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Collection of Employee Overpayments-Year End Payroll Process Presenters: Kathyron Parsons »Allison Absher.

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Presentation on theme: "Collection of Employee Overpayments-Year End Payroll Process Presenters: Kathyron Parsons »Allison Absher."— Presentation transcript:

1 Collection of Employee Overpayments-Year End Payroll Process Presenters: Kathyron Parsons »Allison Absher

2 Why Do We Care?

3 If an overpayment occurs, your agency: –Has less cash for the agency’s 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

4 Why Do We Care Cont’d State / agency administration: –Payroll expenses are inaccurate in the Comprehensive Annual Financial Report (CAFR) –Annual delinquent A/R report to the Legislature

5 When/Why Overpayment Occurs Late reporting of LWOP –Run 1, employee paid with ‘forecast’ hours. (generally the 1 st of the month) –Run 2, after ‘actual’ time worked is entered in the system. (generally the 15 th of the month)

6 When/Why Overpayment Occurs –For salaried employees: The employee’s 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.

7 When/Why Overpayment Occurs Cont’d 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, employee’s start/termination date not entered in the PPDB.

8 When/Why cont’d 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.

9 What Steps May Be Required?

10 Potential Process Steps 1.Research & determine what happened 2.Notify employee in writing –An earnings statement that reflects overpayment is generated which serves as notice. –Agency may have standard letters. 3.Agree upon repayment plan 4.Determine OSPA entries 5.Potentially set-up an A/R

11 1. Research What Happened

12 Finding Overpayments Relies On: Employees who review their pay stubs and report errors. Diligent managers. Careful Personnel staff members. Alert Payroll staff members.

13 Research Tools: E A Payroll Exception Report B055RG Time Exception Report XREF43 and XREF44 OSPS Payroll Register Alpha Report B075 Gross Pay Adjustments Report

14 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

15 3. Agree upon Repayment Plan

16 “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. 31 st.

17 Repayment Options Payment methods (OAM 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 PO (if applicable)

18 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 employee’s wages/taxes are not understated for the current year. The Agency is then responsible to collect the net pay negative by working with the Agency’s accounting to establish an account receivable (A/R).

19 Collection of Overpayment Cont’d –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.

20 ORS (1) “When a state employee receives payment of salary or wages in an amount greater than the employee’s entitlement, the amount of overpayment may be deducted from salary or wages earned by the employee”

21 OAM 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…

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

23 OAM PO Separations –SEIU – “If an employee leaves agency service before the agency fully recovers the overpayment, the remaining amount may be deducted from the employee’s final check(s)”

24 OAM PO Cont’d An employee may make arrangements for monthly payments if: –Overpayment >10% of employee’s 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 employee’s fault

25 Bargaining Agreements, e.g. SEIU If caused by discrepancy between actual & forecasted hours, may be adjusted in following month If overpayment <5% of regular base salary, recovered through lump sum deduction If overpayment >5% of regular base salary, monthly payments may not exceed 5% of regular base salary, unless employee agrees

26 Separations – ORS “If a state employee leaves state employment after receiving payment of salary or wages in an amount greater than the employee’s 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 ”

27 4. Determine OSPA Entries

28 “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:

29 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 31 st 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.

30 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.)

31 Options for OSPA Entries cont’d 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 Agency’s accounting staff to set-up an A/R and request a corrected W- 2C when the employee repays the full amount.

32 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

33 OSPA Automatically Deducts Cont’d Agency & Joint Payroll Account are made whole Employee’s taxable income is correct Where correction is made for run 2, expenditure will be in correct accounting month

34 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 employee’s pay for the designated month(s)

35 Set Corrective Cont’d 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)

36 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

37 Year-end Overpayments

38 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.”

39 Social Security and Medicare Taxes Certification Social Security and Medicare Taxes Certification OSPS –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.

40 To Calculate P070 PANN Amount

41

42 Year-end Overpayments

43 Overpayment caused by net pay negative not paid back before year end (not paid by Dec 31st 1) Example 1

44 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 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%. ( – = ) 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.

45 Overpayment spreadsheet to use when setting up A/R

46

47 EXAMPLE 2

48 Overpayment caused by net pay negative not paid back before year end (Not paid by Dec 31 st ) 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 Now the YTD is correct for No corrected W- 2 is needed to correct WAGE for 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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50

51 How Can We Prevent Overpays?

52 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

53 How Can We Prevent Cont’d Review payroll reports prior to releasing paychecks & stubs –OAM 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 )

54 Questions?


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