The present invention is a SONET payload processing system capable of handling virtual concatenation of SONET payloads. The payload processing system enables combinations of sub-frames, comprising an arbitrary number of virtual concatenation data streams, to be multiplexed into a single SONET frame stream. The present invention further provides a processing system that is not limited by the number of sub-frames or the grouping arrangement. The payload processing system accepts both virtual concatenation and contiguous concatenation within the same SONET frame stream and processes them into blocks of data that do not intermix information from different channels.