Salary Overpayment Collection Policy and Procedure

Salary Overpayment Collection Policy and Procedure

Policy Statement

Overpayments that occur are typically a result of an administrative error. Examples of these errors include late submission or approval of personnel actions that do not end job records or adjust work schedules in a timely manner, data entry errors on personnel records, or time reporting errors.  Overpayments may occur to active Duke employees, inactive employees who are on the Duke payroll but not receiving payment, former employees who have terminated from Duke, or students who are receiving non-compensatory payments to support their educational activities.  Regardless of the reason, Duke requires all active or terminated/inactive employees and students who receive compensatory or non-compensatory payments to repay all overpaid funds.  Corporate Payroll has responsibility for working with business units and the overpaid individual to fully collect all overpayments.  Once the individual repays funds, Corporate Payroll will return funds to the business unit less any fees associated with the cost of collection.  

Procedure 

To correct payroll overpayments:

1. When an overpayment occurs, business units should refer to the Overpayment Collection Procedure Table, which outlines how to address the overpayment. 
2. Business units will complete the transaction using the corresponding electronic iForm or Multipurpose iForm.
3. Inform the individual of the overpayment and how it will be resolved.
4. When the money is repaid, Duke Corporate Payroll will ensure the following processes:

• Credit the unit's cost center for the repayment.
• Adjust employee’s taxable wages accordingly.

Overpayments

Overview

Overpayments that occur are typically a result of an administrative error. Examples of these errors include late submission or approval of personnel actions that do not end job records or adjust work schedules in a timely manner, data entry errors on personnel errors, or time reporting errors.  Regardless of the reason, Duke requires all active or terminated/inactive employees and students who receive compensatory or non-compensatory payments to repay all overpaid funds.  Both the business unit responsible for the payment and Duke Corporate Payroll have responsibilities to resolve overpayment situations pursuant to Duke Finance Policy and in accordance with Internal Revenue Code (Publication 15). 

Roles and Responsibilities

Overpaid Individual Responsibility

Overpayments may occur to active Duke employees, inactive employees who are on the Duke payroll but not receiving payment, former employees who have terminated from Duke, or students who are receiving non-compensatory payments to support their educational activities.  Regardless of the reason, Duke requires all active or terminated/inactive employees and students who receive non-compensatory payments to repay all overpaid funds.

Departmental Responsibility

The business unit is responsible for the following: 

• Identifying the overpayment.  This may happen in partnership with the overpaid individual or through normal departmental activity.  
• Submitting the appropriate personnel iForm to Corporate Payroll to determine the overpayment amount and to initiate the collection process. 
• Communicating to the individual about the overpayment and serving as a liaison between the individual and Corporate Payroll Services as necessary. 

Duke Corporate Payroll Responsibility

Corporate Payroll Service is responsible for the following: 

• Determining the overpayment amount based on submitted personnel iForms. 
• Communicating with the individual and the business unit point of contact throughout the collection process. 
• Collection, to the fullest extent possible, all overpaid funds, following the steps outlined in the collection procedure.
• Providing documentation to confirm repayment.  
• Ensuring Duke’s adherence to Internal Revenue Code (Publication 15). 

Overpayment Collection Procedure

When the business unit identifies a personnel transaction that may result in an overpayment, use the table below to determine options for addressing the overpayment.  
The following table provides a guideline for resolving overpayments based on the disposition of the payment.

Note:  Pay stops on ACH transactions are reserved for large dollar amounts and unique situations.  This action stops payment for all active jobs and may result in off-cycle payments of funds due to the individual. 
 

Posting Credits for Overpayments

Corporate Payroll will post a credit for the full gross overpayment, minus any collection fees. as follows: 

• Post credit to the original funding source unless the business unit instructs Payroll to post the credit to a different cost object. 
• If the employee’s salary is charged to three or more cost objects, Corporate Payroll will credit the default cost center on the employee’s position. 
• Corporate Payroll posts credits in the fiscal year the repayment is received.  
• Allow five to ten business days for credits to post unless otherwise communicated. 
• Fees include credit card fees and an 18% fee for the collection agency. When this occurs, the collection agency returns the overpayment to Duke, less the 18% fee; therefore, Corporate Payroll will post that amount to the appropriate cost object. There is not a specific account entry detailing the cost of the fee.  

Once the overpayment credits posts, business units can complete a Manual Salary Cost Transfer iForm or paper form as appropriate to move credit to a different cost object.  

Communication

Corporate Payroll will use the individual’s Duke email when sending electronic notifications to active individuals and the home mailing address in SAP for all hard-copy correspondence regarding overpayments for terminated/inactive individuals, when applicable. 

The business unit staff member who submits the personnel transactions via iForm will receive the business unit copy of this communication. This individual will also receive information on any special arrangements, including repayment plans, between Duke and the individual. Upon full collection of an overpayment, the business unit and the individual will receive an "Overpayment Closed Notification" letter. The business unit staff member serving as the overpayment point of contact may share these communications within their unit as appropriate.  

Departments should act as liaisons between Duke Corporate Payroll and employees, ensuring that the employee understands the collection procedures described in the Overpayment Collection Process.

Note:  In some instances, an overpayment may be corrected automatically in SAP by a subsequent iForm transaction.  In those instances, Corporate Payroll will not communicate and will not be involved in collection as they are not aware of the overpayment, and SAP automatically adjusts an individual’s earnings.

Overpayment Collection Process

The Corporate Payroll Collection Process is determined by:

• The status of the pay event;
• The status of the individual (active, inactive, terminated);
• Whether the overpayment and repayment occurred in the current tax year or a previous tax year;
• The gross or net amount to be repaid.

If an overpayment cannot be prevented and the individual receives the overpaid amount, the business unit must initiate the overpayment process by submitting the appropriate personnel iForm and notifying the individual of the overpayment. Corporate Payroll will only notify the employee of overpayments NOT loaded automatically and begin collection activities.

Overpayment Process Guide for Business Unit

The following steps will aid business units in following the collection process for active and inactive/terminated individuals.  

Active Employees or Non-compensatory Recipients

Step 1: Business Unit Initiates Process 

• Notifies the individual of the overpayment, informing them that Corporate Payroll will contact them with detailed repayment information, including amount and repayment options. 
• Submits the appropriate iForm to correct the compensatory/non-compensatory record.   The required iForm submission will vary based on the reason for the overpayment.  Examples include the following: 
  • Multi-purpose iForm with an attached Gross Adjustment for non-exempt employee overpayments where hours – paid or time away from Duke – require an adjustment. 
  • Multi-purpose iForm with an attached Pay Exception when exempt employees were overpaid for days in a pay period. 
  • Termination iForm for exempt employees whose termination was not completed by payroll deadlines and was processed late. 
  • Retro Rate and Schedule iForm for exempt employees whose reduced schedule and/or rate of pay was not completed by the payroll deadlines.  Please note:  SAP typically adjusts pay in this situation without intervention from Corporate Payroll.   
  • Non-compensatory Change Form (maybe iForms or paper, depending on the situation) to adjust payments to students overpaid in a previous month.  
  • Non-compensatory End iForm when a student’s award ended earlier than expected and the iForm was not completed by the payroll deadline.  
• If required, process Cost Distribution iForm and wait until the next business day to view the change in SAP.  
• If an overpayment was charged to a sponsored project, follow the steps in the “Overpayments Involving Sponsored Projects” section of this guide.    
• If the business unit has a paper check, notate in the iForm comments, "Holding original payroll check and returning to Payroll" and provide the cost object to credit overpayment repayments.

Step 2: Corporate Payroll Receives iForm and Begins Notification

• Corporate Payroll reviews the iForm and supporting documentation to determine the overpayment amount.  
• Corporate Payroll emails the individual and the business unit an “Overpayment Notification Letter” that includes the overpayment amount and information on when Payroll will begin to recapture funds. 
• Active individuals will have seven calendar days to contact Payroll to make repayment arrangements.
  • Individuals may choose to repay the overpayment amount immediately in a lump sum OR
  • Corporate Payroll will begin capturing overpayment amount in subsequent pay periods after the seven-day deadline if there is no response or the employee chooses to have overpayment deducted.   

Step 3: Business Unit Facilitates Communication with Individual

• Discuss the overpayment details with the individual outlined in the “Overpayment” notification.  Be prepared to explain the situation. 
• Contact Corporate Payroll for hardship circumstances. The individual can request a repayment arrangement.  Corporate Payroll will work with the individual and the business unit to develop a repayment schedule and define the terms of the arrangement. Corporate Payroll will email the individual and the business unit a letter that confirms the details of the repayment arrangement.   
• If an individual requests a review of the overpayment, a meeting will be set up within 30 days with the individual, a business unit representative, and the designated Corporate Payroll representative to seek resolution. Please contact Corporate Payroll to request a review.

Step 4: Corporate Payroll Collection Process    

• If the individual returns a paper check or repays the funds before the seven-day deadline, Corporate Payroll will deposit funds, post the credit, and email an “Overpayment Closed” notification to the individual and the business unit.  
• If the individual does not repay funds directly, Corporate Payroll will begin collecting the overpayment amount from the next available pay event(s) and deducting it in equal installments over pay events for the subsequent two months. 
  • If the entire overpayment can be recaptured in the current calendar year, Corporate Payroll will reduce the gross wages on upcoming pay events until full payment has been collected.
  • If the overpayment cannot be recaptured in the current calendar year, Corporate Payroll will calculate the GROSS amount due from the individual.  Corporate Payroll will set up a deduction to recapture the GROSS amount owed.
• Corporate Payroll will send an “Overpayment Closed” notification once the individual repays the entire overpayment amount.
  • In the event repayments are made in a different tax year from when the overpayment occurred, the individual will receive a Tax Letter or Statement of receipt identifying the amount repaid in the current calendar year for a prior year overpayment.
• Corporate Payroll will post credit, minus any fees, to the appropriate cost object as outlined in the “Posting Credits for Overpayments” section of the guide. 
   

Terminated/Inactive Employees or Non-compensatory Recipients

Step 1: Business unit Initiates Process    

• Submits the appropriate iForm to correct the compensatory/non-compensatory record.   The required iForm submission will vary based on the reason for the overpayment.  Examples include the following: 
  • Multi-purpose iForm with an attached Gross Adjustment for non-exempt employee overpayments where hours – paid or time away from Duke – require an adjustment. 
  • Multi-purpose iForm with an attached Pay Exception when exempt employees were overpaid for days in a pay period. 
  • Termination iForm for exempt employees whose termination was not completed by payroll deadlines and was processed late. 
  • Retro Rate and Schedule iForm for exempt employees whose reduced schedule and/or rate of pay was not completed by the payroll deadlines.  Please note:  Corporate Payroll is often involved for terminated/inactive individuals. 
  • Non-compensatory Change Form (maybe iForms or paper, depending on the situation) to adjust payments to students overpaid in a previous month.  
  • Non-compensatory End iForm when a student’s award ended earlier than expected and the iForm was not completed by the payroll deadline.  
• If required, process Cost Distribution iForm and wait until the next business day to view the change in SAP.
• If the overpayment was charged to a sponsored project, follow the steps in the “Overpayments Involving Sponsored Projects” section of this guidance.
• If the business unit has a paper check, notate in the iForm comments, "Holding original payroll check and returning to Payroll" and provide the cost object to credit overpayment repayments.

Step 2: Corporate Payroll Receives iForm and Begins Notification

• Corporate Payroll reviews the iForm and supporting documentation to determine the overpayment amount.  
• Initiates a communication process with a letter providing information about the overpayment, including the repayment amount, deadline for repayment, and a detailed explanation of the next steps in the event that funds are not repaid. Corporate Payroll will send the letter to the most recent home mailing address in SAP and, if available, email it to the individual’s personal email address.  

Step 3: Corporate Payroll Collection Process    

• If the individual or unit returns a paper check, Corporate Payroll will deposit funds, post the credit, and send an “Overpayment Closed” notification to the individual and the business unit.  
• The individual can mail certificated checks or money orders to Corporate Payroll or contact Corporate Payroll to make payments electronically via credit card.
• Corporate Payroll will commence a 30-, 60-, or 90-day notification if the individual does not repay the overpayment after the initial communication. Corporate Payroll will send all notices to the most recent home mailing address in SAP and, if available, email the individual’s personal email address. Notices will include the repayment amount, the deadline for repayment, and a detailed explanation of the next steps in the event that funds are not repaid.   
• If individuals do not repay overpayments at 90 days: 
  • Corporate Payroll will attempt to contact the individual by sending a final notification letter to collect the overpayment owed.
  • If the individual does not respond by the deadline identified in the 90-day letter, the debt is sent to the outside collection agency for collection.  
  • The collection agency charges an 18% fee, which will be assessed to the business unit.  Any amount collected will be credited back to the business unit, less the 18% fee.
• Once repayment is received, Corporate Payroll will post credit, minus any fees, to the appropriate cost object as outlined in the “Posting Credits for Overpayments” section of the guide. 
   

Methods for Repaying Funds to Duke

Individuals who are overpaid will have several options for repaying funds. 

Active Employee/Non-compensatory Recipients 

Active employees or non-compensatory recipients will have the following options for repaying funds: 

• Personal Check 
• Money Order 
• Certified Check 
• Draft against future payments that will be equally distributed across pay events over a two-month period. 
• Credit Card
  • Individuals who choose this option must contact Corporate Payroll. 
  • Corporate Payroll will send an invoice to the individual.  For security purposes, the link containing the invoice will expire in two days.  Upon expiration, individuals will need to contact Corporate Payroll to receive an updated link to make payment.  
  • Fees associated with repaying the overpayment via credit card will be charged to the business unit by deducting the fees from the credit posted to the business unit.   

Inactive Employees/Non-compensatory Recipients

Inactive employees or non-compensatory recipients will have the following options for repaying funds: 

• Money Order 
• Certified Check 
• Credit Card
  • Individuals who choose this option must contact Corporate Payroll. 
  • Corporate Payroll will send an invoice to the individual.  For security purposes, the link containing the invoice will expire in two days.  Upon expiration, individuals will need to contact Corporate Payroll to receive an updated link to make payment.  
  • Fees associated with repaying the overpayment via credit card will be charged to the business unit by deducting the fees from the credit posted to the business unit.   

Additional Overpayment Situations/Information

Overpayments that Span Fiscal Years  

If an overpayment occurs in one fiscal year and the individual repays the funds in a new fiscal year, Corporate Payroll will credit the funds to the business unit's cost object in the current fiscal year. Funds on restricted accounts may lapse and will not be credited if received from the individual in a new fiscal year unless they are received before the end of the lapse accounting processing period. Corporate Payroll recommends that the business unit redistribute the payment to another unrestricted cost center to ensure proper credit when the individual repays the overpayment. 

Overpayments that Span Calendar Years

The Internal Revenue Service (IRS) has defined the calendar year (January 1 through December 31) as the reporting period for which salary and wage payments are reported on Form W-2. The IRS has defined the method of constructive receipt to determine which calendar year a payment is reported in. If salary and wage payments are available to employees at any time during the calendar year, the payments are considered paid in that year and reportable on Form W-2 for that calendar year. If a repaid amount is received in a subsequent year, Corporate Payroll cannot adjust the wages on a W-2 for the year in which the payment was received. See Publication 15  for more information on Wage Repayments.

Duke University may only adjust the Medicare and or Social Security taxes, if applicable, for a prior calendar year by issuing Form W-2C, Corrected Wage and Tax Statement. Because the employee received and had use of the funds during that tax year, wages paid in error in a prior year remain taxable to the employee for the year in which they were received.

To recover income tax on repaid wages, the employee is entitled to either take a deduction or credit, depending on the amount repaid, on their income tax return in the year the employee repaid the wages. The employee should not file an amended tax return. Corporate Payroll will issue a Tax Letter or Statement of Receipt of funds indicating the amount repaid from an overpayment in a previous year. The individual can offset income on his/her tax return in the year in which the repayment was made. The Statement of Receipt can be used to determine the amount to offset. If an employee is inactive because they are on leave, lay-off, or have sporadic employment, the unit may notify Corporate Payroll of the expected return-to-work date to facilitate better collection results on subsequent pay periods. 

Upon full repayment, a corrected 1099 tax statement will be issued for the year the overpayment occurred for all non-compensatory payments, if applicable. 

Please notify Corporate Payroll immediately if you learn an overpaid individual has transferred or recently become active in a different unit/department/org.

Overpayments Involving Sponsored Projects (Grants)

If an overpayment involves a grant, Federal, special state appropriations, or any other fund that may change or close before recapture, the business unit should follow this process:

1. Transfer the overpaid amount off the grant to an unrestricted cost center by processing the below forms depending on the status of the employee.
   • Active Employee
     • Cost Distribution Change iForm
   • Terminated Employee
     • Manual Salary Cost Transfer paper form and submit it to overpayment.payroll@duke.edu
2. Complete the appropriate iForm to correct the overpayment. 
   • Use the comments section to provide a detailed explanation of the overpayment and the cost center to which Corporate Payroll should apply the credit.  

If the business unit submits the iForm to correct the overpayment before moving the funds off the Grant, the business unit should email overpayment.payroll@duke.edu after submitting the Cost Distribution Change iForm or Manual Salary Cost Transfer paper form.  Include detailed information in the email about the overpayment, including the name, DUID, and pay periods of the overpayment, so that Corporate Payroll has the information to appropriately apply credits when the individual returns the funds.