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CCH® PAYROLL — 06/23/10

APA Congress seminar focuses on employee overpayments

The topic of what employers can do when overpayments are made to employees was discussed by Barbara Youngman, CPP, Director Of Legal Compliance, Brinker International and LaTisha O’Neal, CPP, Payroll Analyst BOK at the APA's 28th Annual APA Congress that was recently held in Washington D.C.

State rules

Initially noted was a very recent change in New York State due to a ruling by the New York State Department of Labor (DOL) (see CCH PAYROLL MANAGEMENT GUIDE Report Letter No. 2144, dated April 27, 2010.). The opinion letter stated that it is unlawful for employers to recoup overpayments made to employees via wage deductions, even if the employee specifically authorizes the deductions in writing and the weekly deductions do not total more than 10% of the weekly wages. The speakers advised that federal and state laws may be different. Generally under state laws, any deductions from an employee’s paycheck must be voluntary, be authorized, and not take the employee below the minimum wage. The authorization should be specific and detailed.

Voluntary and authorized

A repayment is voluntary if it is made without fraud, misrepresentation, undue influence, duress, or coercion.

Federal rules

Under federal law, employers may recoup overpayments without written permission. However, according to the speakers, it is still a good idea to get it. Also, employers are not allowed to recover the overpayment if it takes an employee’s pay below the minimum wage. Employers were warned not to deduct overpayments during weeks when overtime was worked. Loans and advances were slightly different. An employer could recover loan principal even if the employee went below the minimum wage, but not loan interest. For more information the speakers listed some federal resources: USDOL Opinion Letters, DOL Field Operations Handbook, DOL Fact Sheet No. 16, and the ER Guide to FLSA.

Tax issues

If the repayment is made in the same quarter, no adjustment is needed for Form 941. Simply void the payment in the payroll system. There is no need to issue a Form W-2c. If the repayment is made in a subsequent quarter, but the same year: (1) void the payment in the payroll system, (2) correct the prior quarter’s Form 941 by filing a Form 941-X, and (3) there is no need to issue a Form W-2c. (Over Payments—What Can We Do?, May 25, 2010.)

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