Why am I receiving error "Employee can't report to anyone below them in the reporting chain" when updating an employee's directly reports to person?

Why am I receiving error "Employee can't report to anyone below them in the reporting chain" when updating an employee's directly reports to person?

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This feature is available on all Deel Local Payroll powered by payspace editions

This error is caused when the company has the below Position Setting activated.
Navigate > Config > Human Resources > Organisation Structure > Org and Position Settings


When the above setting is enabled, an employee cannot be assigned to report to someone who already reports directly to them, thereby preventing a circular reporting relationship.