Understanding Basics of Payroll Management and Processing in Microsoft Dynamics AX 2012 R3 – Part I

With the release of AX 2012 R2 CU6 and R3, The Payroll Management and Processing functionality has been introduced in AX supporting the payroll for United States.

In one of my earlier posts I mentioned to come up with a post to explain how the Time & Attendance Module integrates with the Payroll module. We will initiate that discussion starting with this post and I will break the overall payroll management and process into multiple posts and try to have the full functionality covered in a few posts.

In today’s post, let us start with understanding the basic building blocks of payroll processing and go through the high level process from setups through generating a pay statement. In the few subsequent posts we will discuss the individual components of the configurations and processes in greater details.

The following are the key components of a typical Paycheck of a regular salaried employee.

  • Pay cycle /Pay period – How frequently the employee is paid
  • Earning Codes – Components of the pay such as Regular salary, double time, overtime etc.
  • Benefits and Tax Deductions – Such as 401k plan, Medical Insurance, Vision insurance etc.
  • Employer’s contribution for the benefits – How much employer contributes on the benefit deductions
  • Benefit Accruals – Paid Time Off, Sick Time Off etc..

For this demonstration, I have configured a worker “Sandeep Chaudhury” in the CONTOSO demo company USMF.

The Job and Position to which the worker will be assigned:

The Position to which the employee is assigned holds key component of the payroll, which is the Earning code, worker’s work schedule, pay cycle, the entity which pays etc. The screenshot below shows a position which the “Dynamics AX Solutions Architect”. This position is ultimately linked to a Job which holds the data such as the grade and ranges for classifying the compensation range for this position.



The worker, worker’s benefits and deductions, benefit accruals and the fixed and variable compensation components:

Payroll information such as worker’s fixed and variable compensations, benefit deductions, worker’s tax region(where the worker resides) and hence the corresponding tax codes for deductions, benefit accruals etc..

Worker’s Fixed Compensation Setup:


Worker’s Payroll TAX region and code setup:


Worker’s benefits and benefit deduction setup:


Worker’s Benefit Accruals Setup:


Generate earning statement and validate:

Once you have setup all the configurations and ready to pay the worker, the payroll is run in two processes. The first step is to generate the earnings for the worker. The earning statement lines can be automatically generated by the system based on the schedule and earning code associated with the worker or it can also be added manually on the earning statement while generating the earnings. Once the earnings are generated and reviewed, it is released for generating the pay statements and calculating benefits, deductions and net payments. The earning statement for the worker can be generated from both Payroll module and Human Resources Module.


Once you have reviewed the earning statement, you can Release the earning statement for payment or you can also hold earning statements for further review and actions. You can also see the Accounting distributions and verify the details of the ledger posting prior to releasing the statement for payment.


Notice that the Payment status changes to Processed after releasing the earning statement.


The next step is to generate the Pay statement and and Pay the worker.

Release Earning statement for generating Pay statements and Process the Payment:

Navigate to Payroll Module > Common > Pay Statements > Calculated Pay Statements and notice that the calculated pay statement appears automatically from the earning statement that we released in the previous step.

The benefits and deductions and contributions are automatically calculated as soon as system creates the Pay Statement.

Pay Statement Overview:


Pay Statement Details page:


Review Benefit calculations:


Tax Calculation Details:


After you have reviewed the Pay statement, you can Submit it for Payment. At this point , system checks the GL budgets and then automatically creates the financial journal(Payroll Disbursement Journal/Payment Journal). I will discuss the technical details of the financial journal (Payment Journal) creation such as ledger accounts, journal names, financial dimensions, accounting of the benefits and tax deductions, payment invoice etc., in the next posts on this topic. This post will get pretty long if explained here.


Payment journal auto-created by system:



The next step is to generate the Payment by clicking Functions > Generate Payment and, print and send the check and then post the payment journal.

Check Printed from Payment Journal:


After the Payment is processed and posted, you can navigate to Payroll > Common > Issued Pay Statements and see the details of it.


Post Payroll to General Ledger and create vendor invoices for Benefits and Taxes:

The last step in the payroll process is to post the payroll to GL and then generate the required vendor invoices for the payables which were created from the pay statement to pay the benefits vendors and tax authorities.

We will discuss the mechanism and the technical details of this in the subsequent posts on this topic, in greater details.

Employees can View and download their pay statements on the Employee Self-Services portal:

Navigate to Enterprise Portal > Employee Self Services to see all your Pay Statements. You can then print the Pay statement and export it to PDF.


Pay Statements Overview:


Print Pay Statement:


Well, long enough post. That’s it for today.

In the next couple of posts on this topic(Part II and Part III, Hopefully I will find some time soon Smile), we will discuss the individual setups and components in greater details and also explore additional functionalities in this area. Stay tuned !!

2 thoughts on “Understanding Basics of Payroll Management and Processing in Microsoft Dynamics AX 2012 R3 – Part I

  1. Great overview! Very helpful for someone like me who is not a Payroll consultant but want to get a general idea on how the Payroll module works, and how it interacts with the other modules in Dynamics AX.

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