Workshop: Overpayments—What Can We Do?

May 19, 2009

Speakers:
Barbara Youngman, CPP, Legal Compliance Manager, Brinker International
LaTisha O’Neal, CPP, Consultant

Knowledge of State Law Important When Dealing With Overpayments

Keeping up with state compliance is key when it comes to wage overpayments, said  Barbara Youngman, CPP, legal compliance manager for Brinker International, and consultant LaTisha O’Neal, CPP. 

Though federal law comes into play when dealing with overpayments, it is state law that can be tricky to deal with, Youngman said. 

After payroll discovers an overpayment, the first step is to research the law for the state in which the employee works and to be familiar with company policy, Youngman said. This should be done before notifying the employee.  If it is not, payroll runs the risk of the employee knowing more about the state laws than payroll does.

After notifying the employee, payroll should follow up in writing and then work with the employee to “find a win-win situation,” Youngman said.  It is important, but not always required by state law, to have the employee sign a deduction authorization agreement. If an employee chooses not to sign the agreement, payroll should mark it as a “refusal to sign,” Youngman advised.

Settling with the tax side of things is the next step and what payroll does depends on when the overpayment was discovered.  If an overpayment is caught early, it is ideal if the employee repays the amount in the same quarter to ensure there are no corrections to Form 941, O’Neal said.

If an error is found later, corrections need to be made on the new Form 941X. The form  is “one of the best things that has happened to payroll in years,” O'Neal said, because payroll does not have to wait until the next quarter to correct the mistake.  Payroll can then void the payment out of its year-to-date totals.  If payroll has not closed out the year, the 941X will also allow payroll to skip the W-2c.