When performing SAP ERP HCM implementations, upgrades, or expansions, one of the major hurdles is defining the HR structures to use within SAP ERP HCM. How you define the HR structure has a big effect on transactions, reporting (both legal and transactional), interfaces, payroll/time processing, talent management, and training. In addition, many projects don’t always take into consideration how the enterprise and personnel structures could affect an SAP ERP HCM global template, local country rollouts, and configuration dependencies for payroll, time, benefits, and legal reporting. Therefore, it is important to know how to define the HR structure and know its effect while in the blueprint phase of a project. Not properly designing and thinking through the integration points of the HR structures could potentially lead to major rework and additional costs to the implementation.

This article is intended for SAP projects and implementations in the blueprint phase of an initial implementation, upgrade, or expansion to additional countries. This information can assist SAP ERP HCM implementations with defining elements of their HR structures — in particular, the enterprise and personnel structures. These structures define the foundation of a global HR solution and are instrumental in ensuring consistency across the relevant modules of SAP ERP HCM. All process teams (such as organizational management, personnel administration, time, benefits, and payroll) should be involved in defining these structures to allow for seamless integration. See the sidebar “Questions to Ask When Defining HR Structures” for more information on how to define enterprise and personnel structures for your implementation.

Enterprise Structure

The first key component of the enterprise structure is the company code. Company codes are legal entities that are typically defined by the Financial Accounting (FI) team. They serve as the highest level of the hierarchy in the enterprise structure for SAP ERP HCM and have personnel areas report to them. A company code within one country is linked to one language, uses one local currency, and has one chart of accounts. It enables you to meet payroll and government reporting requirements, such as federal quarterly reporting or W-2s. In addition, you can store an address at the company code level for reporting purposes as needed. The company code can be a legal entity or a registered company.

Personnel Area

A personnel area is a Personnel Administration-specific unit tied to the company code that allows you to generate default values for data entry on various infotypes. It is an important selection criterion for reporting and is used in the setup of eligibility rules for benefits, salary ranges, work schedules, and authorizations, among other things. Each personnel area has a unique four-character alphanumeric identifier set up in configuration. A given personnel area can only be tied to one company code. Thus, any employee-related costs associated with that company code can be tied to the employee to report costs. Personnel areas can be defaulted to the employee’s record based on the organizational unit or the position and are the primary drivers for Equal Employment Opportunity (EEO) and other compliance reporting.

A typical best practice for a personnel area is to use it for work locations of a company. You could set it as a specific office work location (e.g., a physical address such as 545 Ridge Road, Flower Mound, TX) or as a grouping of physical work locations in the same geographical area (e.g., an office zone such as Market Center, Flower Mound, TX). You can use address information set at the personnel area within reports and interfaces.

The above examples are important for government compliance reporting in which personnel area is a key component. For example, in the US, government compliance requires companies to report on EEO by establishments/reporting units. If your company establishes reporting units based on a physical site, the office work location option may be the best. If you use groups of buildings, the office zone may suffice. In addition, be sure to consider reporting and interfaces during this analysis. Personnel area and personnel subarea are on the selection screen for many standard SAP reports and interfaces in your SAP system, and it is important to know how to report on employees as a company.

Personnel area together with personnel subarea provide the granularity that Payroll and Time Management require so you can set up different overtime payment rules for a California-based versus a Texas-based operation, for example.

Personnel Subarea

Personnel subareas are Personnel Administration-specific units that further subdivide the personnel area. Control of many crucial HR functions is based on the personnel subarea to which an employee is assigned. Each personnel subarea has a unique four-character alphanumeric identifier set up in configuration. You can default both the personnel area and personnel subarea to the employee’s record based on the organizational unit or the position when integration is activated.

Personnel subareas perform the following functions:

• Specify the country grouping for entering country-specific personnel data
• Specify groupings for time management, payroll, and other SAP ERP HCM functions
• Generate default values
• Act as a reporting criterion
• Specify the public holiday calendar

For example, common uses of personnel subarea include relating it to a specific business function/division (e.g., research, manufacturing, human resources), business unit (e.g., beverages), or union (e.g., Union ABC).

Similar to the personnel area, the above examples of personnel subarea are important when considering how your company views employees for reporting, interfaces, and logical groupings. For instance, does the company need to report and group employees by a specific union (all employees in this group have similar payroll and time management rules)?

Here are some tips to consider for personnel subareas:

• You can set public holiday calendars only on the personnel subarea grouping. Therefore, the enterprise structure needs to work for all Time Management and Time Evaluation processing.
• Once you have configured a personnel area and personnel subarea (and assigned people to it), you can’t remove this information. Removing this from the system creates data inconsistency (erasing history).
• Personnel subareas apply to many defaults for social insurance attributes related to European countries
• For the US, the enterprise structure needs to be set up properly to support government compliance reporting. For example, reporting for EEO depends on reporting units that are tied to the combination of personnel area and personnel subarea.
• Combinations of personnel area and personnel subarea are used for other country-specific configurations. For example, in France, key settings are related to personnel area and personnel subarea in reporting such as for the Statement of Labor Force Movements (DMO) or Association for Employment in the Industry and Trade (ASSEDIC) statements.
• Personnel area and personnel subarea combinations are set up in groupings known as personnel subarea groupings. These are essential for payroll and time configuration.

Figure 1 shows an example SAP ERP HCM configuration screen that is dependent on the combination of personnel area and personnel subarea. It describes how the SAP system allows an implementation to configure key US-specific values for EEO, Veterans’ Employment and Training Service (VETS), and workers’ compensation reporting. It is critical that companies define the personnel area and personnel subarea values strategically to ensure that they work with standard SAP ERP HCM (without customization). If your personnel areas and personnel subareas are not designed appropriately, your implementation could require additional customizations, which can cause delays during upgrades.

Figure 1

Sample configuration screen for EEO/Affirmative Action Plan (AAP) reporting for the US

Figure 2

Sample enterprise structure

Personnel Structure

The personnel structure is also a component of SAP ERP HCM structures. The personnel structures are comprised of employee group and employee subgroup. The following sections describe these two components in detail.

Employee Group

The employee group allows you to divide employees administratively. It also defines the extent to which employees place their labor at the disposal of the enterprise. Each employee group has a unique one-character alphanumeric identifier that is set up in configuration. These groupings can be country specific. You can default the employee group on the employee’s record based on the employee’s position in organizational management.

The employee group and employee subgroup provide the required specific SAP HCM submodules (e.g., Payroll, Time Management, and Benefits) to set up administrative-dependent rules such as:

• Regular FT: a regular employee who is working on a full-time schedule. Eligible for benefits related to a full-time employee. 
• Regular PT: a regular employee who is working on a part-time schedule. Eligible for benefits related to a part-time employee.
• Executive: an executive employee who is working on a full-time schedule and receives specific compensation related to the executive compensation structure. Employee is in the executive pay band and is eligible for benefits related to a full-time employee.  
• Inpatriate: an employee who is on an inpatriate assignment. There are two records in SAP ERP, one for the home country and one for the host country. The inpatriate employee group signifies the host country record. 
• Expatriate: an employee who is on an expatriate assignment. The expatriate employee group signifies the home country record.  
• External person: a non-employee who is classified as a contractor or agency. The employee is typically not an employee of the company and is not eligible for employee benefits.

Employee groups have the following functions:

•  Generate general data entry default values such as work schedule or payroll area
•  Act as selection criteria for reporting

•  Used for authorization checks

Employee Subgroup

The employee subgroup subdivides the employee group. Each employee subgroup has a unique two-character alphanumeric identifier that is set up in configuration. You can default the employee subgroup to the employee’s record based on the position. Employee subgroups are used to generate general data entry default values (such as work schedule or payroll area), select criteria for reporting, and perform authorization checks within SAP ERP HCM using standard HR security. For example, companies can restrict which users have access to which set of employees based on the employee group and employee subgroup.

Example categories for employee subgroups include:

• Salaried OT: a salaried employee within the regular employee group. This employee is eligible for overtime pay and has non-exempt status (if in the US).
• Salaried: a salaried employee within the regular employee group. This employee is not eligible for overtime pay and is in exempt status (if in the US).
• Hourly: an hourly paid employee within the regular employee group. This employee is paid based on hours worked.
• Contractor: a non-employee within the external person employee group. This non-employee is not paid any benefits and is not paid by the company (based on company requirements).
• Intern: an employee or non-employee within the company. This person can be paid or unpaid based on the employee group classification and whether he or she is part of a college-training program the company sponsors.

Before beginning an initial implementation or country rollout, you need to consider these key facets of the employee subgroup:

• After configuring the employee group and employee subgroups (and assigning people to them), you can’t remove them. Removing an employee group or employee subgroup from SAP ERP creates data inconsistency (such as erasing history).
• Try to use global terminology to limit the need for excess configuration (salaried non-exempt in US are called salaried OT)
• Give detailed definitions for the employee groups and employee subgroups to help ensure proper employee classifications are assigned
• Employee group and employee subgroup combinations are set up in groupings known as employee subgroup groupings. These are essential for payroll and time management configuration.
• Employee groups and subgroups are important for defaulting different types on pay frequencies on infotype infotype0008 (basic pay). You can set this configuration within SAP ERP HCM configuration table T510W.

Figure 3 provides a sample regular full-time scenario. I defined separate employee subgroups (e.g., hourly, salaried OT, salaried, and sales) due to the fact that different regular full-time employees need to be classified by how they are paid, compensated, and evaluated for time. Separate employee subgroups may need to be broken out if different payroll rules need to be taken into consideration for a group of employees who are paid overtime, have differences in pay frequency, or are eligible for different payroll wage types and payroll processing.

Figure 3

Sample personnel structure

Although not part of the HR structures, you can use the Work Contract field on infotype IT001 (organizational assignment) to help default values within SAP ERP HCM. Unlike the elements within the enterprise and personnel structure, the work contract field cannot be defaulted from the SAP position object. However, many implementations take the Work Contract field into consideration to hold values such as union membership and part-time or full-time status. The field can affect functionality within Personnel Administration, Payroll, and Time Management configuration.

Configuration Based on HR Structures

SAP ERP HCM configuration is heavily based on the components of the enterprise and personnel structure to allow specific reporting, transactions, payroll and benefits processing, and time evaluation to take place. This configuration helps to set logic around what an employee is eligible for within the organization. For example, you can set up logic to have an employee paid differently based on the personnel area/subarea and employee group/subgroup. In addition, you can assign specific infotypes for a hiring action based on the employee type. You can configure an SAP feature to default values on an infotype and choose which screen appears for a specific type of employee based on elements of the enterprise and personnel structure.

SAP features are often used to determine default values for Personnel Administration, Payroll, Time Management, and Benefits. These defaults are set on an employee’s record based on when certain infotypes are maintained on an employee. For example, the feature ABKRS is called when the Organizational Assignment infotype is called for an employee to default a value for the payroll area. The payroll area is determined by the enterprise and personnel structure values of an employee. Table 1 lists other common features that you can configure from values of the enterprise and personnel structure.

Table 1

Common SAP features in the enterprise and personnel structures

Other important features are related to country-specific infotypes for defaulting attributes for social insurance, benefits, and organizational data. One example is defaulting contract attributes for Belgium related to contract months and maximum hours per week on the contract elements infotype.

Groupings of Personnel Structure

You can use groupings of employee group and employee subgroup, called employee subgroup groupings, to bucket employees together for configuration of SAP ERP HCM. Employee subgroup groupings help drive eligibility on an implementation and you can define them either for a specific country or globally. For example, Time Management, Payroll, and Performance Management are dependent on employee subgroup groupings.

Within Time Management, two items that are heavily dependent on groupings of the personnel structure are eligibility of work schedules and time quotas. Eligibility of work schedules uses the employee subgroup grouping for work schedules to group employee subgroups assigned to the same classification of work schedules. Eligibility for time quotas uses the employee subgroup grouping for employee subgroups that have the same absence and attendance quota types.

Within Payroll, the employee subgroup grouping for the personnel calculation rule controls how an employee’s payroll is processed — for example, whether an employee is paid on an hourly or period salary basis, and the payment frequency in infotype 0008.

The employee subgroup grouping for personnel calculation rules is required by payroll accounting and is a key setting in Payroll configuration to set logic on how to process or evaluate an employee. In addition, the employee subgroup grouping for the collective agreement provision is used for the indirect valuation of wage types on the infotype 0008 and references which pay frequency is to be used based on configuration table T510W  (weekly, monthly, or semi-monthly). The grouping for the primary wage types controls the validity of wage types at the employee subgroup level. The grouping for the collective agreement restricts the validity of pay scale groups to specific employee subgroups.

For example, you can only enter the wage type Bonus for the employee subgroups executives and salary no OT. Both of these employee subgroups have the grouping 9. Within Performance Management, groupings of the personnel structure affect how appraisals are handled. You can define grouping employees who have similar appraisal eligibility by using the employee subgroup groupings. 

Groupings of Enterprise Structure

You can use groupings of personnel area and personnel subarea, called personnel subarea groupings, to bucket employees together for configuration of SAP ERP HCM. Personnel subarea groupings help drive the following eligibility on an SAP ERP HCM implementation and can be defined either for a specific country or globally. The eligibility these groups drive includes Time Management, Payroll, and Personnel Administration.

Within Time Management, personnel subarea groupings are used to set eligibility for work schedules, substitution types, availability, attendance and absence types, attendance and absence quotas, time recording rules, time quotas, and premiums. They are essential for defining public holiday calendars. For example, you need to have a specific personnel subarea grouping to distinguish which personnel area/personnel subareas are eligible for a specific holiday and which are not. Within Payroll, if the job or position is not used to default pay structures via the planned compensation infotype within the Organizational Management (OM), personnel subarea groupings can generate default values for pay scale type and area for an employee’s basic pay. In addition, personnel subarea groupings are also used to define wage type eligibility and permissibility.

Within Personnel Administration, you can use personnel subarea groupings to set the combination of personnel area and personnel subarea and for compliance reporting. In addition, personnel subarea groupings drive country-specific configuration for social insurance. For instance, if you were to carry out a configuration for Germany, you would need:

• Assignment of tax-related data such as church tax area, tax office number, and tax number
• Flat-rate church tax
• Data communications regulation check (DEUEV - Germany)
• Miner’s and mine employee’s insurance company number

Defining SAP ERP HCM structures properly and gaining agreement from all process teams is essential to having a sound solution. If you are implementing SAP ERP HCM at a global level, I strongly recommend that you adopt a global strategy for these structures to ensure consistency across reporting, interfaces, and configuration. However, based on certain country-specific requirements, there may be a need for a small amount of localization in the HR structures to support local variations for legal compliance or payroll processing.

After a project team establishes the HR structures, take the following steps:

• Review the proposed HR structures with regional leads and other team members
• Ensure that the HR structure approach is a global design and can be easily adopted. Adoption of HR structures globally is key for a successful design and implementation.
• Promote the HR structures
• Share the HR structures in project communications. Publish the design in project conference rooms for talking points and design references.
• Do not alter the design of the HR structures unless absolutely necessary. Making major changes to design during build is costly and causes rework for configuration, functional designs, and security. Minor updates such as adding personnel area and personnel subarea values are common during any design as new work sites or business units are established.
• Define transactional reporting
• Prototype or implement the HR structures and start demonstrating the reporting capabilities of the new structure across the project team. Demonstrate reporting such as EEO, new hire, and headcount changes

Questions to Ask When Defining HR Structures
Based on the details of the enterprise and personnel structures, the following questions help you define what your HR structures should look like for your SAP ERP HCM implementation.

1)      Where do employees work?

• Is the company structured by geographical region?
• Is the company structured by functional area of the business?

2)      What are the reporting requirements at the company and how is global reporting supported?

• Do I need to report by physical location or by zone for my employees?

The screen in Figure A is an example of a standard selection screen on delivered SAP reports in Personnel Administration and Payroll. As you can see, how you define your HR structures is a main driver of how you will be able to have specific selection criteria on a report. For example, suppose you want to report on all regular full-time people who are in the Dallas, TX, HQ location, who are also in the manufacturing group.

Figure A

Typical Personnel Administration report selection screen

3)      How do I want to look at my employees?

 

4)      Should I include our external workforce in our employee structure (i.e., contractors and temps)?

 

5)      How can I use this structure for regulatory reporting across different countries (i.e., US: EEO/AAP, Canada: EEA-Employment Equity Act reporting)?

 

6)      How are payroll and time eligibility derived?

 

7)      Am I thinking globally or locally?

 

8)      How can I streamline my HR authorizations?

 

9)      How do I group my employees for compensation program eligibility?

 

10)    Have I looked at the country-specific Payroll, Time, and Personnel Administration configuration?

Common Integration Between SAP ERP HCM and FI

Figure B shows the concepts of how finance and HR are integrated by use of SAP company code. The company code is used within both the finance and SAP ERP HCM systems and allows the SAP ERP HCM system to use the financial hierarchy to relate company codes to CO areas and cost centers. You can attach the values of the enterprise and personnel structures to the organizational structure and use them within Position Management if Personnel Administration integration is activated.

Figure B

HR structure integration with Organizational Management

Figure C shows the components of the enterprise and personnel structures defaulted to an employee based on the position assignment. You can attach the enterprise structure to both the organizational unit and the position. It is automatically attached to the employee within infotype 0001 (organizational assignment). Infotype 0001 first looks at the employee’s position to derive the company code, personnel area, and personnel subarea. If it doesn’t find a record, it looks up the organizational structure and searches up the tree for an organizational unit with this data.

Note
Figure C is based on an active Organization Management and Personnel Administration integration being turned on and switch PPOM INHS set to X (in table T77S0). Switch PPOM INHS instructs the system to read the organizational structure (parent org units) and pass enterprise structure values down to positions, also known as position inheritance.

Figure C

HR structures linked via Position Management

The personnel structure is only attached at the position level and allows you to default the employee group and employee subgroup onto the employee’s infotype 0001. If you hire an employee into a position with no associated personnel structure, you must manually enter the employee group and employee subgroup in the employee’s record.

Mark S. Jackson

Mark Jackson has been working with SAP ERP HCM for more than 12 years and specializes in SuccessFactors Employee Central and the SAP ERP HCM Personnel Administration and Organizational Management modules. He has had numerous experiences with implementing and leading SAP ERP HCM and SuccessFactors globally and is a subject-matter expert in defining global templates for SAP/SuccessFactors implementations.

You may contact the author at Mark.S.Jackson@gmail.com.

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