Collection of Employee Overpayments-Year End

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Collection of Employee Overpayments-Year End

• Payroll Process
• Presenters Kathyron Parsons
• Allison Absher

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Why Do We Care?
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Why Do We Care?

• If an overpayment occurs, your agency
• Has less cash for the agencys programs
• Is not in compliance with ORS, OAR OAM
• Runs the risk of audit comments
• The employee
• Deductions based upon of income will be greater
  than they should be
• May experience a hardship with repayment

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Why Do We Care Contd

• State / agency administration
• Payroll expenses are inaccurate in the
  Comprehensive Annual Financial Report (CAFR)
• Annual delinquent A/R report to the Legislature

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When/Why Overpayment Occurs

• Late reporting of LWOP
• Run 1, employee paid with forecast hours.
  (generally the 1st of the month)
• Run 2, after actual time worked is entered in
  the system. (generally the 15th of the month)

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When/Why Overpayment Occurs

• For salaried employees
• The employees pay is recomputed for the entire
  month to determine whether or not there is a
  difference between forecasted and actual pay.
  (Possibly a terminated employee or employee on
  LWOP.)
• Hourly employees are paid for actual hours worked
  and entered.

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When/Why Overpayment Occurs Contd

• Delayed pay-related personnel actions.
• Pay-related information (reduced wages, removed
  lead work, removed work-out-of class, work
  schedule changes, etc.)
• Delay/errors in PPDB or PEBB( WOC, differentials,
  pay range or step change, benefits entered late,
  employees start/termination date not entered in
  the PPDB.

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When/Why contd

• Administrative error
• Deductions not entered until after payroll runs.
  (optional insurances garnishments, etc.)
• Vendor deductions removed between Run 1 and Run 2
  (Do not remove vendor amounts after Run 1 on the
  P070. If you still have possession of vendor
  check, request a check rewrite to the
  vendor/employee for correct amounts. If the
  check has already been released, work with vendor
  to send check back or repayment of the
  overpayment to them.

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What Steps May Be Required?
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Potential Process Steps

• Research determine what happened
• Notify employee in writing
• An earnings statement that reflects overpayment
  is generated which serves as notice.
• Agency may have standard letters.
• Agree upon repayment plan
• Determine OSPA entries
• Potentially set-up an A/R

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1. Research What Happened
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Finding Overpayments Relies On

• Employees who review their pay stubs and report
  errors.
• Diligent managers.
• Careful Personnel staff members.
• Alert Payroll staff members.

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Research Tools

• E122-042A Payroll Exception Report
• B055RG Time Exception Report
• XREF43 and XREF44 OSPS Payroll Register Alpha
  Report
• B075 Gross Pay Adjustments Report

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Research Tools

• Net Pay Negative Report
• Gross Pay Over 2.0 x Adj. Base Exception Report
• P370 Calculation of Current Pay-off Screen
• P190 Payroll Register Data Screen

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3. Agree upon Repayment Plan
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Best Method for Overpayments

• Early detection prompt, accurate correction
  simplifies life for everyone!
• The best of all worlds
• A staff member detects the overpayment before pay
  day AND
• Makes correcting entries before final run OR
• Pulls check / stops ACH before distributed
  requests manual check
• Year End must be done before Dec. 31st.

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Repayment Options

• Payment methods (OAM 45.20.00 PO)
• Payroll deduction(s)
• Money order(s)
• Certified check(s)
• Payment options
• Lump sum payment
• Agreed upon repayment plan
• Default plan defined in contract or OAM 45.50.00
  PO (if applicable)

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Collection of Overpayment

• If the employee is not expected to work/earn
  enough hours on the next pay period to re-pay
  this through a payroll system deduction or
  repayment in full by 12/31/09, you will need to
  reverse the entries that created the net pay
  negative in OSPA, so the employees wages/taxes
  are not understated for the current year. The
  Agency is then responsible to collect the net pay
  negative by working with the Agencys accounting
  to establish an account receivable (A/R).

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Collection of Overpayment Contd

• When the employee does not repay all or part of
  the overpayment in the same year it is still
  taxable for that year. The employee received and
  used the funds during the year. When the
  employee has repaid the full amount, request a
  corrected W-2 for the year in which the
  overpayment occurred from the OSPS Accountant.

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ORS 292.063(1)

• When a state employee receives payment of salary
  or wages in an amount greater than the employees
  entitlement, the amount of overpayment may be
  deducted from salary or wages earned by the
  employee

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OAM 45.50.00 PO

• Applies, unless under a bargaining agreement
• By signing a time and attendance report
  (timesheet) either physically or electronically,
  an employee is attesting to the accuracy and
  truthfulness of the report

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OAM 45.50.00 PO

• Unless caused by administrative action and/or
  administrative error, overpayment will be
  recovered in one lump sum
• OAM 45.50.00 PO -- If an employee leaves agency
  service prior to full recovery of the
  overpayment, the balance owing shall be deducted
  from the employees final check.

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OAM 45.50.00 PO

• Separations
• SEIU If an employee leaves agency service
  before the agency fully recovers the overpayment,
  the remaining amount may be deducted from the
  employees final check(s)

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OAM 45.50.00 PO Contd

• An employee may make arrangements for monthly
  payments if
• Overpayment gt10 of employees monthly adjusted
  base pay AND
• Employee submitted accurate time attendance
  information AND
• Employee demonstrates lump sum would create
  economic hardship OR
• Overpayment occurred over ?2 pay periods not
  employees fault

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Bargaining Agreements, e.g. SEIU

• If caused by discrepancy between actual
  forecasted hours, may be adjusted in following
  month
• If overpayment lt5 of regular base salary,
  recovered through lump sum deduction
• If overpayment gt5 of regular base salary,
  monthly payments may not exceed 5 of regular
  base salary, unless employee agrees

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Separations ORS 292.170

• If a state employee leaves state employment
  after receiving payment of salary or wages in an
  amount greater than the employees entitlement,
  the amount of overpayment shall be considered a
  delinquent account and shall be subject to
  collection by the Collections Unit in the
  Department of Revenue under ORS 293.250.

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4. Determine OSPA Entries
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It Depends.

• Not always a black white answer
• Determined on a case-by-case basis
• As a general rule
• Not all overpayments will create a net pay
  negative when corrected
• OSPA will automatically offset corrections
  (payroll run) unless employee invokes repayment
  plan or repayment crosses tax years
• Here are some things to consider

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Options for OSPA Entries

• Allow OSPA to automatically offset until
  overpayment is repaid.
• Enter changes set corrective
• Enter P050 gross pay adjustment(s) before Final
  Run.
• If the employee has a net pay negative OSPA
  will not automatically offset it. Reimburse Joint
  Payroll Account enter PANN deduction on P070.
  If the agency has not collected funds from the
  employee by Dec 31st you will need to do a
  corrected W-2C for current year and when it is
  paid in full by employee do a second W-2C.

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OSPA Entries

• Notify OSPS Return of Overpayment form with
  check. (Reminder If you use a BT transaction
  through SFMA, be sure to complete and send this
  form to OSPS.)

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Options for OSPA Entries contd

• Do not make negative P050 entries to correct
  prior year overpayments prior year negative
  entries will understate wages for the current tax
  year. Work with your Agencys accounting staff
  to set-up an A/R and request a corrected W-2C
  when the employee repays the full amount.

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OSPA Automatically Deducts

• OSPA will make automatic adjustments when
  employee has net pay negative, e.g.
• LWOP entered after run 1 final
• Salaried full-time ? part-time
• ? hours for salaried part-time
• Retro-active P050 or P070 entries

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OSPA Automatically Deducts Contd

• Agency Joint Payroll Account are made whole
• Employees taxable income is correct
• Where correction is made for run 2, expenditure
  will be in correct accounting month

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Set Corrective

• Can be set for prior 3 months in same tax year
  until November. Any adjustments made for current
  year will need correction(s) entered in November
  and corrective set for November.
• OSPA recalculates the employees pay for the
  designated month(s)

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Set Corrective Contd

• OSPA will adjust taxes deductions based upon
  of adjusted base pay
• Joint Payroll Account agency whole
• Uses original pay types
• Posts to SFMA in current month (not retro-active)

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Negative P050 Adjustment

• May be for prior, current, or future pay periods
  within the same tax year.
• Use same pay codes as original transaction
• OSPA will adjust taxes deductions based upon a
  of pay
• Automatically makes Joint Payroll Account
  agency whole
• May impact overtime calculation, use Z codes

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Year-end Overpayments
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Income Taxes, Prior Tax Year

• IRS Publication 15 (Circular E) The wages paid
  in error in the prior year remain taxable to the
  employee for that year. This is because the
  employee received and had use of those funds
  during that year.The employee is not entitled
  to file an amended return to recover the income
  tax on these wages. Instead, the employee is
  entitled to a deduction for the repaid wages on
  his/her income tax return for the year of
  repayment.

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Social Security and Medicare Taxes Certification

• Social Security and Medicare Taxes Certification
  OSPS.99.13
• I have not and will not apply for a refund from
  IRS for Social Security and Medicare taxes
  overpaid for tax year(s)____________.
• I have already filed a claim for refund of
  ______ Social Security and _____ Medicare tax
  related to the overpayment.

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To Calculate P070 PANN Amount
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Year-end Overpayments
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Overpayment caused by net pay negative not paid
back before year end (not paid by Dec 31st 1)
Example 1
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Overpayment caused by net pay negative not paid
back before year end (not paid by Dec 31st 1)
Example 1

• The best way is to fix these before year-end
  closes. To do this you need to put whatever
  caused the negative back on the system before
  December Run 2. In Example 1, the employee had
  no hours for December. Hours had been backed out
  for November Run 2, therefore the 2009 wage has
  been understated. The negative is still on the
  system for 2010. Agency needs to reimburse OSPS
  for NET amount owing (515.39) using Return of
  Overpayment form. Employee still owes agency.
  Set up A/R for the GROSS amount minus FICA/MEDR
  tax (If SS MDR Taxes Certification has been
  signed.) 7.65. (755.86 57.82 698.04)
  Employee pays Agency this amount. You can have
  them send money to your agency or do a PANN. Do
  not send OSPS money received from employee as
  your agency has already cleared the negative. You
  do not make any system entries other than a PANN
  on the P070 if that is how the overpayment is
  being repaid to agency. In this example, a 2009
  corrected W-2 will be needed to put back the WAGE
  paid in 2009 (1st corrected W-2). Then when the
  overpayment is paid back by employee another 2009
  corrected W-2 will be needed to recover the
  FICA/MEDR to make the agency whole.

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Overpayment spreadsheet to use when setting up A/R
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Overpayment spreadsheet to use when setting up A/R
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EXAMPLE 2
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Overpayment caused by net pay negative not paid
back before year end (Not paid by Dec 31st)

• In Example 2, the hours that caused the net pay
  negative were put back on the system using a P050
  adjustment or by the time entry screen for
  November pay period before December Run 2. A
  corrective for November and November P010 dates
  need to be set for this to calc in 2009. Now the
  YTD is correct for 2009. No corrected W-2 is
  needed to correct WAGE for 2009. There is no
  longer a net pay negative, so do not send money
  to OSPS. Employee still owes agency. Set up A/R
  for the GROSS amount minus FICA/MEDR tax 7.65.
  Employee pays Agency this amount (If employee has
  signed the SS MEDR Taxes Certification.). Do
  not send OSPS money received from employee. You
  do not make any system entries other than a PANN
  on the P070 if that is how the overpayment is
  being repaid to agency. Then when the
  overpayment is paid back by employee you will do
  a 2009 corrected W-2 to recover the FICA/MEDR tax
  to make the agency whole.

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How Can We Prevent Overpays?
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How Can We Prevent Overpays?

• Encourage Personnel to make timely entries
• Enter all employee time prior to run 1
• Review tricky entries on the P370
• Carefully review Exception Reports for
  preliminary final

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How Can We Prevent Contd

• Review payroll reports prior to releasing
  paychecks stubs
• OAM 45.35.00 PO, requires that a non-payroll
  manager review B075 Gross Pay Adjustments Report
  before the release of pay checks
• Cancel direct deposits when LWOP results in more
  than one overpayment (Letter of Recommended
  Payroll Practice 02-0101)

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Questions?