Collection of Employee Overpayments

1. Collection of Employee Overpayments Part 1: Payroll Process Part 2: Accounts Receivable Process

2. Presenters • Katherine BremserOregon Statewide Payroll Services (OSPS) Training Coordinator • Gerold FloydStatewide Account Receivable Management (SWARM) Coordinator

3. Part 1: Payroll Process

4. Class Goal • To encourage agency staff members to think about the options for entering overpayments & repayments in OSPA • To provide non-payroll staff members background on how OSPA handles overpayments

5. Class Objectives • By the end of class, attendees will be able to: • Identify two reasons why agencies are interested in ensuring employees return overpayments • List three situations where an overpayment may occur • List two tools that a payroll person may use to research an overpayment • List three options for handling the repayment in OSPA

6. Class Outline • Why do we care if an employee is overpaid? • Why do overpayments occur? • What steps may be required to process repayment? • How can we prevent overpayments?

7. Why Do We Care?

8. Why Do We Care? • If an overpayment occurs, your agency: • Has less cash for the agency’s programs • Is not in compliance with ORS, OAR & OAM • Runs the risk of audit comments • The employee: • Deductions based upon % of income will be greater than they should be • May experience a hardship with repayment

9. Why Do We Care Cont’d • State / agency administration: • Payroll expenses are inaccurate in the Comprehensive Annual Financial Report (CAFR) • Annual delinquent A/R report to the Legislature (Part 2)

10. Why Do Overpayments Occur?

11. OSPA’s Characteristics • Two payroll runs • Run 1 payday generally the 1st of the month • Run 2 payday generally the 15th of the month • For salaried employees: • Run 1 is an “anticipatory” run based upon a forecast • Run 2 is a “clean-up” run to adjust the forecast to actual hours worked • Hourly employees are paid for actual hours worked & entered

12. OSPA Interfaces Data to SFMA • Summary payroll expenditures interface to SFMA after each payroll run • Pay codes entered on the time capture screens & the P050 Gross Pay Adjustments determine the COBJ / AOBJ in SFMA • After each run, SFMA automatically generates transactions to reimburse the Joint Payroll Account (JPA), a revolving account

13. Causes of Overpayments • Employee’s circumstances change: • LWOP / SAIF claim • Changes in work schedule • Changes in job status -- separation / part-time vs. full-time / salaried vs. hourly

14. Causes of Overpayments Cont’d • Delays / errors in PPDB or PEBB: • Changes in job status • WOC / differentials / pay range or step • Benefits entered late • Data entry timing or errors: • Deductions entered after run 1 • Incorrect time capture / P070 / P050 entries

15. What Steps May Be Required?

16. Potential Process Steps • Research & determine what happened • Notify employee in writing (Part 2) • Agree upon repayment plan • Determine OSPA entries • Potentially set-up an A/R (Part 2)

17. 1. Research What Happened

18. Finding Overpayments Relies On: • Honest employees who review their pay stubs • Diligent managers • Careful Personnel staff members • Alert Payroll staff members

19. Research Tools: • E122-042A Payroll Exception Report • B055RG Time Exception Report • XREF43 and XREF44 OSPS Payroll Register Alpha Report • B075 Gross Pay Adjustments Report

20. Research Tools Cont’d • Net Pay Negative Report • Gross Pay Over 2.0 x Ajd Base Exception Report • P370 Calculation of Current Pay-off Screen • P190 Payroll Register Data Screen

21. 2. Notify Employee (Part 2)

22. Notify Employee in Writing • OAM 45.50.00 PR requires written notice at least 10 days prior to final date for entering deductions • Bargaining agreements may require written notice, e.g. SEIU Master Agreement requires written notice that includes amount to be repaid • “Part 2” will cover what to include in notice

23. 3. Agree upon Repayment Plan

24. “Best” Method for Overpayments • Early detection & prompt, accurate correction simplifies life for everyone! • The best of all worlds: • A staff member detects the overpayment before pay day AND • Makes correcting entries before final run OR • Pulls check / stops ACH before distributed & requests manual check

25. Repayment Options • Payment methods (OAM 45.20.00 PO): • Payroll deduction(s) • Money order(s) • Certified check(s) • Payment options: • Lump sum payment • Agreed upon repayment plan • Default plan defined in contract or OAM 45.50.00 PO (if applicable)

26. ORS 292.063(1) • “When a state employee receives payment of salary or wages in an amount greater than the employee’s entitlement, the amount of overpayment may be deducted from salary or wages earned by the employee”

27. OAM 45.50.00 PO • Applies, unless under a bargaining agreement • “By signing a time and attendance report (timesheet) either physically or electronically, an employee is attesting to the accuracy and truthfulness of the report… • Unless caused by administrative action and/or administrative error, the overpayment will be recovered in one lump sum”

28. OAM 45.50.00 PO Cont’d • An employee may make arrangements for monthly payments if: • Overpayment >10% of employee’s monthly adjusted base pay AND • Employee submitted accurate time & attendance information AND • Employee demonstrates lump sum would create economic hardship OR • Overpayment occurred over 2 pay periods & not employee’s fault

29. Bargaining Agreements, e.g. SEIU • If caused by discrepancy between actual & forecasted hours, may be adjusted in following month • If overpayment <5% of regular base salary, recovered through lump sum deduction • If overpayment >5% of regular base salary, monthly payments may not exceed 5% of regular base salary, unless employee agrees

30. Separations • OAM 45.50.00 PO -- “If an employee leaves agency service prior to full recovery of the overpayment, the balance owing shall be deducted from the employee’s final check.” • SEIU – “If an employee leaves agency service before the agency fully recovers the overpayment, the remaining amount may be deducted from the employee’s final check(s)”

31. Separations – ORS 292.170 • “If a state employee leaves state employment after receiving payment of salary or wages in an amount greater than the employee’s entitlement, the amount of overpayment shall be considered a delinquent account and shall be subject to collection by the Collections Unit in the Department of Revenue under ORS 293.250.” • More in Part 2

32. 4. Determine OSPA Entries

33. “It Depends….” • Not always a “black & white” answer • Determined on a case-by-case basis • As a general rule: • Not all overpayments will create a net pay negative when corrected • OSPA will automatically offset corrections unless employee invokes repayment plan or repayment crosses tax years • Here are some things to consider:

34. Options for OSPA Entries • Allow OSPA to automatically offset until overpayment repaid • Enter changes & set corrective • Enter negative P050 gross pay adjustment(s) • Reimburse JPA & enter PANN deduction

35. OSPA Automatically Deducts • OSPA will make automatic adjustments when employee has net pay negative, e.g.: • LWOP entered after run 1 final • Salaried full-time  part-time •  hours for salaried part-time • Retro-active P050 or P070 entries

36. OSPA Automatically Deducts Cont’d • Agency & JPA are made whole • Employee’s taxable income is correct • Where correction is made for run 2, expenditure will be in correct accounting month

37. Set Corrective • Can be set for prior 3 months in same tax year • OSPA recalculates the employee’s pay for the designated month(s) • Examples include: • To correct time • Late entry of benefits • Retro-active changes in PPDB

38. Set Corrective Cont’d • OSPA will adjust taxes & deductions based upon % of adjusted base pay • JPA & agency whole • Uses original pay types (AOBJ & COBJ) • Posts to SFMA in current month (not retro-active)

39. Negative P050 Adjustment • May be for prior, current, or future pay periods within the same tax year • Use same pay codes as original transaction • OSPA will adjust taxes & deductions based upon a % of pay • Automatically makes JPA & agency whole • May impact overtime calculation, use “Z” codes

40. PANN P070 Deduction • If the employee has a net pay negative& OSPA will not automatically offset it within 2 monthsor it will cross tax years: • Reimburse the Joint Payroll Account with an SFMA “BT” transaction (JPA whole) • Notify OSPS -- Return of Overpayment form: https://intranet.egov.oregon.gov/sites/DAS/SCD/OSPS/docs/forms/retrnoverpay.pdf • Enter PANN deduction(s) for employee (agency whole)

41. Income Taxes, Prior Tax Year • IRS Publication 15 (Circular E): “The wages paid in error in the prior year remain taxable to the employee for that year. This is because the employee received and had use of those funds during that year.The employee is not entitled to file an amended return to recover the income tax on these wages. Instead, the employee is entitled to a deduction for the repaid wages on his/her income tax return for the year of repayment.”

42. To Calculate P070 PANN Amount

43. P070 PANN Amount Cont’d • Use gross pay for calculation of overpayment • OSPS will report & recoup overpayment for Medicare & FICA on next Form 941 • Agency should recoup overpayment to PERS & SEIU • Reimburse employee for FICA, Medicare, & SEIU dues

44. 5. Set-up A/R (Part 2)

45. How Can We Prevent Overpays?

46. How Can We Prevent Overpays? • Encourage Personnel to make timely entries • Enter all employee time prior to run 1 • Review “tricky” entries on the P370 • Carefully review Exception Reports for preliminary & final

47. How Can We Prevent Cont’d • Review payroll reports prior to releasing paychecks & stubs • OAM 45.35.00 PO, requires that a non-payroll manager review B075 Gross Pay Adjustments Report before the release of pay checks • Cancel direct deposits when LWOP results in more than one overpayment (Letter of Recommended Payroll Practice 02-0101)

48. Examples

49. Example #1 – 8 hrs LWOP • Employee is salaried • LWOP entered after run 1 final

50. Example #2 – WOC • Employee’s 5% WOC should have stopped 2 months prior • Personnel stopped the WOC in PPDB retro-actively