In Part 1 of this series, I presented a claims clearing scenario. In this article, I will summarize the claims clearing process and discuss advanced claims techniques.

Before beginning the claims clearing process, ensure that your system is properly configured for the appropriate processes and wage types. For more information, go to the HR USA section of the SAP Service Marketplace (https://service.sap.com/hrusa). Then, click on the Documentation link in the left frame and then locate the Claims Processing document.

Keep three steps in mind when clearing claims:

Step 1. Identify the components of the claim.

Step 2. Eliminate the claim. If the employee repays the claim, go to the next step.

Step 3. Process a claim repayment.

I will describe these steps in detail in the next section.

Figure 1 shows the entire claims clearing process. If you are new to SAP Payroll, you may benefit from practicing with examples to prepare yourself for complicated scenarios. Now, I’ll present my favorite way of implementing SAP’s claims clearing process.

Figure 1

Claims clearing process

Implement SAP’s Claims Clearing Process

Step 1. Identify the components of the claim. If you run the claims report for my example in part 1 of this series, you see the output in Figure 2. As you may recall, the company overpaid employee X by $100.00, shown under the Taxable Repay Amounts section. The various tax amounts on that $100.00 overpayment are listed below that. The company asks the employee to pay back $100.00 less the amount of employee taxes, (the total of the taxes listed in the Tax Amounts section, $38.30) for a net of $61.70.

Figure 2

Output of the claims report

This is a simple case. More likely examples would include a number of Taxable Repay Amounts such as base pay, overtime, and shift premium. Some pretax deductions and post-tax deductions might be refunded. Some of the taxes might come from the table rates and some from supplemental rates.

Step 2. Eliminate the claim. The employee may pay back all or part of the claim, immediately or via repayment plan. Sometimes the employee pays back part of the claim and ignores the remainder, or the company forgives it. Ultimately, the employee repays the claim or the company writes it off as bad debt.

You can remove the claim from an employee’s records by charging it to a company’s expenses (usually a bad debts expense or the employee’s home cost center). To eliminate the claim, you can forgive it using the 9FEx and related wage types with an on-demand bonus payroll in Off-Cycle Workbench.

In my example, Payroll created the claim from wage type 0SRG, which has a tax class of 1, so you can clear that amount with wage type 9FE1. If you look at the payroll results after this off-cycle, you can see that Payroll cleared the claim because there is no longer a /561 wage type in the results table (RT), shown in Figure 3.

Figure 3

Claim eliminated from RT

Figure 4 shows wage type 0SRG in the BAL table, since the $100.00 payment from wage type 9FE1 created enough taxable income to offset it. There’s no impact on taxable wages when a claim is eliminated. The $100.00 decrease coming from the UNB table offsets the $100.00 increase from wage type 9FE1. As Figure 5 shows, on a year-to-date basis, the tax cumulated results table (TCRT) reports that employee X’s federal withholding wages equal the amount he earned — $2,000.00 from regular salary and $100.00 for forgiving the claim.

Figure 4

Wage type 0SRG is balanced in the BAL table

Figure 5

Year-to-date values

Step 3. Process a claim repayment. Let’s assume employee X offers to pay back the claim in full. You accept and deposit his check for $61.70. You must manually adjust the employee’s wages to reflect the claim’s amount. You can use the payroll adjustment infotype 0221 or set up a recurring deduction in infotype 0014. I’ll explain when and how to use each option. You can process the repayment in payroll by entering the repayment wage types in infotype 0221, payroll adjustments.

Use subtype ADJT when creating infotype 0221 because this subtype allows you to enter and process wage types with negative amounts. Figure 6 shows infotype 0221’s wage types. You reduce employee X’s wages by $100.00, along with the various employer and employee taxes, and record the net amount he repaid in wage type 9NET. Infotype 0221 shows a net amount at the bottom of the screen, but you can ignore it because it doesn’t correctly consider individual wage type configuration to determine the net amount.

Figure 6

Infotype 0221: wage types for repayment

At this point, you can wait for the next regular payroll to run and process this payroll adjustment, but I recommend running an adjustment check in Off-Cycle Workbench to make sure the results are what you expect. An adjustment check recalculates the employee, and since this infotype 0221 hasn’t yet been processed in payroll, the adjustment check considers it. Infotype 0221 creates a payroll result of its own, shown in Figure 7. The payroll system subtracts $100.00 worth of taxable wages and also reduces the various employee and employer taxes. Wage type 9NET contains the amount to offset employee X’s deposited check.

Figure 7

Result from a claim repayment

Since the 0221 payroll adjustment affects taxes and taxable wages, you can see in Figure 8 that the TCRT table has new values. Taxable wages have decreased to $2,000.00 and equal the sum of 0SRG, 9FE1, and 9RE1.

Figure 8

Year-to-date values after repayment

Repay a Claim via Payroll Deduction

Sometimes employees repay claims via payroll deductions. In this scenario, the first step is to eliminate the claim. Then you set up the goal/balance deductions according to the tax classes involved in the claim.

If employee X repaid his claim via a payroll deduction in my example, you would set up a recurring deduction in infotype 0014 for wage type 9D10 and a one-time balance of $100.00 for wage type 9D11 in infotype 0015.

As the company pays employee X, wage type 9D10 deducts as a pretax deduction, thus lowering the taxable income of the employee. Once the employee pays off the claim, the deduction stops and the year-to-date effect is the same as in Figure 8, except that wage type 9D10 replaces 9RE1.

Partial Repayment

If the employee only repays part of what is owed, the procedure is the same as a full repayment. The only change is in the values entered for the payroll adjustment. In this case, you would only reduce wages by the amount that was repaid.

More Complex Claims

Most claims are not as simple as the one I just explained. Claims often contain more than one type of earning, imputed income on group term life insurance, and several pretax deductions, as my next example shows. In this case, active employee Y enrolled in several pretax benefit plans. Payroll had run through August 15. The company then retroactively terminated employee Y on July 20. When the system ran the August 31 payroll, it generated a net claim of $2,154.53 for employee Y. I’ll explain how the company calculated this amount.

Step 1. Identify the components of the claim. The claims report (Figure 9) shows a total claim of $3,143.14. This equals the cash earnings in the Taxable Repay Amounts section minus the employee taxes in the Tax Amounts section minus the refunded deductions in the Deduction Amounts section.

Figure 9

Claims report for employee Y

The Taxable Repay Amounts section reports all taxable wages involved in the claim. However, not all taxable wages are cash wages. For example, imputed income on group term life insurance (EE GTLI Taxable, wage type /BT1) is taxable but does not result in a cash payment. Cumulation class 01 in table T512W is not enabled as taxable, but processing class 71 indicates it is a taxable wage type. A retroactively reduced non-cash wage type does not add to the claim because it doesn’t affect total cash payments. However, because this wage type is taxable, it’s relevant to reducing employee Y’s wages, which makes it part of the claim process.

The Deduction Amounts section lists every deduction from the pay periods involved in the claim. Negative amounts are normal deductions, and positive amounts are deduction refunds. Many deduction refunds occurred in the August 31 check. If these refunded amounts stem from pretax deductions, then they would increase the total taxable wages.

Unfortunately, the claims report doesn’t specify which deductions are pre- or post-tax, which is essential to know in step 1. You can review each wage type’s configuration in view V_512W_O to determine if it’s taxable, and if so, which tax class it uses. In this case, all the refunded deductions are pretax and their tax class is 5.

The Tax Amounts section shows the taxes for the total taxable amount of the claim. In Figure 9, that equals $3,400.00 plus $6.39 in the Taxable Repay Amounts section minus $256.86 in pretax deduction refunds (Non-Taxable Repay Amounts section) for a total of $3,149.53. To verify that number against the tax amounts, multiply it by the Medicare tax rate of 1.45 percent for a result of $45.67, equaling the Medicare Tax in the Tax Amounts section.

To calculate the net amount of the claim, $2,154.53, subtract the employee taxes and refund deductions from the cash earnings on the claim report, as shown in Figure 10.

Figure 10

Calculate the net claim

Step 2. Eliminate the claim. Using Off-Cycle Workbench via transaction PUOC_10, create an on-demand bonus check containing three wage types.

First, clear the regular salary component of the claim with wage type 9FE1 for $3,400.00 (Figure 11). Then, use wage type 9FP5 to offset the pretax deduction refund. Create a new wage type, 9IMP, for the third component, the imputed income on group term life insurance. Wage type 9IMP is similar to 9FE1 except for three differences: It is not a cash payment so cumulation class 1 is empty, its tax class is 3 to match the tax class on wage type /BT1, and it does not result in accounting debits or credits. Run the bonus check to eliminate the claim from RT (in other words, remove the /561 wage type). RT shows no taxable wages or taxes.

Figure 11

Results after clearing the claim

Step 3. Process a claim repayment. If employee Y repays the claim, you can now process the repayment. In this step, reduce the employee’s taxable wages by the repaid amount. Figure 12 shows infotype 0221, payroll adjustment, which you can access with transaction PA30. You can reduce the employee’s taxable wages via wage types 9IMP and 9RE1, reduce employee and employer taxes and record the reduction in pretax deductions in wage types 9PD5, and accept the employee’s net check amount in wage type 9NET.

Figure 12

Infotype 0221 payroll adjustment for claim repayment

Figure 13 demonstrates that Payroll reduced taxable wages after processing the infotype 0221 adjustment. This figure shows the /701 through /706 wage types and the wage types entered on infotype 0221. See the “Unusual Cases” sidebar for some claims scenarios not mentioned in this example.

Figure 13

Payroll result after infotype 0221 adjustment for repayment

Steve Bogner

Steve Bogner is a managing partner at Insight Consulting Partners and has been working with SAP HR since 1993. He has consulted for various public, private, domestic, and global companies on their SAP HR/Payroll implementations; presented at the SAP user's group ASUG; and been featured on the Sky Radio Network program regarding SAP HR.

Steve will be presenting at the upcoming HR Payroll Seminar November 7-8 in Chicago and November 27-28 in Orlando. For information on the event, click here.

You may contact the author at sbogner@insightcp.com.

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