Overpayments dealt with by SAP can be complex to calculate and difficult to manage. The following document provides some useful tips and insights into how overpayments can be dealt with, both in the UK and in other country versions of SAP.
SAP is a retroactive accounting system, i.e. it will automatically re-calculate an employee’s pay if any pay data on their personnel file is changed retrospectively. This means that SAP automatically calculates and reclaims overpayments unless there is a manual user intervention.
The way that SAP deals with an overpayment depends on the amount and timing of the overpayment.
If the net overpayment is small enough that it can be fully reclaimed through the employee’s normal wage, then SAP will automatically reclaim it. SAP will recalculate and refund an employee’s pension and tax contributions, providing the employee does not have an emergency tax code and the overpayment is being reclaimed in the same tax year, however SAP needs to be told to re-calculate the NI contributions. Using Infotype 0793, Payments Made in Error, an end user can instruct SAP which payments NI was deducted from in error, this Infotype then prompts SAP to re-calculate the NI for the relevant periods and refund any deductions due. Infotype 0793 can also now be used for multiple employments.
If the net overpayment is more than the individual would have earned during a pay period, meaning the employee is left with a zero net pay after payroll has been run, then SAP generates wage type /561, ‘Claim’. This wage type is held in the results table and shows how much SAP calculates the employee still owes after the current period. During the next payroll run, wage type /561 is brought through by SAP and converted to wage type /563, ‘Claim from previous month’. When SAP reclaims an overpayment over a period of time, /561 always shows how much SAP calculates the employee still owes at the end of the period, so the amount of the wage type should reduce each month. The difference between /561 and /563 shows the net amount that SAP has reclaimed from the overpayment in a single month.
When an overpayment crosses a tax year, SAP cannot refund any statutory deductions such as tax or NI, however it will try and reclaim the overpayment in full. This causes problems because the net overpayment that SAP calculates and hence tries to reclaim does not take into account the tax and NI owed to the employee.
If an employee who has been overpaid wants to pay back the money in instalments over a period of time, then a net loan system needs to be put in place. By loaning the employee a net payment of the amount of the overpayment through Infotype 0015 on SAP and then reclaiming the net payment in instalments from Infotype 0014, an end user can prevent SAP from deducting the overpayment all in one period and enable the employee to pay back the overpayment over a more manageable period of time.
The problem of an overpayment spanning across a tax year needs to be dealt with by resubmitting the end of yearfigures to the Inland Revenue and claiming a refund for any statutory deduction that has been overpaid. To ensure the employee repays the correct amount net, an end user needs to loan the net amount of the deductions incorrectly taken in the previous tax year through Infotype 0015, until they are received from the Inland Revenue. The tax year to date figures also need to be manually changed to ensure that the correct amount of tax is deducted from the current tax year.
If you wish to know more about the above solution and best practice process in handling overpayments in your organisation, feel free to contact us. We can go through any of the above points in more detail and determine the optimal solution for your company.