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  3. Payroll Overpayments: Handling Them Correctly in 2024

On Demand Webinar

Payroll Overpayments: Handling Them Correctly in 2024

Webinar Details $219

  • Rated:
  • Webinar Length: 100 Minutes
  • Guest Speaker:   Vicki Lambert
  • Topic:   Human Resources, Taxation and Accounting, Payroll
  • Credit:   CPE 2.0, HRCI 1.5, SHRM 1.5, ATAPR 1.5, ATAHR 1.5, RCH 1.5

All Access Membership

We will discuss these regulations and more including the private letter ruling that governs the IRS requirements. We will examine the FLSA requirements on recouping overpayments including the 1998 opinion letter that spells out these requirements. We will also discuss how to conduct research to determine the state’s requirements for handling overpayments. We will review the wage and hour laws of several states and the factors that they use to determine if an overpayment can be recouped.

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?    

Areas covered in this webinar:

Handling Overpayments under IRS and State Tax Codes:

  • Why a 1990 IRS Private Letter Ruling on handling overpayments applies today 
  • Correcting overpayments in the same calendar tax year
  • Why asking for the gross is better than the net check for prior year overpayments
  • Correcting FICA taxes for a prior year overpayment
  • Correcting FUTA/SUI taxes
  • Using Form W-2 or Form W-2c to report overpayments

Wage and Hour Laws and Their Impact on Recouping Overpayments:

  • The standards under the FLSA in terms of timeframe for recouping prior year overpayments
  • Is a written agreement for repayment always required under the FLSA
  • Collecting overpayments from exempt employees and its effect on salary basis compliance
  • Recouping overpayments and its effect on minimum wage and overtime requirements
  • Can employers treat advanced vacation payments as overpayments if an employee terminates
  • Where do the states stand on recouping overpayments

Who can Benefit: 

  • Payroll Executives/Managers/Administrators/Professionals/Practitioners/Entry Level Personnel
  • Human Resources Executives/Managers/Administrators
  • Accounting Personnel
  • Business Owners/Executive Officers/Operations and Departmental Managers
  • Lawmakers
  • Attorneys/Legal Professionals
  • Any individual or entity that must deal with the complexities and requirements of Payroll compliance issues
  1. Introduction 00:00:
  2. Our Focus For Today 00:01:15
  3. Wage And Hour Compliance - The FLSA Requires 00:07:19
  4. FLSA Requirements 00:07:30
  5. FLSA Requirements (Cont’d) 00:15:06
  6. FLSA 00:15:47
  7. Facts Of The Case 00:17:48
  8. FLSA - Employer Discretion 00:18:32
  9. FLSA Field Operations Handbook (FOH) 00:22:14
  10. FLSA Field Operations Handbook (FOH) - Section 30 00:23:49
  11. FLSA Field Operations Handbook (FOH) Voluntary Assignment Wages 00:24:59
  12. Exempt Employees 00:25:56
  13. Vacation Pay In FOH 00:27:35
  14. Compliance - The State Requirements 00:30:36
  15. State Requirements 00:30:56
  16. California 00:32:31
  17. California Cont. 00:36:48
  18. California Not Legal If 00:37:48
  19. New York 00:43:14
  20. Chargebacks 00:44:59
  21. Vacation 00:47:12
  22. Vacation - CA 00:49:37
  23. Vacation - CA (Cont’d) 00:53:24
  24. Vacation - ND 00:56:09
  25. Let’s Review A Few More States On Overpayments 00:58:21
  26. Indiana 00:58:36
  27. Michigan 01:01:34
  28. New Hampshire 01:03:12
  29. Oklahoma 01:03:54
  30. Washington 01:05:15
  31. Washington (Cont’d) 01:07:37
  32. Washington (Cont’d) 01:07:47
  33. Tennessee 01:07:49
  34. Tennessee (Cont’d) 01:08:20
  35. Tennessee (Cont’d) 01:08:57
  36. Tennessee (Cont’d) 01:09:15
  37. Texas 01:09:41
  38. State Breakdown Or Handling Overpayments 01:10:43
  39. IRS and Overpayments - The Basics 01:11:07
  40. IRS Requirements 01:11:15
  41. The Private Letter Ruling 01:13:25
  42. Facts Of The Case 01:14:15
  43. Company Asked If They Could Do The Following: IRS Said No! 01:15:28
  44. Facts Of The Case For Private Letter Ruling 01:15:50
  45. What The Taxes Require 01:17:26
  46. IRS and Overpayments - Federal Income Tax 01:18:09
  47. Federal Income Tax - Same Calendar Year 01:18:11
  48. Example  01:19:06
  49. Example 1 - Repayment Made In Same Calendar Year - The Facts 01:19:31
  50. Breakdown Of The Bonus Check  01:19:53
  51. Example 1 - Repayment Made In Same Calendar Year - The Facts (Cont’d) 01:20:13
  52. Example 1 For FIT - Chart 01:20:59
  53.  FIT - In Prior Calendar Year Resigns in 2021 01:21:34
  54. Example 2 Chart for FIT in Prior Year 01:22:42
  55. IRS and Overpayments - FICA Taxes 01:22:54
  56. FICA Taxes 01:22:57
  57. FICA Taxes In The Current Year 01:23:39
  58. Example 1 - Repayment Made In Same Calendar Year - The Facts 01:24:18
  59. Example 1 - Chart 01:25:15
  60. Example 1 Continued 01:25:57
  61. FICA Taxes In Prior Year 01:27:23
  62. FICA in Prior Year Continued 01:28:06
  63. An Employee Consent Must Meet The Following Requirements 01:28:40
  64. Example 2 - Repayment in A Subsequent Calendar Year - Facts 01:29:50
  65. Example 2 - Chart 01:30:29
  66. IRS and Overpayments - Putting It All Together 01:31:04
  67. Let’s Look At Example 1 Repaid In The Same Calendar Year For All Taxes 01:31:07
  68. Outcome For Example 1 01:31:33
  69. Example 2 - Repayment in A Subsequent Calendar Year - Facts 01:32:18
  70. Paul’s Outcome 01:32:33
  71. Example 2 Chart 01:32:52
  72. Example 2 Code Explanations 01:33:25
  73. Example Payments Chart 01:34:42
  74. Gross Or Net? 01:34:50
  75. Example 2 - Repayment in A Subsequent Calendar Year - Facts 01:35:25
  76. Example 2 - How Does The Company Recoup the FIT Withheld 01:35:42
  77. FUTA Taxes 01:36:52
  78. States Taxes - State Laws 01:37:49
  79. Are There Any Questions? 01:38:42
  80. Presentation Closing 01:50:19
  • Audit 00:22:40, 00:42:59
  • Chargeback 00:45:05
  • Department of Labor (DOL) 00:08:14, 00:23:33, 01:09:08, 01:12:42
  • Exempt 00:26:43
  • Fair Labor Standards Act (FLSA) 00:03:19, 00:07:24, 00:15:33, 00:17:40, 00:24:30, 00:31:19, 01:07:02
  • Federal Insurance Contributions Act (FICA) 00:06:19
  • Federal Unemployment Tax Act (FUTA) 00:06:23, 01:36:55
  • Field Operations Handbook 00:22:27, 00:26:09
  • FMLA - Family and Medical Leave Act 00:08:50
  • Form 941-X 00:06:35
  • Form W-2  00:06:30
  • Form W-2C 00:06:32
  • Garnishment 00:04:59, 01:00:41, 01:10:35
  • Minimum Wage 00:07:41, 00:13:40, 00:15:41, 00:25:20, 00:39:51
  • Overtime 00:07:42, 00:13:40, 00:15:42, 00:25:20
  • Payroll Overpayment 00:01:45, 00:18:30, 00:27:30, 00:33:16, 00:41:05, 01:05:54, 01:10:59
  • Private Letter Ruling 00:01:15, 01:13:31
  • State Unemployment Insurance (SUI) 00:01:15, 01:38:24
  • Wage 00:03:07, 00:05:28, 00:15:13, 00:31:06, 00:49:19, 01:09:44

Audit: A formal examination of an organization's or individual's accounts or financial situation

Chargeback: A chargeback—also called a “reversal”—is the return of credit card funds used to make a purchase to the buyer. A chargeback can occur if a consumer disputes a purchase made using their credit card, claiming that it was fraudulent or made without their knowledge or permission.

Department of Labor (DOL): The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S. states also have such departments.

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

FMLA - Family and Medical Leave Act: The Family and Medical Leave Act of 1993 is a United States labor law requiring covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons.

Fair Labor Standards Act (FLSA): The Fair Labor Standards Act of 1938 29 U.S.C. § 203 is a United States labor law that creates the right to a minimum wage, and "time-and-a-half" overtime pay when people work over forty hours a week. It also prohibits most employment of minors in "oppressive child labor".

Federal Insurance Contributions Act (FICA): The Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

Federal Unemployment Tax Act (FUTA): The Federal Unemployment Tax Act (FUTA) is a federal law that imposes an unemployment tax on employers. The FUTA tax funds the federal government's oversight of each state's unemployment program. Only employers pay FUTA tax. You must deposit the tax quarterly and file an annual form.

Field Operations Handbook: The Field Operations Handbook (FOH) is an operations manual that provides Wage and Hour Division (WHD) investigators and staff with interpretations of statutory provisions, procedures for conducting investigations, and general administrative guidance. The FOH was developed by the WHD under the general authority to administer laws that the agency is charged with enforcing. The FOH reflects policies established through changes in legislation, regulations, significant court decisions, and the decisions and opinions of the WHD Administrator. It is not used as a device for establishing interpretative policy.

Form 941-X: Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.

Form W-2: Form W-2 is an Internal Revenue Service tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. - Wikipedia (https://en.wikipedia.org/)

Form W-2C: W-2C is a form used to make corrections on previously issued wage/tax information (W-2s) from current or prior years. Like Form W-2, it is a multi-use form used to report corrected wages to the IRS (Internal Revenue Service), FTB (Franchise Tax Board), and SSA (Social Security Administration).

Garnishment: A legal summons or warning concerning the attachment of property to satisfy a debt

Minimum Wage: The lowest wage paid or permitted to be paid specifically fixed by a legal authority or by contract as the least that may be paid either to employed persons generally or to a particular category of employed persons.

Overtime: Overtime is time and a half of what an employee earns for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.

Payroll Overpayment: Payroll overpayment is a type of payroll error where you've paid an employee more than they've earned.

Private Letter Ruling: Private letter rulings, in the United States, are written decisions by the Internal Revenue Service in response to taxpayer requests for guidance.

State Unemployment Insurance (SUI): The Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own.

Wage: A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.

Guest Speaker

  • Vicki M. Lambert, CPP

    Vicki M. Lambert, CPP

    Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company offers a payroll news service which keeps payroll professionals up-to-dat [...]

    View Full Profile

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