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Employees can be overpaid in even the most well managed payroll department.  Yes it does happen when mistakes are made but it isn’t always the result of an error. Perhaps the employee received a sign-on bonus but did not stay for the required length of time. Or the employee was advanced vacation but is now terminating before he or she has fully earned the time.  No matter the reason, overpayments can and do happen and must be handled properly.  The first questions that usually arise relate to Internal Revenue Service (IRS) regulations.  What is required if the overpayment occurred this year?  But what if it occurred in a previous tax year, does that change the rules? Are the rules different for federal income tax than they are for social security or Medicare taxes? 

 

Recouping overpayments is also much more complex than just adhering to IRS code! Wage and hour law compliance must also be honored when dealing with overpayments. Before the payroll department even needs to determine IRS requirements they must first determine if recouping the over payment is even legal under the Fair Labor Standards Act (FLSA).  Issues such as exempt employee status, minimum wage and overtime rules for nonexempt employees must be considered when recovering overpayments from employees.  

And of course, the overpayment did not occur in a vacuum when it comes to state laws. Each individual state may have their own compliance issues involving wage and hour laws!  Is there a time limit for recouping the overpayment in that state? Does the employee have to be notified in advance before the deductions can begin? Or does the state just say NO! to the whole process?  

Learning Objectives

  • Discover federal wage and hour laws and their impact on recouping overpayments
  • Identify Internal Revenue Service (IRS) requirements on recouping overpayments in a current tax year
  • Explore state wage and hour laws and their impact on recouping overpayments
  • Recognize the requirements of recouping overpayments under IRS regulations in a subsequent tax year
Last updated/reviewed: September 17, 2018

4 Reviews (12 ratings)Reviews

5
Anonymous Author
Excellent! The information was informative and served as a great reminder of how to properly file 941-X. Breaking down the FIT and FICA sessions made the information more manageable.
5
Member's Profile
This course was very thorough in explaining the tax implications when recouping an overpayment that was inadvertently made to an employee. I didn't realize that there were different requirements dependent on whether the repayment was made in the current year or subsequent year. Anyone working in payroll as an administrator, coordinator, or manager would benefit from this course. I would like to see additional examples, such as what if an employee partially repays in the current year, and pays the rest in a subsequent year.
5
Anonymous Author
An excellent overview of state and federal law regarding overpayments to employees and if and how they can be recouped from the employee.
5
Anonymous Author
Overpaid of wages can be tricky. Vicky gives us a great tool to reference to stay compliant.

Prerequisites

Course Complexity: Intermediate

No advanced preparation or prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Course Syllabus
INTRODUCTION AND OVERVIEW
  5:45Introduction to Overpayments: You Overpaid an Employee…Now What?
  14:16The FLSA Requirements
  23:01The State Requirements
  6:23The Basics
  6:44Federal Income Tax
  8:06FICA Taxes
  8:43Putting It All Together & Conclusion
CONTINUOUS PLAY
  1:12:59Overpayments: You Overpaid an Employee…Now What? Full Video
Supporting Materials
  PDFSlides: Overpayments: You Overpaid an Employee…Now What?
  PDFOverpayments: You Overpaid an Employee…Now What? Glossary/Index
REVIEW AND TEST
  quizREVIEW QUESTIONS
 examFINAL EXAM