Overpayments

Overpayments

An overpayment occurs when an employee is paid for hours that they did not work or were paid at an incorrect rate. As a state agency, the University of Washington is required by law to recover these overpaid funds. A series of state and federal regulations govern the overpayment process. To comply with these regulations, an employee is required to notify their department immediately if they discover an overpayment on their paycheck. Departments should review their Online Check Registers the day after the Final Payroll Cutoff to ensure that no employees have been overpaid.

When an overpayment is identified, there are two different processes: Active Employees and Separated Employees

Process

Active Employees

Separated Employees

  • Complete the overpayment worksheet for salary or hourly  (Instructions)
  • Complete the Notification of Payroll Overpayment for Active Employees
  • Send the employee the Notification of Payroll Overpayment and the worksheet. There are two acceptable methods to notify the employee.  Note:  Proof of delivery is required.
    • In person.  Proof of delivery must be one of the following:
    • Certified Mail.  Proof of delivery will be a copy of the receipt (green card)
  • Discuss and/or clarify the overpayment with the employee if needed
  • Send the Payroll Office at overpay@uw.edu  the following:
    • Notification of Payroll Overpayment
    • Worksheet
    • Proof of delivery which is one of the following:
      • Signed Notification Letter
      • Signed Acknowledgement Letter
      • Copy of the Certified mail receipt (green card)
  • If the employee has not responded or signed the appropriate paperwork within 20 days, forward the Notification of Payroll Overpayment, the Worksheet and Proof of delivery to the Payroll Office for further recovery efforts.

 

  • Submit the following to the Payroll Office at overpay@uw.edu:
    • Completed overpayment worksheet (as an Excel file)
    • Completed Notification of Payroll Overpayment for Separated Employees
    • Employee Separation Payment Authorization (if applicable)
    • The signed Separated Employee Deduction Authorization (if applicable)
  • Separated employees must repay a net amount and the net overpayment calculations must be prepared by the Payroll Office. Some of the deductions and reductions unrecoverable by federal regulations and other guidelines and each overpaid pay period require individual analysis. The net calculation worksheet(s) will be sent to the department.
  • Mail the employee the net calculation worksheet(s) and Notification of Payroll Overpayment for Separated Employees within two business days after receiving the net calculation via Certified mail.
  • Email the Payroll Office at overpay@uw.edu the following:
    • Proof of delivery which is one of the following:
      • Signed Notification Letter
      • Signed Acknowledgement Letter
      • Copy of the Certified mail receipt (green card).  With this option include the Employee Name, EID and Overpayment Amount in the email.
  • The separated employee sends their repayment checks to the Payroll Office. Once the entire repayment has been made, the Payroll Office will make the necessary entries back into the payroll system to recover the reduction, deduction and contribution balances and to credit back the gross overpayment to the budget.
  • If the overpayment has crossed tax years, then the transaction will be reviewed to determine if a corrected W-2 form is needed. Under IRS regulations, an employee can claim a credit on their personal tax return in the year the overpayment has been repaid. IRS Publication 525 gives further tax guidance on how to handle repayments.
  • If the department receives notification of dispute you must contact the Payroll Office immediately.  This will avoid sending this account to collections while the overpayment is being disputed.

 

Repayment Options

Active Employees

Separated Employees

Active Employees have three repayment options to choose from.

  • Total Gross One-Time Repayment
  • Installment Deductions
  • Use of Annual Leave Hours

Employees who have separated from the University or are on a long-term leave of absence must repay with a check.

Option 1-Total Gross

  • The total gross repayment option is a one-time deduction of the gross overpayment from the employee’s wages. Once the overpayment is deducted, the computer system will automatically recalculate taxes, reductions and deductions. The deductions and reductions will be recovered from the federal, state and outside agencies, to restore the balances.

 

Option 2-Installment Deductions

  • An installment payment plan is a repayment plan spread over multiple pay periods until the overpayment is fully repaid. The minimum payment is $50.00 or 10% of the overpayment amount whichever is greater.  Payments the employee receive for any overtime, standby, callback, retroactive pay, etc. may also be deducted up to the remaining unpaid debt balance. 
  • Example: an overpayment of $750.00 would have a minimum payment of $75.00 for 10 pay periods.
  • Each pay period, the Payroll System will automatically recalculate taxes, reductions and deductions. The deductions and reductions will be recovered from the federal, state and outside agencies, to restore the balances in proportion to the payment made. At the end of the entire repayment process, all balances will have been restored.
  • In the event  the employee leaves the University of Washington, the overpayment balance to be deducted from the final payroll payment or leave cash out.  Department must notify to Payroll if employee has an overpayment before final payment. 

 

Option 3-Annual Leave

  • The employee can apply their current vacation and/or compensatory leave hours against their overpayment. This type of repayment will reflect in the employee's leave balances only, not in the payroll system. Sick leave hours cannot be used to repay an overpayment.
  • Future accruals cannot be applied against a current overpayment.
  • A copy of the employee’s OWLS/time & leave record showing the credit taken from the balance is required for documentation before the overpayment can be considered paid in full.
  • The hours to be deducted from the annual leave are calculated based on the hourly rate (monthly salary/173.33) if the overpayment involves one of the following:
    • Multiple pay periods
    • Incorrect salary rate
    • Overtime, Straight time, Holiday Comp Time, etc,
    • Example:  3500 (monthly salary)/173.33=20.19 (hourly rate)
  • If the overpayment involves just one pay period, the hours to be deducted from the annual leave hours would be equal to the overpaid hours.

 

Appeals Process

Active Employees

Separated Employees

  • Do not send the Payroll Office any paperwork until the appeals process is complete.
  • Please see the Appeals Process below for instructions.
  • If the employee appeals, notify the Payroll Office immediately so that the collection efforts are not started prematurely.
  • Please see the Appeals Process below for instructions.

 

Appeals Process

  • Requests for appeals must be submitted in writing to the department within 20 days of the overpayment notification.
  • Department has 20 days from the date the appeal was received to resolve the issue.
  • The decision must be in writing and sent to the home address of the employee by certified mail, return receipt requested.
  • If the employee is unsatisfied with the decision, they can request an adjudicative proceeding within 28 calendar days of receipt of the department decision.  Adjudicative proceedings will be conducted by HR.  
  • If the employee has not responded within 28 calendar days to the resolution decision then the employee defaults and must pay back the amount of the overpayment determined by the department.
  • Contract Classified staff must use the grievance procedures contained in their collective bargaining agreement to request an adjudication meeting.

Collections Process

  • When an employee has not responded or signed the appropriate paperwork within 20 days, the department should forward the following to the Payroll Office.
    • Notification of Payroll Overpayment
    • Worksheet
    • Proof of Delivery
  • Payroll will send out a Pre-Collection letter to all employees that have not made payments.
  • If response is not received, overpayments will be referred to an outside collections agency.
  • Overpayments are placed for collection will be charged a 35% collection fee (commission) by the collection agency in addition to the overpayment amount due.
  • Once the overpayment has been turned over to the collection agency, the Payroll Office will no longer accept direct payments from the employee. The employee will need to communicate solely with the collection agency.

Rules and Regulations

IRS Publication 525 has information regarding salary overpayments and prior tax year.

Click a link below for the relevant section from the Revised Code of Washington.

R.C.W. 49.48.200

R.C.W. 49.48.210

Prevention

The most common cause of overpayments is late reporting of Leave without Pay (LWO) earnings by the employee to their department supervisor and/or payroll coordinator.

If an overpayment is discovered two working days prior to the payday, it may be possible to reverse the employee’s direct deposit. The employee must give permission by noon two days following cutoff to stop the direct deposit for that payday. If the deadline is met and the funds can be returned to the University, a replacement check will be prepared for payday.