COMPLIANCE
What to do when an employee is paid too much
Billy Meyerkorth CPP, owner and consultant of Billy Meyerkorth Consulting discusses one of the biggest headaches for payroll professionals: overpayments*
M ost employees don’t realise that payroll departments deal with a lot of information and have numerous processes to go through just to ensure all employees are paid accurately and on time. Contrary to popular belief, there really isn’t a magical easy button for payroll professionals. In fact, payroll routinely receives numerous pieces of information required to process pay for employees. There are, of course, times when mistakes happen, either due to human or system error, and one of the most common of these is overpayments. Unfortunately, overpayments don’t always get back to the payroll department in time to get them remedied immediately. Overpayment scenarios There’s a common misconception that employees actually look at and understand their pay slips or pay statements. But that’s simply not the case. This is unfortunate, given all the hard work and time payroll professionals put into ensuring employees know why their pay is the way it is. Not to mention that it would be so much easier to remedy an overpayment sooner rather than later if pay documents were checked. But all too often, employees don’t ‘realise’ they were overpaid. Overpayments can be the result of many different things, including the following: System issues This is one of the most common causes for miscalculations resulting in overpayment.
causing overpayments. The errors may originate from the payroll side, or they may be upstream from other systems. Payroll professionals should attempt to catch these issues through audits or payroll system edits, but unfortunately, they’re not always discovered in time. "There’s a common misconception that employees actually look at and understand their pay slips or pay statements. But that’s simply not the case" Overused benefit time This is another common scenario which can result in overpayment. This occurs when an employee uses more paid time off (PTO) than they have earned, resulting in an overpayment. These overpayments can typically be reduced by re-evaluating company policies to prohibit front loading of hours or to prevent employees from going into negative figures with their time off balances. Many companies have sign-on or relocation bonuses and typically the rules behind them mean that if the employee were to leave employment prior to a predetermined time frame, they would be required to repay the bonus or at least a prorated portion. Although these are kind
of a different category of overpayment, they’re still considered overpayments, as the employee received more money than they should have and is required to repay the amount.
Overpayment remedies Payroll departments should have
comprehensive policies and procedures in place, which spell out the steps payroll must take to remedy and correct all overpayment occurrences. Some of the questions payroll departments must consider include the following: l do we collect the overpaid monies from the employees? l how do we collect overpaid monies? l do employees pay back the net amount? l do employees pay back the gross amount? l can employees pay back via payroll deduction? l what happens when an overpayment crosses tax years? There are many other considerations. When you’re creating the policy for overpayments, make sure you consider the rules for all employees within an organisation so there’s no chance for discrimination of any sort, and consider the burden on the employee as well. Of course, there are other ‘what ifs’ payroll must consider, such as: l what do you do if an employee doesn’t repay? l are they still an employee or are they terminated? l does the company pursue the repayment in the courts? When considering the overpayments
Human error Almost as common as system issues for
| Professional in Payroll, Pensions and Reward | March 2024 | Issue 98 34
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