start

• Any additional info to support electronic year-end filings

  These settings apply to all LRUs attached to the PSU.