If an employee has been overpaid, the overpayment is a legal debt and must be repaid in full. Payroll will initiate recovery efforts on all payroll overpayments as soon as the discrepancy is detected. When a department or employee determines that an overpayment has occurred, the department or employee must notify Payroll in writing; email is acceptable. Details must include the date the issue was discovered, the period of overpayment, the amount and type of overpayment (i.e. Regular wages, bonus, overload, overtime, etc.) if known. It is the intention of the Payroll Department to work amicably with the affected employee, while acting responsibly in administering state regulations, to affect an orderly return of all excess payments without causing undue financial hardship to the employee.
Once Payroll calculates the amount of repayment, the employee will be sent an email and letter detailing the amount due. The employee can repay the debt by personal check or directly through a payroll deduction (if actively employed) in accordance with the state regulations.
Repayment in Current Year
If repayment is made in the same calendar year as the overpayment, the employee will repay the net pay amount of the overpayment. The Payroll Department will reduce the employee’s taxable wages and associated taxes for that calendar year to ensure the year-end W-2 Form is correct.
If the repayment is made through payroll deduction, then the docking schedule may call for partial payments over multiple pay periods, but in no cases should the repayment occur over a longer period of time than the overpayment occurred. For example:
Employee overpaid for one period, the employee's pay should be reduced by the amount of the overpayment in one pay period.
Employee overpaid for four pay periods, the employee's pay should be reduced over four pay periods to recover the overpayment
Repayment in Different Calendar Year
If repayment is not made in the same calendar year that the overpayment occurred, the employee must repay the net pay amount of the overpayment plus the associated federal and state taxes. Taxes are permanently credited to the employee on December 31 and cannot be subsequently recovered by the university.
Payroll can only recover the overpaid Social Security and Medicare taxes (FICA). Payroll will reduce the repayment amount by the associated FICA taxes, if applicable. The wages paid in error in the prior year remain taxable to the employee for that year because the employee received and had use of those funds during that calendar year. The employee is not entitled to file an amended tax return for that year. Instead, the employee is entitled to a deduction (or credit, depending upon the amount repaid) for the wages repaid on their personal income tax return in the year of repayment.
Once repaid, the Payroll will issue a corrected W-2 Form, reducing only applicable Social Security and Medicare wages and taxes and issuing the employee a Form W-2c.
Overpayments to terminated employees must be collected through the university’s established collections procedures for Accounts Receivable.
Leave Without Pay
If an employee took and reported leave in excess of available leave balances an employee will not receive pay in the amount of the excess. Payroll will process the dock pay transaction in the period in which it occurs or potentially in subsequent periods where necessary.
Retroactive pay is a delayed payment for work already performed. Many retroactive pay situations are due to later paper work submitted by departments. Employees should not begin work until all hiring requirements have been met. Retroactive pay situations should be avoided.
Last Updated: 4/19/2021