Payroll encumbrance and liquidation

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Oracle Cloud HCM now offers a payroll encumbrance feature that enables organizations to proactively obligate funds for estimated payroll expenses and systematically release these funds during payroll processing. This functionality enhances the transparency of projected payroll costs by reflecting anticipated payroll costs in financial reports, so organizations can better manage spending and avoid budget overruns.

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There are five steps to enable payroll encumbrances and liquidations. The first is a one-time setup in Financials.

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You'll need access to financial setup information in order to perform this setup. First you need to enable the encumbrance. Open the Setup and Maintenance work area.

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Select My Enterprise.

Select Setup and Maintenance.

Search for and select Manage Encumbrance Accounting.

Select Tasks and then select Search.

In the Search field enter manage encumbrance.

In the Search Results select Manage Encumbrance Accounting.

Then search for and select the specific ledger you want to enable encumbrances for.

In the Ledger Name field enter VV.

Press Enter.

Select VV US Primary Ledger Working.

Select the Enable encumbrance accounting checkbox, specify the encumbrance account, and then select Save and Close.

Highlight the Enable encumbrance accounting checkbox.

Highlight the Reserve for Encumbrance Account field.

Highlight Save and Close.

Then define the accounting attributes.

Select the Home icon.

Open the Period Close work area.

Select General Accounting.

Select Period Close.

Verify the ledger, then open the General Ledger.

Highlight VV US Primary Ledger Working.

Select General Ledger.

Confirm that you've opened the year for which you want to post encumbrance.

Highlight Latest Open Encumbrance Year.

Select Done.

Select Home.

Next, setup the accrual reversal, so that encumbrances are liquidated when an actual payroll is processed for a period, and the estimated costs are released and replaced with the actual payroll costs.

Select My Enterprise.

Select Setup and Maintenance.

Open the Manage Accounting Attributes Payroll task.

In the Setup field select Workforce Deployment.

In the Search Tasks field enter Manage Accounting.

Press Enter.

Select Manage Accounting Attributes.

In the Payroll section, select the Manage Accounting Attributes link.

Then select the accrual reversal process you want to use.

In the Event Class field select Encumbrance Costs.

Highlight the Accrual Reversal attributes.

Select Cancel.

Next, define your journal entry rule sets.

Select Tasks.

Select Manage Implementation Projects.

Open the Implementation Projects work area. Then search for and select your implementation project.

In the Search section, Name field, enter VV.

Press Enter.

In the Search Results select VV_IMPL_PROJECT.

Expand Workforce Deployment.

Expand Define Payroll.

Expand Define Payroll Costing.

Expand Define Subledger Accounting Rules.

Expand Define Subledger Accounting Methods.

In the Manage Subledger Journal Entry Rule Sets row, select Go to Task.

Here you can create a new journal entry rule set to use the encumbrance cost.

Expand Search.

In the Name field enter VV.

Press Enter.

Highlight the Create icon.

Select VV_JERS_ENC_COSTS.

Define the Event Class and Event Type as Encumbrance Costs and define your Credit and Debit Line Types. Options you added in the prior setup task will be available here so you can define your Accrual Reversal Accounting Date Source.

Highlight Event Class and Event Type fields.

Highlight the Credit and Debit Line Type rows.

Select Accrual Reversal Accounting Date Source.

Highlight Accrual Reversal Accounting Date Source options.

Close Accrual Reversal Accounting Date Source.

Select Cancel.

Select Done.

After you create your journal entry rule set, you can add it to your accounting method.

In the Manage Accounting Method row, select Go to Task.

Search for and select your existing accounting method.

Expand Search.

In the Name field enter VV.

Press Enter.

In the Search Results select VV_ACNT_METHOD.

Then add a new row for the encumbrance rule set you just created.

Highlight Add Row.

Highlight the Encumbrance Costs row.

Select Cancel.

Select Done.

To complete the setup, you need to run the Review and Submit Accounting Configuration process.

In the Setup field select Financials.

In the Functional Areas list, select General Ledger.

In the General Ledger task list, select Review and Submit Accounting Configuration.

You don't need to make any changes, just submit the process so that all the changes in the accounting method and journal entry rule sets will be available.

Highlight Submit.

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After you've completed the initial setup, the second step is to run the Calculate Payroll Encumbrance process flow.

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Start on the Home page signed in as hcm.user@oracle.com

Select My Client Groups.

Select Payroll.

Open the Flow Submission work area.

Select Submit a Flow.

Select your LDG, then search for and select the Calculate Payroll Encumbrances flow.

In the Legislative Data Group field enter VV and select VV US Appliances LDG.

In the Search field enter encumbrances.

Press Enter.

In the Search Results, select Calculate Payroll Encumbrances.

Select the payroll and payroll periods for which you want to generate encumbrances. Next, select the element group for the salary components you want to include in the encumbrance. Then select any optional parameters. After you've selected all the parameters you can submit the flow.

In the Payroll Flow field enter Encumbrance_01.

In the Payroll field select VV US Semi Monthly.

In the Start Payroll Period field 1 2026.

Select 1 2026 Semimonthly | 2026-01-01.

In the End Payroll Period field enter 24 2026.

Select 24 2026 Semimonthly | 2026-12-16 | 2026-12-31.

In the Element Group field select VV US ELE DISTRIBUTION GROUP.

Highlight Submit.

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The third step is to run the transfer to subledger accounting process.

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Start on the Home page.

Select My Client Groups.

Select Payroll.

Select Submit a Flow.

Search for and select your LDG. Then search for and select the Transfer to Subledger Accounting flow.

In the Legislative Data Group Search field enter VV.

Press Enter.

Select VV US Appliances LDG.

In the Search field enter transfer to subledger.

In the Search Results select Transfer to Subledger Accounting.

Enter the payroll flow and required parameters and submit the flow. This will transfer the entries to the subledger in the general ledger.

Highlight the Payroll Flow field.

Highlight the Required Parameters fields.

Highlight Submit.

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Select Cancel.

The next step is to run the Create Accounting process.

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Open the Scheduled Processes work area.

Start on the Home page.

Select Tools.

Select Scheduled Processes.

Select Schedule New Process.

Then search for and select the Create Accounting process.

In the Name field enter create accounting.

Press Enter.

In the Search Results select Create Accounting.

Select OK.

Run this process to import the costs from the subledger to the general ledger.

Highlight the Parameters.

Highlight Submit.

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Select Cancel.

The final step is to verify the journals.

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Start on the Home page.

Select General Accounting.

Select Journals.

Select Tasks.

Select Manage Journals.

In the Period Name field enter Jan-26.

Select the Accounting Period drop-down list.

Select Search.

Select your accounting period and source.

Select Search.

In the Period Name results select Jan-26.

Select OK.

Select Source > Search.

In the Source field enter payroll.

Press Enter.

In the Source results select Payroll.

Select OK.

Select Search.

Then you can drill down to see what entries have been posted.

Select Jan-26 Payroll 300100035840606.

This page displays all the journal entries, and you can drill down into each entry as needed.

Thanks for watching.