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 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 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?
Course Key Concepts: Overpayments, payroll, recouping overpayments, wage and hour law, IRS tax law, handling overpayments.
Learning Objectives
- Discover federal wage and hour laws and their impact on recouping overpayments.
- Identify 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.
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Prerequisites
No advanced preparation or prerequisites are required for this course.
Wage advances and Commission charge backs are mentioned during the FLSA/State requirement sections of the training, but are not mentioned during the handling of collecting the money back from an employee in a subsequent year or after termination.
That was my question with taking this course, and it is still left unanswered.
Need to know if the rules regarding FICA, FIT, and state requirements for collecting over payments includes the collection of commission charge backs and wage advances in which the employees agreed to and signed documents allowing the repayment.
Or, can those agreed to types of advances always be collected back in the current year since sometimes it takes several commission cycles to collect back the total amount due from a cancellation, or because the employee signed an agreement to repay advanced bonuses out of wages if they do not become earned by a specific time frame that can cross years.