Accidents happen, even in payroll. Keeping accurate payroll records and paying every employee for their working hours is an essential part of doing business. The last thing you want is to accidentally underpay an employee. But what happens if a mistake goes in the other direction? How do you deal with a situation where you have overpaid an employee, instead?
You will need to carefully navigate the legal and diplomatic solution to make your payroll and balance sheets right again. This article will help you plan the necessary steps to reclaim the overpayment without accidentally breaking the law or offending your valued employee.
Overpayment is something that can occur for a few common reasons.
You have someone who manually enters payroll and they made a mistake. A typo or miscalculation led to more hours or money added to someone's paycheck.
Time clock errors are a problem many companies struggle with. An employee may forget to clock back in after lunch, or forget to clock out at the end of the day. Maybe the fingerprint reader or card reader didn't register their scan. This can cause payroll errors. But so, too, can manual corrections of clearly wrong time clock records that accidentally credit the employee with a few too many hours.
Miscalculating pay modifiers can also lead to overpayment. For example, a mistake in withholding or in calculating overtime pay can lead to a paycheck that is heavier than it should be.
State laws are often very specific regarding the legal options to recoup overpayment to an employee. We'll take a closer look at the laws of New York and New Jersey on wage overpayment.
In contrast, New Jersey does not have any specific overpayment laws. This means the legal compliance issue defaults to federal law. Under federal law, employers are allowed to deduct the overpayment from future paychecks, even if this reduces the pay to below minimum wage. This can be done without notice. However, New Jersey employees do have the right to appeal deductions they feel were done in error.
There are several important considerations when planning to recoup the losses from overpayment.
You'll need to include:
However, it is also important to consider the implications on a human level. In many cases, the solution is worse than the problem when it comes to employee relations. It is important to choose a path that will not create hostility or resentment in your employee.
There are several options to recoup overpayment of wages to an employee. It is important to take actions that are both legally compliant and considerate of the employee experience.
First, notify the employee immediately of the problem and their options for restoring the balance.
Here are a few recommendations:
It is best to secure the employee's agreement in writing regarding how you will balance the overpayment. Then, you can take the necessary steps in compliance with federal and/or state laws.
Correcting overpayment must be done promptly and with caution to avoid penalties and complex tax implications.
Reach out to MegaPay to learn more about how having a payroll provider can help with the difficult matter of recouping overpayment (and preventing it to begin with)!