When I attended HR2010, I was afforded the opportunity to learn about a fairly new enhancement that was introduced with EHP4: the Overpayment Recovery Solution. This enhancement would allow customers to manage the overpayment (claims) process a little better. Clearing claims would no longer be required and a set of business rules would drive the recovery process. This seemed like a better approach than the original method. Well, not so much. Right after the conference, my client was migrating to SAP and they wanted to implement this solution. I worked on this solution for them and the outcome produced some very undesirable results. We turned this functionality off immediately and before the end of the first payroll!
Claims is a topic that many payroll professionals struggle with due to its complex nature. It is especially difficult to grasp for newbies. There are many reasons why the traditional claims method is a pain. First, the configuration involves setting up a wage type for each taxability class which results in the creation of many wage types. To resolve claims, business users must be properly trained on how to analyze the payroll results and be equipped with the understanding of each which wage type to know which wage types to enter for each scenario. This analysis involves reviewing reports, pay statements, and master data changes. SAP provides a standard claims report that is used to determine the breakdown of the good money (/5PY) so that the taxation can be properly determined and entered. However, other reports such as the Payroll Reconciliation, Wage Type Reporter, and Remuneration statement are also available. This process can be very hard to navigate. Oftentimes user intervention is required and a business decision must be made. Will the claim be cleared or will it be forgiven? The manual clearing of wage types is done by processing off-cycles through bonus runs in IT0267 and manual entries in IT0221. Forgiveness requires one step whereas repayment requires both steps. The process to forgive overpayments for terminated employees is manual and the crossing of tax years is also manual.
In addition to that, when a claim is generated the recovery process is automatic. There is no way to control this recovery by turning it on or off. If an employee is receiving pay, the payroll will take as much as possible until the debt is paid unless the claim is cleared. Employee consent is not considered before the recovery process takes place. If the overpayment is a large amount that was an error, immediate action is required to clear the payroll mishap. Otherwise, the employee will not receive another paycheck until the claim amount is recouped. In some cases, the money is never recovered resulting in a business loss. Sometimes the claim is not cleared automatically through payroll. This can happen if an employee is terminated or on an unpaid leave of absence. These claims must be cleared before year end to avoid tax implications.
Understanding the current solution is hard enough. Why take a chance on a new solution? The Overpayment Recovery Solution faced many challenges when it was introduced. However, several years have passed and to work out some of the previous kinks, SAP has released almost 100 notes to provide more stability to the product. Unlike the old method, setting up wage types for each taxability class is not required because now the taxables are adjusted based on the point of collection.
Also, there is no automatic recovery process by default. Instead, a new payroll cluster table (CLM) is created in the payroll results. This table stores the details of the overpayment and the balance information. It quickly identifies which wage types have been overpaid so there is less analysis time. These CLM entries must be manually processed before recovery can begin in the next or current payroll. A new infotype, IT0909, was introduced to manage the repayment process. This infotype tracks employee consent, employer notification attempts, total forgiveness, partial forgiveness, and the actual repayment amounts. You can also elect to recover the claim at a later time or to stop the recovery altogether.
To use the new functionality, it must be activated and other configuration settings will apply. The ability to configure business rules and overpayment thresholds is a great feature. Setting thresholds allows automatic recovery up to a certain dollar amount. The customer also has flexibility to define rules based on the state and other parameters. For example, if a state does not allow recovery after a certain period has elapsed, this can be incorporated into the solution. Some other great features include the following:
- The ability to check minimum wage requirements is possible. This will ensure that the employee earns at least minimum wage after the recovery of an overpayment.
- The activation of automatic forgiveness for terminated employees can be turned on or off.
- The activation of automatic recovery can be turned on/off.
- The crossing of tax years can be automated into the solution.
Many of these features will address some compliancy issues that are often faced with the traditional claims method.
The Old Method vs. The New Method: Who’s the Winner?
Taking all of this into consideration, maybe now is a good time to give this functionality another chance. However, my recent clients have not moved over to the new solution or even inquired about it. The overall concept of the new solution sounds great but which one would you use?
To make that decision, determine which method would work best for you. If you prefer to intervene and have a higher level of compliancy, then the newer method may be the best solution. If your payroll department follows specific rules that some states have in place, this solution will allow for more control. Also, the newer functionality is constantly being fine-tuned as SAP provides enhancements. However, some workarounds may still be required. On the other hand, if you want SAP to automatically recover more overpayments through payroll, the original process could be better for your organization. Also, claims may not occur frequently within your company which eliminates the need for a big change. Keep in mind that both options still require some manual processing steps. Reviewing and testing all technical and business process aspects will help in making an informed decision and to see if the benefits outweigh the costs.
Please feel free to post a comment to share some of your personal experiences and challenges.
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