gross overpayment of wages

[ncprog]

What is the name of your state (only U.S. law)? New York
My employer overpaid me by 100 % (double salary) on 1 September for the month of August. I notified the department head in writing (certified mail) and also by email. No one responded. I had a meeting with the department head once in September. He never brought the subject up except to say that some money I had claimed I was owed for June had been entered for payment. This extra amount, he said, would be paid on 1 October along with the regular September paycheck.

On 1 October I received another paycheck. This time I was overpaid 150% (double salary plus 50%). I also received the one-time payment for work done in June.

I wrote the department head again by email and by certified mail. He did not return my call. I called his secretary and said that the same problem with my paycheck had happened again. I then called Payroll. The manager there complained that another department head had misinformed her about my pay rate but that to solve the problem I should:

Write a check to the company for the net (after taxes and 401K) pay I received.

Then payroll would recover the taxes paid to the state, local government and Federal government.

I said I wanted this arrangement written down and signed. The manager of payroll said that she could not do this but she would call my department head to ask him to do that as the request was reasonable.

My questions:

1. Is paying back just the net received the legal way to handle this?
2. I want to propose that the company just recover the amount due by deducting excess gross pay against my next two or three months pay -- so we would have gross deduction for gross overpayment. This may cost me some money but it seems like a lot less work come tax time.
3. What happens to 401K contributions under either scenario (1 or 2)?
4. Does this seem like a reasonable payroll mistake to make?

Note that I do not dispute that I was overpaid. I notified the employer. They seem not to want to address the issue.

 

[pattytx]

1. Yes, unless there are also duplicate deductions which cannot be recovered, such as child support or garnishments.

2. The cleanest way (and a payroll best practice) is for payroll (or you might even be able to do it) is do what we call a "was paid, should be paid" on a worksheet. Take each paycheck component, calculate what should have been paid, deduct what was paid, and come to a net overpayment. Payroll should know this. The problem with just reducing future gross pay is that, on the checks on which you were WAY overpaid, it almost certainly put you into a higher tax bracket, therefore your income taxes were overwithheld. Reducing future gross pay will NOT equalize the overwithholding due to the marginal tax rates. Plus, legally, any overpayment not reimbursed by year-end has to remain "on the books", hence, on your W-2, and the tax reporting gets WAY more complicated, both for the employer and the employee.

3. Another reason to get this settled this year. It's going to depend on whether or not the administrator can refund overdeducted 401K to the employer. (see #1)

4. Of course not. On behalf of actual professionals in the payroll world, I apologize. Of course, it's also terrible auditing procedures and terrible follow-up.

 

[ncprog]

additional information

Thank you for the helpful answer. Some additional information has now come up:
1. The payroll office did precisely as they were told. A senior manager seems to have added the extra pay the first time and to have refused the request to fix the problem after the first overpayment. He just added more money.
2. I checked with the 401K provider. The employer can recover the money from them. They need to document the request, of course.
3. I received a third excess pay advice for November. So this is now the third time the problem has occurred.
4. My manager does not want to talk about it. I asked for a meeting; he hid behind his secretary's skirts and let her try to avoid setting up the meeting. But she is tired of that role so now we have a meeting set up for next week if the guy shows up.
5. Because of the fact that I will probably owe taxes this year I really don't care all that much if I pay a higher marginal rate for three months. I will probably end up owing it anyway because I have interest income.
6. Why is it more complicated for me to let them just deduct gross against gross (or to be more precise deduct net + fed + state + local tax against the same for me)? I understand that I can then for 2010 file with the IRS to have the money paid entered as a miscellaneous deduction (with 2% threshold) But what if I don't care. My income will go down in 2010 anway so I won't owe enough for the whole thing to matter in terms of money.

If it's more work for them to take it back bit by bit and less work for me why should I care? I don't mean to sound flip but there is a real issue here.

7. In the realm of pure speculation I wonder what motivates a manager to allow an employee to collect many thousands of dollars of excess pay even when all the relevant parties (payroll, senior management, even HR advising) know there is an overpayment. Is such a person just crazy or is there some nasty surprise for me somewhere?

8. Suppose I just say I will pay gross for gross (or net + for net + as above) and that's it. Period. I write a letter to that effect and in that letter say that any additional pay above what I believe to be my stated rate vests me completely in the amount I have already received and confirms the company's intention to pay me at the new higher rate for the future. In other words, if they write a check for too much that amounts to a contract in this situation. Banks do this kind of thing all the time with those weird checks they send me.

thanks for listening.

 

[ecmst12]

It is much simpler for YOU to pay back the net. The company does all the work to figure out what taxes were overpaid and when you get your W2 at the end of the year, it will have all the correct amounts on it. Then all you have to do is file your taxes as normal.

Saying that if they overpay you again that you won't give the money back will get you fired right quick, I think. There is no law anywhere which allows you to profit off someone else's mistake, no matter how negligent that mistake may be.

Payroll probably didn't have enough time to correct the system before the last check was processed.

 

[ncprog]

gross overpayment information

Thanks for the comments. I canceled my direct deposit with the company. That way they have to pay me by check. If the check is wrong, I will return it and say that I cannot deposit an excessive check.

As for payroll not having time to make a correction, they did have time -- 21 days. Beyond that, they did enter in my correct salary as an additional salary. I have found this out by carefully examining my deposit advice statements and talking to the manager of payroll. This is prima facie evidence that they had time. They can argue that there was a second error, but this makes the idea that they can figure out all the right deductions after I pay them the net due rather a weak argument.

But the real issue here is that a manager intervened in the process. I can prove that with witnesses and computer records. He overrode the payroll process, which his system id allows him to do.

I have no desire to profit from the company's mistake. This is why I notified them of their large errors. The only reason to insert the statement about vesting of previous payments would be to alert them to the fact that they are not conducting their business properly. But stopping direct deposit puts me back in control, as a lawyer at my bank pointed out.

As for being fired, I suppose that might be a bad outcome in some cases, but then maybe I would want to quit first? I am not sure how this would affect the outcome.