Options when overpaying employees

Objectives:

Learn what options are available to you if employees were overpaid via direct deposit.

What's in this article?

Directions for how to rectify a situation where employees have been overpaid by direct deposit.

Example scenario: Transactions processed through payroll have been submitted on a bank file and the banking instructions have already been sent to all relevant banks (yours, AllianceHCM's, and your employees').

Funds will be deposited to each employee at the latest by the payroll check date, and AllianceHCM has no ability to stop those transactions. Some banks will elect to post the "credits" (e.g. direct deposits) earlier than the effective date of the transactions (check date).

There are three options available to you:

💡Good to know: The employer is always responsible for complying with FLSA and other federal and state laws related to overpayment, minimum wage, etc.

Option 1 (Preferred): Collect on future payrolls by setting up deductions for each overpaid employee

Deductions can be created that will offset active designated employees’ future wages against a “goal” amount. In AllPay, open the Employees menu and choose the Deductions section.

Example scenario: If an employer overpaid Employee ABC by $500 and wants to collect this back via future payrolls, a $500 deduction goal would be set up with a rate of $500 and an appropriate start date. On Employee ABC's future payrolls, and maximum of $500 will be deducted from their payrolls until this $500 goal is satisfied. After the deductions are set up, the employer will prepare payroll normally, check the pre-process register to verify the deductions are working properly, and then submit payroll. On the check date, the deducted fees will not be paid out to Employee ABC, but will instead remain in the employer's bank account.

Additionally, the incorrect payroll run will likely need to be "reversed" or "backed out" so that year-to-date wages are corrected for W-2s and reporting.

Many employers prefer this option because:

• Employees may have spent the overpaid funds.
• Managers don't want to deal with multiple non-sufficient funds (NSF) returns and any resulting fees from returns.
• This option can be less disruptive for employees and managers.

If you need help setting up these deductions, please contact your dedicated customer service representative.

Option 2: Run an additional payroll that voids the previously submitted transactions

Submitting void transactions will attempt to pull back the overpaid funds from your employees' accounts (that are on file) on the check date of the new payroll run. Depending on how your employees' banks handle transaction timing, those funds could end up being drafted before the new payroll check date, but the timing is uncertain because it is out of the control of AllianceHCM.

Important note: While AllianceHCM can submit drafts on employee bank accounts, there is no guarantee that AllianceHCM will be successful in retrieving the overpaid funds. Each financial institution is unique in the way they choose to handle deposits, debits, and voids, and employees may ultimately reject the draft attempts.

Example scenario 1: There are pay cards that automatically reject these transactions or give pay card holders the ability to decline drafts. This means the overpaid employee would need to return the additional funds another way (cash, deductions on future payrolls, etc.)

Example scenario 2: Your employees may receive deposits in advance of the original check date where they were overpaid and may spend those extra funds. If AllianceHCM attempts to draft their accounts, those overpaid funds may not be there and the drafts will return with a non-sufficient funds (NSF) return code. This means the overpaid employee would need to return the additional funds another way (cash, check, deductions on future payrolls, etc.).

Voiding transactions in this manner may result in a credit (deposit) into your employer bank account for the total of the voided transactions. In most cases, AllianceHCM will not process this credit for your employer account until we have confirmed collection of certain funds (none, some, or all). That typically takes approximately five business days after check date.

However, if the employer account does receive a credit to your bank account, it does not necessarily mean AllianceHCM was successful in collecting overpaid funds from your employees. If AllianceHCM ends up being unsuccessful in collecting funds, and AllianceHCM has already issued the full credit to the employer bank account, then the employer will be responsible for both paying AllianceHCM the uncollected balances and collecting remaining balances from those employees.

Note: ACH return fees will still apply where transactions return.

Option 3: Collect from employees directly (not through payroll) and adjust their year-to-date wages in AllPay so Form W-2s will be correct for the year

Please contact your dedicated customer service representative if you decide to go with this option.