When your organization accidentally overpays an employee, it's important to take the correct steps in recouping that amount to avoid running afoul of payroll laws.
You can treat a wage overpayment as an advance or a loan, but the best approach to recoup that overpayment is to treat it as a deduction, said Barbara Youngman, payroll analyst at Toyota Motor, at the American Payroll Association conference.
How you recoup the money has consequences, depending on whether the overpaid employee is nonexempt or exempt under the Fair Labor Standards Act.
* Nonexempt employees need not give permission for deductions, but deductions can't be made from overtime pay and can't leave them with less than the minimum wage.
* Exempt employees must receive their guaranteed salary every week, so no deductions can be made. You can deduct from non-guaranteed pay, such as bonuses or vacation time.
The FLSA aside, under individual states' wage payment laws, deductions must be voluntary--made without fraud, undue influence or coercion--and authorized by employees in advance, Youngman said. Authorizations can be generic and included in employee handbooks.
The better option: Create a specific authorization detailing the pay periods during which the deductions will be made, whether deductions will be a percentage of gross or net pay and provides employees with a period to revoke their authorization.
Getting the taxes right
Taxes have been withheld from the now-repaid overpayment, and they must be accounted for.
* If the overpayment is recouped in the current quarter, employees repay the net, either by check or payroll deduction. You adjust...