Retroactivity

Retroactivity is the process of going back in time and recalculating prior calendars because changes were made after the original calculation was run. When retroactive processing occurs for a payee, the system recalculates each element generated for the payee. The difference between these results is the retro delta.

In Global Payroll, two methods are available for calculating retro:

  • Corrective

  • Forwarding

The most common retro method used in Spain is the corrective method. Using this method, you go back and recalculate the elements of the pay run, updating all accumulators, including balance accumulators and calendar period accumulators. The recalculated pay run replaces the previously calculated run. However, the original pay run calculation remains available for auditing and reporting purposes. Rather than forwarding retro deltas to the current calendar as an adjustment, the system sends any adjustment to Net to be Paid for the recalculation period to manage the banking process.

Note:

You can also set up retro with the forwarding method during your implementation if it fits your company's needs.

PeopleSoft Global Payroll for Spain and Retroactivity

PeopleSoft Global Payroll for Spain delivers the corrective method because this is the standard (statutory) way to manage retroactivity in Spain.

  • The retro process (RETRO) uses the corrective method without variance.

  • Retro overrides are used in PeopleSoft Global Payroll for Spain. They serve the following purposes:

    • To facilitate reporting retro calculations to Hacienda.

      The system forwards the tax information for the current period using the IRPF RTR element. This element receives the value from the IRPF AFW element that is forwarded into IRPF RTR in a retro calculation of a month in the same year. In this way, the current month has all of the information affecting taxes. Also, the current tax percentage can be applied to the delta coming from a retro calculation.

    • To manage retro across different tax years.

      For these cases of retro, the system forwards tax values to the current month but it forwards them to elements other than IRPF FWD because they need to be taxed in a different way. In addition, these tax values are reported separately during yearly reporting. Later, the monthly and year-end reports retrieve those values and print them accordingly.

      PeopleSoft Global Payroll also enables you to manage retro from previous years as if they were from the same fiscal year. To accomplish this, modify the value of the variable CLI VR RT A PR FLG (previous year retro flag) with a value that is not Y.

      Note:

      Define retro overrides on the Retro Process Overrides page.

  • You can define your own retro event.

    See PeopleSoft Global Payroll: Understanding Retroactive Methods.

  • You can define your own retro triggers according to your company needs.

  • You can define your own pay entities according to your company needs, but the common setup in PeopleSoft Global Payroll for Spain is:

    • Calendar period: Starts in January.

    • Fiscal period: Starts in January.

    • Backward limits: Depends on how you set up PeopleSoft Global Payroll for Spain.

    • Forward limits: Two years.

Launching Retroactivity Across Different Tax Years

When the prior period is in a different tax year, your company normally can't collect the tax due and pay it to Hacienda because the prior year is already closed for tax reporting. This applies to both situations of underpayment and overpayment.

The system manages these retro deltas from a previous year based on the value of the variable CLI VR RT A PR FLG (Previous year retro flag). When the value of this variable is Y, the default value, the system processes retro deltas coming from a previous year separately from the income of the current year. It reports these retro deltas separately on the Model 111 and Model 190 reports. In addition, the system calculates the IRPF for those retro deltas by applying a fixed percentage (currently at 15 percent) instead of the valid IRPF percentage in the retro period.

If you set the value of CLI VR RT A PR FLG to anything but Y, the system processes retro deltas coming from a previous year together with the retro deltas of the current year. It does not manage them separately.

Note:

Taxes and social security are calculated differently. Social security calculation is not affected when the retro calculation is across different tax years. The way to calculate retro in this case is the same as the one used in calculating retro in the current year.

To split the retro details from different years, user will need to enter manual adjustments using the IRPF Tax Data Review ESP page.

Example of Calculating Retroactivity for a Different Tax Year

Assume that both the calendar period and the fiscal period for your pay entity start on January 1. If the retro starts in a different tax year, the fiscal period determines how the retro of taxes is calculated. The following list and table provide the details for this example:

  • Launch the calculation for the May 2006 pay period.

  • Launch a retro calculation for November 2005.

  • Report the tax calculation for the deltas from all the launched retros from November until April in the Model 111 of May 2006.

    In the case of the retro for November 2005 and December 2005, the IRPF for the delta is calculated with a 15 percent tax rate. Model 190 will reflect it accordingly.

Note:

This table summarizes all the information that you need for your retro calculation. This table is only a suggestion using the common setup parameters that are delivered with PeopleSoft Global Payroll for Spain. You may find that your company's requirements are different and may need to define retro differently during your implementation.

Setup Issue Requirement

Default retro method

Corrective

Retro process (retro method)

Corrective

Retro process - does it vary?

No

Calendar period starts on:

January 1

Fiscal period starts on:

January 1

Backward limits:

No limits

Forward limits:

Two years after employee termination

Running Corrections in PeopleSoft Global Payroll for Spain

The pure retro process calculates from a target calendar, which receives forwarded tax data regarding deltas and updates the balance accumulators of the recalculated month. You then report the delta from the retro processing for the target calendar through complementary reporting . Thus, if you have already reported social security contributions for a given month and need to recalculate, you use pure retro processing. For example, if a company signs a labor agreement in May but needs to increase salary starting from January 1, then the company must run pure retro processing from January in the May payroll (target calendar). The company then reports the deltas from the retro calculation in a complementary report within the May FAN file.

Corrections, on the other hand, are cases in which you need to rerun a finalized payroll but have not yet reported to social security for that month. Corrections enable you to report the delta on the regular monthly reporting rather than through complementary reporting. You are thus correcting a finalized payroll.

With PeopleSoft Global Payroll for Spain, you can run corrections by using a specific run type or by using Global Payroll core off-cycle functionality. The "Managing Off-Cycle Payments" topics explain both methods in detail.

Managing Reversals through Retroactivity

In some cases, retroactive processing may result in the reversal of payroll results. For example, let us assume that a payee was included in the payroll calculated for August. After you generate and submit all of the tax reports for the August payroll, you discover that the payee actually retired as of August 1st and should not have been included in the August payroll run. You can manage this type of situation through retro processing during the September payroll run. The system accomplishes this by creating a reversal segment for the September payroll run to reverse all of the payroll calculations for the retired payee for the month of August.

You can control whether the system reverses tax calculations in this type of situation using the CLI VR REV DD variable. When the value of this variable is Y, the system reverses all payroll calculations, including taxes. If the value of the CLI VR REV DD variable is N, the system does not reverse the taxes and other deductions that are specified in override sets 3 and 4 of the retro process definition (RETRO) for Spain as not to be reversed. The system instead forwards these deductions to the DD N REVRTDS deduction for the current payroll month.

Note:

You can view which deductions are designated to be forwarded to the DD N REVRTDS deduction in override sets 3 and 4 on the Retro Process Overrides page.

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