Singapore CPF claw back & Excess Refund Guide for Employee Central Payroll Implementation

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Introduction

It is a common customer requirement in the Singapore region to request for CPF refund for excess contributions made during the year in payroll. The statutory requirement to report on it and the need for the customer to internally report on it for claiming the refund through the CPF board is the major driver behind this requirement. The good news is that the Employee Central Payroll solution from SAP is capable of handling this legislative (and often, quite common) requirement from clients. 

Scenario Details

Its business as usual at ABC enterprises. Their payroll team has paid out a wage component to their employee in January. This wage component is considered for additional wages under CPF contribution. The payroll team performs the pay out and exits the payroll run for the month of January. A month passes by, the  payroll team realizes in the month of March, while finalizing the payroll data for a live run, that the payroll team paid the wage component in January, in error, to the employee and this needs to be nullified.

For this purpose, they need to perform a claw-back of the payment made in January to the employee, in the month of March. When they perform this claw-back, they also need to ensure the excess CPF paid & refund claim be performed in accordance to the amount that is due from CPF board, for both the employee and the employer portions.

Is this possible in Employee Central Payroll? A resounding, yes! 

Process Diagram

Detailed Understanding of Scenario Implementation in EC Payroll

1. Employee was paid a pay component in January '24 for SGD 5000

For the scenario we are discussing, the employee has been paid a wage type that is marked for CPF AW (additional wages) component. The input has flown in from employee central and employee central payroll made the payment for the wage type as below: 

2. In the month of April '24, the payroll team realizes that the wage component paid in January was, in fact, in error. They now need to claw back the payment to the employee and consequently, the CPF paid in error.

In order to perform this action, the customer has two options: 

A) They can either delete the pay component in the month of January '24 in Employee Central, perform the replication (i.e. let the replication do its job) and then run the live payroll for April month. This will help them to do two things at one shot with a clean design. Firstly, they will be able to perform the deletion without need to input any new wage component in the current month to nullify the payment in January. Hence, this reduces effort on the data entry team in EC as they no longer need to pull reports and check up on the correct value to input. Secondly, they also do not need several wage types configured as deductions with CPF AW marked for the claw back. 

In our scenario, the payroll team now goes ahead and runs the payroll for the employee after deleting the component from Employee Central. This generates a negative deduction and is also, automatically, a trigger for the CPF AW excess calculation. 

On the other hand, the customer can also choose to use a one time deduction pay component for the claw back however, this design is prone to having too many deduction components for the claw back in case there are several equivalent wage types that the client may be usually clawing back from the employee. 

Important point to note if a separate wage type is being used to claw back the CPF deducted, then it should be marked to CPF even if it is a deduction wage component. 

Also, it is common for some clients to claim the refund from CPF board in the month when the claw back happens. However, SAP will perform the recalculation only at the end of the year and hence the wage types to be used in wage type reporter to ascertain the amount would be /RC5 for the employee contributions and /RC7 for the employer contribution. 

3. YTD CPF recalculation in the EC Payroll system

In the month of December '24, the EC Payroll system does a recalculation of the CPF calculations for the employee and it is at this time that the CPF excess/shortfall is calculated. At this point, the client can generate the wage type reporter with the relevant wage types to check for any excess / shortfall for claims to CPF board. 

The wage type reporter can be used to generate the employee and employer CPF excess details as below: 

For the employee excess details, the wage types /311 & /31L are used as below: 

For the employer excess details, the wage types /313 and /31N are used as below: 

This same information is also available in IR8S section B as below, generated at year end. Needless to say, the recalculation happens at the time of termination (leaving the company) to provide the details on the excess/ shortfall of CPF. 

Once the refund has been claimed from the CPF board, the inputs in info type 3364 - Tax Declarations (SG)  is done by the employer to ensure completion of the entire cycle. This input is made into the sub-type 0002 of the info type 3364 - Tax Declarations (SG) as below: 

Once the input is maintained in IT 3364, the value automatically appears in IR8S under section C. This is basically the refund amount received from CPF. 

Conclusion

CPF claw back is an exception scenario in Singapore payroll that can be handled in the ways described above and reporting is possible either in the same month or at the year end when SAP recalculates the ceiling etc. Monthly reporting on the amount to be claimed back from CPF board is a bit unusual. Most clients use the YTD reports and the IR8S to check and claim the refunds.