cancel
Showing results for 
Search instead for 
Did you mean: 

Canada ECP- Cross-year retro payroll and tax for Canada Payroll

JACVancouver
Product and Topic Expert
Product and Topic Expert
0 Kudos
196

Hello,

This is a question for Canada payroll (SAP SuccessFactors Employee Central Payroll).

We have a group of salaried employees paid bi-weekly. These employees are in Ontario and Quebec province. Payroll is processed before the end of pay period and employees are paid in advance. Time related information from external system is on a two weeks lag. 

For example: When payroll is processed for first pay period (PP) of 2025, employees are paid the bi-weekly salary for PP01 and any paid/unpaid absence for PP26/2024 will be processed with PP01/2025. When payroll is processed for PP02/2025, employees are paid the bi-weekly salary for PP02 and any paid/unpaid absence for PP01 will be processed with PP02.

During the year, we do not have issues with this scenario because earnings and taxes are adjusted in the period the data is applicable. However, the issue is specific to the scenario when absences are entered in current year for prior year and the absence has reduced the regular earnings. 

By default, standard SAP system does not change/recalculate taxes during cross-year retro. This is configured per payroll function KACYT and parameter ADJU. This is working as expected and we do not want to change this process. We want to bring forward the difference in earnings from prior year into the current year and calculate tax accordingly on the reduced earning. To achieve this, we configured the outflow/inflow processing, but inflow of regular earnings into current year is creating /103 and /153 (for Quebec), and the system does not calculate any tax on the negative inflow. Therefore, the tax calculated and displayed on pay statement is high as compared to the total earnings on the pay statement because the tax is calculated on the earnings in current pay period and no tax is calculated on the negative non-periodic income. Employee is not refunded for the taxes on reduced earnings for prior year.

 

For example: 

Regular earnings for PP01/2025 = $4,000

Difference in earnings from PP26/2024 due to unpaid absence for PP26/2024 after original period was processed = -$2,400

Total earnings displayed on pay statement for PP01/2025 = $1,600

/102 in PP01/2025 = $4,000

/103 in PP01/2025 = -$2,400 (negative inflow from PP26/2024)

/152 in PP01/2025 = $4,000

/153 in PP01/2025 = -$2,400 (negative inflow from PP26/2024)

Tax is calculated only on /102 and /152 in PP01/2025

Anyone having a similar scenario to get negative inflow from prior year into current year and implemented any solution to ensure the correct taxes are calculated according to the earnings displayed on the pay statement?

Thanks!

Accepted Solutions (0)

Answers (1)

Answers (1)

Woody_Nguyen
Active Contributor
0 Kudos

I am not expert in Can payroll, then i cannot comment how to handle for tax 😄

 

However i believe we can still follow the same approach for standard SAP by following these steps:

(1) Import the Old result (the original payroll), for this case is PP26/2024 to get the amount already computed and paid is 4k.

(2) Compare the current one (for PP26/2024 in PP01/2025), then now only 2.4

(3) Generate the difference as 1.6k

(4) with LRT solution, then can bring this 1.6k to current period (for PP01/2025 in PP01/2025).

(5) manipulate to generate IT with a WT that impact to Tax with value as 1.6k. Then tax in PP01/2025 should be reduced accordingly. (same way like HR to update -amt under Infotype directly, now we use PY schema to generate it automatically.

 

Some of documents i have written long time back you can refer.

https://community.sap.com/t5/enterprise-resource-planning-blogs-by-members/understanding-retroactive...

https://community.sap.com/t5/enterprise-resource-planning-blogs-by-members/payroll-processing-calcul...

For step 1 -> 4 above, for sure can implement. 

If you want you can refer the standard SAP payroll for Singapore when emp has backdated changed related to CPF (1 type of payment to goverment monthy), this difference in backdated must carry to current month to compute CPF, instead re-compute in retro month.

This sub schema RDF1 is handling this part.

 

If you have any further issues or having difficulties, let me know i can help.

Best regards,

Woody Nguyen

 

miteshjain
Explorer
0 Kudos

Hello Woody,

Thank you for reviewing the scenario and providing your inputs. Standard calculation for Canada payroll has an option to bring forward the differences from prior year but the earnings are treated as non-periodic income and negative values are not taxed. Even if I change to regular taxable income and add to current pay period income (PP01/2025) to calculate the correct taxes, because of the 2 weeks lag for absences, next period (PP02/2025) will retro into PP01/2025 and reduce the income again if employee is on an unpaid absence. The taxable income for PP01/2025 goes negative and system does not calculate tax on negative income. So the refund of taxes is only for the original amount that was calculated and pay statement does not reflect the correct tax when compared to the earnings. Hope this explains the scenario in detail.

Thanks again and appreciate the inputs!

KapilKurapati
Explorer
0 Kudos

@miteshjain- Were you able to resolve the issue?

We have similar issue with cross-year payroll. I saw in your comments that you were able to bring the earnings forward from prior year.

Your comment - "Standard calculation for Canada payroll has an option to bring forward the differences from prior year but the earnings are treated as non-periodic income and negative values are not taxed. Even if I change to regular taxable income and add to current pay period income (PP01/2025) to calculate the correct taxes".

Please let me know what has to be done to get the prior year earnings to current year period and to make it to regular taxable income. Appreciate your help.

miteshjain
Explorer

Hello Kapil,

Please refer to the outflow and inflow guide attached to SAP Note 0002447888. In our test system, we added a rule to switch the wage type from non-periodic to regular taxable income to test the process. We haven't implemented any solution to automate the process yet. 

Thanks!