Payroll Exceptions Overview

This section of the book is focused on payroll exceptions. Payroll exceptions occur when an employee’s compensation deviates from expected or authorized pay due to errors, omissions, or unique circumstances, such as overpayments, underpayments, or missed adjustments. This standard outlines the protocols and frameworks for identifying, documenting, communicating, and resolving payroll exceptions in accordance with Indiana University guidelines.

UCO-PAY-4.00: Payroll Overpayments

Prerequisites

Prior to reading the standard on Payroll Overpayments, it is beneficial to review the below item to gain foundational information:

1. FIN-PAY-001: Payroll Compliance

Preface

A payroll overpayment occurs when an employer mistakenly pays an employee more than they are owed for a pay period. This can happen due to various errors in calculation, data entry, or time reporting. Essentially, the employee receives a paycheck that exceeds the amount they should have been paid based on their worked hours, time off, or other compensation. This standard establishes expectations and responsibilities for identifying and collecting overpayments.

Introduction

It is the responsibility of the fiscal officer to ensure appropriate controls are in place to avoid payroll overpayments. In the unlikely event that an overpayment occurs, it is the responsibility of the department to report the overpayment to University Payroll. Indiana University pursues collection of overpayments made to former or current university employees that exceed minimum thresholds.

Importance and Impact of Payroll Overpayments

Overpayments to employees are costly and may result in compliance and legal issues for the university. They also may be an indicator of inadequate internal controls which could result in audit findings. Furthermore, overpayments require significant administrative work for the university, department, and the employee. They can also create an undue hardship for the employee who will be required to return the funds.

Payroll Overpayments Discussed in Detail

University Payroll has the authority and responsibility to create, implement, monitor, modify, and enforce operating procedures and internal control processes consistent with this standard to ensure reasonable efforts are undertaken by departments to resolve overpayments made to current and former employees in compliance with the university’s legal and fiduciary responsibilities.

Resolving an Overpayment

All overpayments, regardless of amount, are required to be reported to University Payroll. When a department becomes aware of a payroll overpayment, it must contact University Payroll immediately. If the overpayment is reported before the applicable payday, it might be possible for University Payroll to cancel the direct deposit or paycheck and avoid the overpayment process entirely. It is also the department’s responsibility to contact the employee (or former employee) to arrange for repayment of the overpayment.

The department is responsible for completing the following steps upon identification of an impending or already occurring overpayment:

1. If the overpayment has been identified, but has not yet occurred, payroll processors must notify University Payroll immediately and take any immediate action to avoid or prevent the overpayment.
2. If the overpayment has already occurred, the department must notify University Payroll, the department’s fiscal officer, and the employee to begin resolution of the overpayment.
3. The payroll processor must ensure that corrections to the employee’s job records (edocs) are processed timely as required.
4. The payroll processor must submit a Request for Adjustment Form to University Payroll to initiate the overpayment recovery process.

Controls to Prevent Overpayments

It’s the responsibility of the fiscal officer to ensure appropriate controls exist within the department to prevent overpayments. Overpayments may occur due to administrative error, including late processing of HR edocs, failure to report accurate ePTO, inaccurate time sheets, or employee fraud or misconduct. The overpaid employee, the employing unit, and University Payroll all have responsibilities to resolve overpayment situations pursuant to Internal Revenue Code. University Payroll will provide reporting of overpayments at least quarterly to the respective campus Vice Chancellors of Finance and Campus Controllers. Campus VCs and Controllers will work with their respective HR business partners and fiscal officers to mitigate risk of overpayments.

The university requires pursuit of overpayments in excess of a predetermined threshold as determined by University Payroll annually. At University Payroll’s discretion, overpayments may be deducted from an employee’s remaining paychecks in the current tax year (IC 22-2-6-4). For former employees, the university reserves the right to pursue collections.

Requirements

1. It’s the responsibility of the fiscal officer to ensure appropriate controls exist within the department to prevent overpayments.
2. Pay processors must attempt to avoid or prevent the overpayment whenever possible.
3. The employee, University Payroll, and department’s fiscal officer must be notified of any overpayment.
4. The unit must make corrections to job records as required.
5. Pay processors must submit a Request for Adjustment Form to University Payroll to initiate the overpayment recovery process.
6. The fiscal officer should coordinate communications between the employee, supervisor, pay processor, and University Payroll until overpayment is resolved.
7. The university requires pursuit of overpayments in excess of a predetermined threshold as determined by University Payroll annually.