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.

Begin the Process

  • Identify the overpayment
  • Fill out the worksheet
  • Send the employee the Notice letter, Worksheet & Overpayment Repayment Option form
  • Discuss and/or clarify the overpayment with the employee
  • Send the signed forms and the worksheet to the Payroll Office
    • To guarantee processing, all payroll related forms and requests must be received no later than 1:00 pm, 6 business days before payday.   Any paperwork received after this deadline will be processed only if time is available.  Otherwise, it will be processed for the following payday.
  • If the employee has not responded or signed the appropriate paperwork within 20 days, forward the Notice Letter, Overpayment Repayment Option form and the Worksheet to the Payroll Office for further recovery efforts.  Note:  Overpayments less than $20.00 will not be pursued and will be sent back to the department.

All questions about the cause or amount of the overpayment will be referred to the department.

Repayment Options for Active Employees

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

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 (a maximum of 12 pay periods). This plan requires a minimum $50.00 payment or 1/12th of the gross overpayment; WHICHEVER is larger. As long as the employee meets the $50.00 minimum, they can choose a shorter repayment period.

For example: an employee is overpaid by 44 hours or $750.00. The installment amount chosen is 1/12, or $62.50 per pay period.

Each pay period, 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 in proportion to the payment made. At the end of the entire repayment process, all balances will have been restored.

Option 3-Annual Leave

  • The employee can choose to repay their overpayment by applying 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 can not 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.

Separated Employees

Employees who have separated from the University or on a long-term leave of absence must repay with a check.
  • Identify the overpayment
  • Send the employee the notice letter
  • Fill out the worksheet and submit to Payroll Office (as an Excel file) requesting a net calculation
  • Net calculations must be prepared by the Payroll Office. DO NOT attempt to calculate the amount due back. Federal regulations and other guidelines make some of the deductions and reductions unrecoverable. Each overpaid pay period requires individual analysis. This calculation process takes time. Allow 2-4 weeks for processing. The Payroll Coordinator will be notified when the calculation is complete.
  • Forward the completed calculation and Repayment Option form to the separated employee.
  • 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.

Collection Agency Accounts

When an employee does not sign the Option Form, the department will turn the overpayment over to the Payroll Office to follow up for collection.  Note:  Overpayments less than $20.00 will not be pursued and will be sent back to the department.
 
The overpaid employee will be sent a pre-collection letter from the Payroll Office via certified mail.  If all prior attempts to secure payment arrangements have failed, the overpayment will be placed with an outside collection agency. Employees placed for collection are charged a 17% 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 before payday. The employee must give permission 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.